Amazon.com 2008 Annual Report Download - page 29

and 435 million at December 31, 2008 and 2007. These amounts exclude shares issuable upon conversion of our
long-term debt. In 2008 and 2007, we repurchased 2.2 million shares and 6.3 million shares of our common stock
under repurchase programs 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 content provider 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 12, 13, and 13 for 2008, 2007, and 2006. 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 62, 57, and 53 for 2008, 2007 and 2006. 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.
We expect spending in technology and content will increase over time as we add computer scientists,
software engineers, and employees involved in category expansion, editorial content, buying, merchandising
selection, and systems support. We seek to efficiently 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 consumer 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
consumer experience on the Internet and increase its ubiquity in people’s lives. We are investing in Amazon Web
Services, which provides technology services that give developers access to technology infrastructure that they
can use to enable virtually any type of business. A continuing 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
higher than if currencies had remained constant. Likewise, if the U.S. Dollar strengthens year-over-year relative
to currencies in our international locations, our consolidated net sales, gross profit, and operating expenses will
be lower than if currencies had remained constant. We believe that our increasing diversification beyond the U.S.
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 trailing-twelve-month 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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