Amazon.com 2011 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...how AWS helps with the critical need to scale compute capacity quickly and reliably are not hypothetical: BandPage now helps 500,000 bands and artists connect with tens of millions of fans. "So, I started selling on Amazon in April of 2011, and by the time we became the top Amazon lunchbox seller in...

  • Page 3
    ... on behalf of sellers. When sellers use FBA, their items become eligible for Amazon Prime, for Super Saver Shipping, and for Amazon returns processing and customer service. FBA is self-service and comes with an easy-to-use inventory management console as part of Amazon Seller Central. For the more...

  • Page 4
    ... get paid royalties of 70%. The largest traditional publishers pay royalties of only 17.5% on ebooks (they pay 25% of 70% of the selling price which works out to be 17.5% of the selling price). The KDP royalty structure is completely transformative for authors. A typical selling price for a KDP book...

  • Page 5
    ... 1997 Annual Report) To our shareholders: Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive entry. But this is Day 1 for the Internet...

  • Page 6
    ... fields), and presented it in a useful, easyto-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-ClickSM...

  • Page 7
    ..., we worked hard to expand our business infrastructure to support these greatly increased traffic, sales, and service levels Amazon.com's employee base grew from 158 to 614, and we significantly strengthened our management team. Distribution center capacity grew from 50,000 to 285,000 square feet...

  • Page 8
    ... the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ' No È Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2011 ...$ 74,662,887,792 Number of shares of common stock outstanding as of January 19, 2012 ...455,068,465...

  • Page 9
    ...and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters ...Certain Relationships and Related Transactions ...Principal Accountant Fees and Services ...PART IV Exhibits, Financial Statement Schedules ...74 76...

  • Page 10
    ..., but instead earn fixed fees, revenue share fees, per-unit activity fees, or some combination thereof. Enterprises We serve developers and enterprises of all sizes through Amazon Web Services ("AWS"), which provides access to technology infrastructure that enables virtually any type of business. 2

  • Page 11
    ... a number of indirect competitors, including media companies, web portals, comparison shopping websites, and web search engines, either directly or in collaboration with other retailers; (4) companies that provide e-commerce services, including website development, fulfillment, and customer service...

  • Page 12
    ... our Code of Business Conduct and Ethics), and select press releases and social media postings. Executive Officers and Directors The following tables set forth certain information regarding our Executive Officers and Directors as of January 19, 2012: Executive Officers Name Age Position Jeffrey...

  • Page 13
    ... enter into business combinations or alliances and established companies in other market segments expand into our market segments. In addition, new and enhanced technologies, including search, web services, and digital, may increase our competition. The Internet facilitates competitive entry and...

  • Page 14
    ...sales to existing customers, attract new customers, and satisfy our customers' demands; our ability to retain and expand our network of sellers; our ability to offer products on favorable terms, manage inventory, and fulfill orders; the introduction of competitive websites, products, services, price...

  • Page 15
    ... technology infrastructure; shorter payable and longer receivable cycles and the resultant negative impact on cash flow; laws and regulations regarding consumer and data protection, privacy, network security, encryption, and restrictions on pricing or discounts; lower levels of use of the Internet...

  • Page 16
    ... either drop-ship or otherwise fulfill an increasing portion of our customers' orders, and we are increasingly reliant on the reliability, quality and future procurement of their services. Under some of our commercial agreements, we maintain the inventory of other companies, thereby increasing...

  • Page 17
    ..., cash equivalents, and marketable securities balances. Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements, Strategic Alliances, and Other Business Relationships We provide e-commerce services to other businesses through our seller programs...

  • Page 18
    ... offerings and unanticipated expenses related to such integration; the difficulty of integrating a new company's accounting, financial reporting, management, information and information security, human resource and other administrative systems to permit effective management, and the lack of control...

  • Page 19
    ..., and patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers, and others to protect our proprietary rights. Effective intellectual property protection may not be available in every country in which our products and services are made available...

  • Page 20
    ... e-commerce or technology companies; and transactions in our common stock by major investors and certain analyst reports, news, and speculation. Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our cash compensation to employees...

  • Page 21
    ... the related tax benefit, by changes in foreign currency exchange rates, by entry into new businesses and geographies and changes to our existing businesses, by acquisitions, by changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting and...

  • Page 22
    ...vendors and sellers do not indemnify us from product liability. We Are Subject to Payments-Related Risks We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift certificates, direct debit from a customer's bank account...

  • Page 23
    ...253 International North America From 2012 through 2026 From 2012 through 2021 From 2012 through 2026 From 2012 through 2025 We lease our corporate headquarters in Seattle, Washington. Additionally, we lease corporate office, fulfillment and warehouse operations, data center, customer service, and...

  • Page 24
    ... forth information regarding our purchases of our common stock during Q4 2011 (in millions, except Average Price Paid Per Share data): Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares that May Yet be Repurchased Under the Program Total Number...

  • Page 25
    ...Supplementary Data-Note 1-Description of Business and Accounting Policies." (2) Free 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...

  • Page 26
    ...revenue of items sold by other sellers as services sales. We also offer other services such as AWS, fulfillment, publishing, digital content subscriptions, miscellaneous marketing and promotional agreements, such as online advertising, and co-branded credit cards. Our financial focus is on long-term...

  • Page 27
    ... customer service support, and a portion of our marketing costs. Our fixed costs include the costs necessary to run our technology infrastructure and AWS; to build, enhance, and add features to our websites, our Kindle devices, and digital offerings; and to build and optimize our fulfillment centers...

  • Page 28
    ... carrying value of our goodwill. Financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate and through our stock price that we use to determine our market capitalization. During times of...

  • Page 29
    ... the related tax benefit, by changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions, by changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting and other...

  • Page 30
    ...seller, and enterprise customers, miscellaneous marketing and promotional agreements, and our co-branded credit card agreements, offset by cash payments we make for products and services, employee compensation (less amounts capitalized related to internal use software that are reflected as cash used...

  • Page 31
    ... for internal-use software and website development during 2011, 2010, and 2009. Stock-based compensation capitalized for internal-use software and website development costs does not affect cash flows. In 2011, 2010, and 2009, we made cash payments, net of acquired cash, related to acquisition and...

  • Page 32
    ... largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by a larger base of sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product...

  • Page 33
    ... by third-party sellers where we do not provide the fulfillment service. (2) Includes a portion of amounts earned from Amazon Prime memberships. We expect our net cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate; to the...

  • Page 34
    ... of exchange rates International Media ...Electronics and other general merchandise ...Other ...Total International ...Consolidated Media ...Electronics and other general merchandise ...Other ...Total consolidated ...Consolidated Net Sales Mix: Media ...Electronics and other general merchandise...

  • Page 35
    ... of Business and Accounting Policies-Stock-Based Compensation." Cost of Sales Cost of sales consists of the purchase price of consumer products and digital content where we are the seller of record, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products...

  • Page 36
    ... to increased spending on online marketing channels, such as sponsored search programs and our Associates program, payroll and related expenses, and in 2011 and 2010 television and print advertising. While costs associated with Amazon Prime memberships and other shipping offers are not included in...

  • Page 37
    ... technology costs used to support AWS are included in technology and content. General and Administrative The increase in general and administrative costs in absolute dollars in 2011, 2010, and 2009 compared to the comparable prior year periods is primarily due to increases in payroll and related...

  • Page 38
    ... operating expenses with and without stock-based compensation, and the effect of exchange rates on our consolidated statement of operations, meet the definition of non-GAAP financial measures. Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP and...

  • Page 39
    ...did not pay out a portion of our compensation in the form of stock-based compensation, our cash salary expense included in the "Fulfillment," "Technology and content," "Marketing," and "General and administrative" line items would be higher. Information regarding the effect of exchange rates, versus...

  • Page 40
    ... in interest rates relates primarily to our investment portfolio. All of our cash equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly, are presented at fair value on our consolidated balance sheets. We generally invest our excess cash in investment...

  • Page 41
    Foreign Exchange Risk During 2011, net sales from our International segment accounted for 44% of our consolidated revenues. Net sales and related expenses generated from our international websites, as well as those relating to www.amazon.ca (which is included in our North America segment), are ...

  • Page 42
    ... Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Ernst & Young LLP, Independent Registered Public Accounting Firm ...Consolidated Statements of Cash Flows ...Consolidated Statements of Operations ...Consolidated Balance Sheets ...Consolidated Statements of Stockholders...

  • Page 43
    ...a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Amazon.com, Inc.'s internal control over financial reporting as of December 31, 2011, based on...

  • Page 44
    ...) (79) (15) Deferred income taxes ...136 4 81 Excess tax benefits from stock-based compensation ...(62) (259) (105) Changes in operating assets and liabilities: Inventories ...(1,777) (1,019) (531) Accounts receivable, net and other ...(866) (295) (481) Accounts payable ...2,997 2,373 1,859 Accrued...

  • Page 45
    AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) Year Ended December 31, 2011 2010 2009 Net product sales ...Net services sales ...Total net sales ...Operating expenses (1): Cost of sales ...Fulfillment ...Marketing ...Technology and content ...General and...

  • Page 46
    AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2011 2010 ASSETS Current assets: Cash and cash equivalents ...Marketable securities ...Inventories ...Accounts receivable, net and other ...Deferred tax assets ...Total current assets ...Fixed assets, net...

  • Page 47
    AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in millions) Common Stock Treasury Shares Amount Stock Accumulated Retained Additional Other Earnings Total Paid-In Comprehensive (Accumulated Stockholders' Capital Income (Loss) Deficit) Equity Balance at December 31, 2008 ...Net ...

  • Page 48
    ..., incentive discount offers, sales returns, vendor funding, stock-based compensation, income taxes, valuation of investments and inventory, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives of fixed assets , and internally-developed software, and...

  • Page 49
    ... $35 million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized amounts was $236 million, $184 million, and $172 million for 2011, 2010, and 2009. Depreciation of Fixed Assets Fixed assets include assets such as...

  • Page 50
    ... through December 31, 2011 that would require an update to our annual impairment test. See "Note 4-Acquisitions, Goodwill, and Acquired Intangible Assets." Other Assets Included in "Other assets" on our consolidated balance sheets are amounts primarily related to marketable securities restricted for...

  • Page 51
    ... we do not have the ability to exercise significant influence are accounted for using the cost method of accounting and classified as "Other assets" on our consolidated balance sheets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in...

  • Page 52
    ... interest and penalties related to our tax contingencies in income tax expense. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement...

  • Page 53
    ... using a fixed percentage, a fixed-payment schedule, or a combination of the two. Product sales represent revenue from the sale of products and related shipping fees and digital content where we are the seller of record. Product sales and shipping revenues, net of promotional discounts, rebates...

  • Page 54
    ... supporting AWS. Technology and content costs are expensed as incurred, except for certain costs relating to the development of internal-use software and website development, including software used to upgrade and enhance our websites and applications supporting our business, which are capitalized...

  • Page 55
    ... costs. Stock-Based Compensation Compensation cost for all stock-based awards expected to vest is measured at fair value on the date of grant and recognized over the service period. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price...

  • Page 56
    ... type, our assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions): Cost or Amortized Cost December 31, 2011 Gross Gross Unrealized Unrealized Gains Losses Total Estimated Fair Value Cash ...Level 1 securities: Money market...

  • Page 57
    ..., cash equivalents, and marketable securities as collateral for standby letters of credit, guarantees, debt, and real estate lease agreements. We classify cash and marketable securities with use restrictions of twelve months or longer as non-current "Other assets" on our consolidated balance sheets...

  • Page 58
    ...FIXED ASSETS Fixed assets, at cost, consisted of the following (in millions): December 31, 2011 2010 Gross Fixed Assets (1): Fulfillment and customer service ...Technology infrastructure ...Internal-use software, content, and website development ...Other corporate assets ...Construction in progress...

  • Page 59
    ... paid, net of cash acquired ...Existing equity interest ...Indemnification holdbacks ...Stock options assumed ...Allocation Goodwill ...Intangible assets (1): Marketing-related ...Customer-related ...Contract-based ...Fixed assets ...Deferred tax assets ...Other assets acquired ...Accounts payable...

  • Page 60
    ... primarily by using the income and cost approaches. These intangible assets are being amortized on a straight-line or accelerated basis over their respective useful lives. The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. Pro...

  • Page 61
    ... of the Zappos purchase price (in millions): Goodwill ...Other net assets acquired ...Deferred tax liabilities net ...Intangible assets (1): Marketing-related ...Contract-based ...Customer-related ...$ 778 83 (167) 223 103 114 $1,134 (1) Acquired intangible assets have estimated useful lives of...

  • Page 62
    ...Assets Acquired intangible assets, included within "Other assets" on our consolidated balance sheets, consist of the following: December 31, 2010 Weighted Acquired Acquired Acquired Acquired... 2011 Marketing-related ...Contract-based ...Technology and content ...Customer-related ...Acquired ...

  • Page 63
    ... 31, 2011 Balance Sheet: Current assets ...Noncurrent assets ...Current liabilities ...Noncurrent liabilities ...Mandatorily redeemable stock ... $156 285 225 21 199 As of December 31, 2011, the book value of our LivingSocial investment was $208 million. The summarized financial information is...

  • Page 64
    ... fixed assets, primarily related to technology infrastructure, have been acquired under capital leases. Long-term capital lease obligations are as follows: December 31, 2011 (in millions) Gross capital lease obligations ...Less imputed interest ...Present value of net minimum lease payments...

  • Page 65
    ... classify cash and marketable securities with use restrictions of twelve months or longer as non-current "Other assets" on our consolidated balance sheets. Inventory Suppliers During 2011, no vendor accounted for 10% or more of our inventory purchases. We generally do not have long-term contracts or...

  • Page 66
    ... on blank digital media sold by our EU-based retail websites to customers located in Austria. In July 2008, the German court stayed the German case pending a final decision in the Austrian case. In July 2010, the Austrian court ruled in favor of Austro-Mechana and ordered us to report all sales of...

  • Page 67
    ... Court for the Eastern District of Texas. The complaint alleges, among other things, that our website technology infringes a patent owned by Site Update purporting to cover a "Process for Maintaining Ongoing Registration for Pages on a Given Search Engine" (U.S. Patent No. RE40,683) and seeks...

  • Page 68
    ...to cover a "Method and system for executing a guided parametric search" (U.S. Patent No. 6,275,821) and seeks monetary damages, costs, attorneys' fees, and injunctive relief. In August 2011, Kelora filed an amended complaint adding Amazon subsidiaries Audible and Zappos as defendants. We dispute the...

  • Page 69
    ... fees. In August 2011, the plaintiff filed an additional complaint against us in the United States District Court for the Eastern District of Texas alleging, among other things, that certain supply chain, sales, marketing, and inventory systems and methods used by Amazon and Zappos infringe a patent...

  • Page 70
    other things, that by offering products including our Kindle e-reader that employ receiver technology designed to diminish signal leakage Amazon infringes two patents owned by the plaintiff purporting to cover a "Receiver Comprising A Digitally Controlled Capacitor Bank" (U.S. Patent No. 7,299,018) ...

  • Page 71
    ... and the timing, an unfavorable resolution of this matter could materially affect our business, results of operations, financial position, or cash flows. See also "Note 10-Income Taxes." Note 8-STOCKHOLDERS' EQUITY Preferred Stock We have authorized 500 million shares of $0.01 par value Preferred...

  • Page 72
    ... 31, 2012 2013 2014 2015 2016 Thereafter Total Scheduled vesting-restricted stock units ... 4.4 4.2 2.6 1.4 0.3 0.2 13.1 As of December 31, 2011, there was $842 million of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is...

  • Page 73
    .... A majority of this provision is non-cash. We have tax benefits relating to excess stock-based compensation that are being utilized to reduce our U.S. taxable income. As such, cash taxes paid, net of refunds, were $33 million, $75 million, and $48 million for 2011, 2010, and 2009. The components of...

  • Page 74
    ... recorded for income taxes are as follows: Year Ended December 31, 2011 2010 2009 Federal statutory rate ...Effect of: Impact of foreign tax differential ...State taxes, net of federal benefits ...Tax credits ...Nondeductible stock-based compensation ...Other, net ...Total ... 35.0% 35.0% 35...

  • Page 75
    ... The company's consolidated balance sheet reflects net operating losses and tax credit carryforwards excluding amounts resulting from excess stock-based compensation. Accordingly, such losses and credits from excess stock-based compensation are accounted for as a credit to additional paid-in capital...

  • Page 76
    ... will receive additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings in years through 2011. The...

  • Page 77
    ... internationally based locations (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from our U.S. and Canadian locations. Information on reportable segments and reconciliation to consolidated net income is as follows: Year Ended December 31, 2011...

  • Page 78
    ... Media ...Electronics and other general merchandise ...Other (1) ...Total consolidated ... $17,779 28,712 1,586 $48,077 $14,888 18,363 953 $34,204 $12,774 11,082 653 $24,509 (1) Includes non-retail activities, such as AWS, miscellaneous marketing and promotional activities, other seller sites...

  • Page 79
    ...millions, except per share data): Year Ended December 31, 2011 (1) Fourth Third Second First Quarter Quarter Quarter Quarter Net sales ...Income before income taxes ...Provision for income taxes ...Net income ...Basic earnings per share ...Diluted earnings per share ...Shares used in computation of...

  • Page 80
    ...as of December 31, 2011, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Ernst...

  • Page 81
    ... material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Amazon.com, Inc. as...

  • Page 82
    ...14. Principal Accountant Fees and Services Information required by Item 14 of Part III is included in our Proxy Statement relating our 2012 Annual Meeting of Shareholders and is incorporated herein by reference. PART IV Item 15. Exhibits, Financial Statement Schedules (a) List of Documents Filed as...

  • Page 83
    ... 31, 2011 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (2) Index to Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because the required information is...

  • Page 84
    ...thereunto duly authorized, as of January 31, 2012. AMAZON.COM, INC. By: /S/ JEFFREY P. BEZOS Jeffrey P. Bezos President, Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons...

  • Page 85
    AMAZON.COM, INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Period Charged to Amounts Costs and Written Expense Off (in millions) Balance at End of Period Allowance for doubtful accounts December 31, 2011 ...December 31, 2010 ...December 31, 2009 ...Allowance for sales ...

  • Page 86
    ...of Restricted Stock Agreement (incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 2001). Computation of Ratio of Earnings to Fixed Charges. List of Significant Subsidiaries. Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm...

  • Page 87
    ... Total Return Year Ended December 31, Legend Amazon.com, Inc. Morgan Stanley Technology Index S&P 500 Index S&P 500 Retailing Index 2006 $100 100 100 100 2007 $235 110 105 83 2008 $130 60 66 57 2009 $341 102 84 86 2010 $456 117 97 108 2011 $439 104 99 113 Note: Stock price performance...

  • Page 88
    amazon.com amazon.co.jp amazon.co.uk amazon.ca amazon.de a m a z o n . it amazon.fr a m a zo n . es amazon.cn