Amazon.com 2012 Annual Report Download - page 25

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, the outcomes of legal proceedings and claims, fulfillment and data 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. In addition, the current global economic climate amplifies many
of these risks. 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.”
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The
products offered on our consumer-facing websites primarily include merchandise and content we have purchased
for resale from vendors and those offered by third-party sellers, and we also manufacture and sell Kindle devices.
Generally, we recognize gross revenue from items we sell from our inventory as product sales and recognize our
net share of revenue of items sold by other sellers as services sales. We also offer other services such as AWS,
fulfillment, publishing, digital content subscriptions, advertising, and co-branded credit cards.
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 capital2and capital
expenditures. Increases in operating income primarily result from increases in sales of products and services and
efficiently managing our operating costs, partially offset by investments we make in longer-term strategic
initiatives. To increase sales of products and services, we focus on improving all aspects of the customer
experience, including lowering prices, improving availability, offering faster delivery and performance times,
increasing selection, increasing product categories and service offerings, expanding product information,
improving ease of use, improving reliability, and earning customer trust. We also seek to efficiently manage
shareholder dilution while maintaining the flexibility to issue shares for strategic purposes, such as financings,
acquisitions, 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 measuring shareholder dilution, we include all vested and unvested stock awards outstanding,
without regard to estimated forfeitures. Total shares outstanding plus outstanding stock awards were 470 million
and 468 million at December 31, 2012 and 2011.
1Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less
purchases of property and equipment, 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.
2Working capital consists of accounts receivable, inventory, and accounts payable.
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