Amazon.com 2015 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... these two businesses. Under the surface, the two are not so different after all. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. I'm talking about customer obsession rather than competitor obsession, eagerness to...

  • Page 3
    ... time, a small team built a customer-facing app, secured a location for an urban warehouse, determined which 25,000 items to sell, got those items stocked, recruited and on-boarded new staff, tested, iterated, designed new software for internal use - both a warehouse management system and a driver...

  • Page 4
    ... Tower Paddle Boards, is one beneficiary. His business has become one of the fastestgrowing companies in San Diego, in part with a little help from Amazon Lending. Click-to-cash access to capital helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since...

  • Page 5
    ... is 1/10th the price of the traditional, commercial-grade database engines. This has struck a resonant chord with customers, and Aurora is the fastest-growing service in the history of AWS. Nearly this same story could be told about Redshift, our managed data warehouse service, which is the second...

  • Page 6
    ... - you blink and it happens. One thing that's exciting about our current scale is that we can put our inventive culture to work on moving the needle on sustainability and social issues. Two years ago we set a long-term goal to use 100% renewable energy across our global AWS infrastructure. We've...

  • Page 7
    ... at which they return to work. Just as with our health care plan, these benefits are egalitarian - they're the same for our fulfillment center and customer service employees as they are for our most senior executives. Renewable energy, Frustration-Free Packaging, Career Choice, Leave Share, and Ramp...

  • Page 8
    ... 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 and, if we execute well, for Amazon.com. Today, online commerce saves customers money and precious time...

  • Page 9
    ... and capital management. At this stage, we choose to prioritize growth because we believe that scale is central to achieving the potential of our business model. We will continue to focus on hiring and retaining versatile and talented employees, and continue to weight their compensation to stock...

  • Page 10
    ... During 1997, 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...

  • Page 11
    ...(Address and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $.01 per share NASDAQ Global Select Market Securities...

  • Page 12
    ... About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors, Executive Officers, and Corporate Governance Executive Compensation Security Ownership of...

  • Page 13
    ... by us and by third parties across dozens of product categories. Customers access our websites directly and through our mobile websites and apps. We also manufacture and sell electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, and Echo. We strive to offer our customers the lowest...

  • Page 14
    ...the products we offer and sell to consumers and businesses; (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and all distribution channels; (3) web search engines, comparison shopping websites, social networks, web portals, and other online and app...

  • Page 15
    ... Vice President, Amazon Web Services Senior Vice President and Chief Financial Officer Senior Vice President, International Consumer Business Vice President, Worldwide Controller, and Principal Accounting Officer Senior Vice President, Consumer Business Senior Vice President, General Counsel, and...

  • Page 16
    ...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 17
    ...the mix of products and services we sell; variations in our level of merchandise and vendor returns; the extent to which we offer free shipping, continue to reduce prices worldwide, and provide additional benefits to our customers; the extent to which we invest in technology and content, fulfillment...

  • Page 18
    ... to reroute orders to third parties for drop-shipping. We and our co-sourcers may be unable to adequately staff our fulfillment network and customer service centers. If the other businesses on whose behalf we perform inventory fulfillment services deliver product to our fulfillment centers in excess...

  • Page 19
    ... include web services, fulfillment, customer service, inventory management, tax collection, payment processing, hardware, content, and third-party software, and engaging third parties to perform services. The amount of compensation we receive under certain of our commercial agreements is partially...

  • Page 20
    ...incorporating acquired technology and rights into our 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...

  • Page 21
    ... access to digital content. If the digital rights management technology that we use is compromised or otherwise malfunctions, we could be subject to claims, and content providers may be unwilling to include their content in our service. We Have a Rapidly Evolving Business Model and Our Stock Price...

  • Page 22
    ... of websites, the characteristics and quality of products and services, and the commercial operation of unmanned aircraft systems. It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content, and web...

  • Page 23
    ... data security systems are breached or compromised, we may be liable for card issuing banks' costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online...

  • Page 24
    ... customers to keep account balances with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance...

  • Page 25
    ...among the segments based on usage and primarily relate to facilities that hold our technology infrastructure. See Item 8 of Part II, "Financial Statements and Supplementary Data-Note 11-Segment Information." We own and lease our corporate headquarters in Seattle, Washington. Additionally, we own and...

  • Page 26
    ...II Item 5. Market for the Registrant's Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "AMZN." The following table sets forth the high and low per share sale prices...

  • Page 27
    ... II, "Financial Statements and Supplementary Data," and the information contained in Item 7 of Part II, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Historical results are not necessarily indicative of future results. Year Ended December 31, 2015 2014 2013...

  • Page 28
    ..., customer service support, costs necessary to run AWS, and a portion of our marketing costs. Our fixed costs include the costs necessary to run our technology infrastructure; to build, enhance, and add features to our websites and web services, our electronic devices, and digital offerings...

  • Page 29
    ... efficient software and electronic devices. We are also investing in AWS, which offers a broad set of global compute, storage, database, and other service offerings to developers and enterprises of all sizes. Our financial reporting currency is the U.S. Dollar and changes in foreign exchange rates...

  • Page 30
    ... reporting units as of April 1, 2015, would have had no impact on the carrying value of our goodwill. Financial and credit market volatility directly impacts the fair value measurement through our weighted-average cost of capital that we use to determine a discount rate and through our stock price...

  • Page 31
    ... effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. For instance, the IRS is seeking to increase our U.S. taxable income related to transfer pricing with our foreign subsidiaries for transactions...

  • Page 32
    ... received from our consumer, seller, developer, enterprise, and content creator customers, advertising 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...

  • Page 33
    ... is classified within "Accounts receivable, net and other" on our consolidated balance sheets. As of December 31, 2015 and 2014, restricted cash, cash equivalents, and marketable securities were $285 million and $450 million. See Item 8 of Part II, "Financial Statements and Supplementary Data-Note...

  • Page 34
    ... record revenue gross. Service sales represent third-party seller fees earned (including commissions) and related shipping fees, AWS sales, digital content subscriptions, advertising services, and our co-branded credit card agreements. Amazon Prime membership fees are allocated between product sales...

  • Page 35
    ... is primarily due to increased customer usage and cost structure productivity, partially offset by pricing changes and increased spending on technology infrastructure, which was primarily driven by additional investments to support the business growth. The decrease in AWS segment operating income in...

  • Page 36
    ... related to shipping services. (4) Includes sortation and delivery center costs. (5) Includes North America and International segment net sales. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, our product...

  • Page 37
    ... product or service represented more than 10% of net sales. Year Ended December 31, 2015 2014 2013 Net Sales: North America Media Electronics and other general merchandise Other (1) Total North America International Media Electronics and other general merchandise Other (1) Total International...

  • Page 38
    ... in 2014 was also impacted by the expansion of digital offerings and Fire phone inventory valuation and supplier commitment costs. Costs to operate our AWS segment are primarily classified as "Technology and content" as we leverage a shared infrastructure that supports both our internal technology...

  • Page 39
    ... activities including payroll and related expenses for employees involved in application, production, maintenance, operation, and platform development for new and existing products and services, as well as AWS and other technology infrastructure expenses. Content costs consist principally of payroll...

  • Page 40
    ... an increase in the number of stockbased compensation awards granted to existing and new employees. Other Operating Expense (Income), Net Other operating expense (income), net was $171 million, $133 million, and $114 million during 2015, 2014, and 2013, and was primarily related to the amortization...

  • Page 41
    ...define and prescribe the conditions for use of certain non-GAAP financial information. Our measures of free cash flows, operating expenses with and without stock-based compensation, and the effect of foreign exchange rates on our consolidated statements of operations, meet the definition of non-GAAP...

  • Page 42
    ... 31, 2015 2014 2013 Net cash provided by (used in) operating activities Purchases of property and equipment, including internal-use software and website development, net Principal repayments of capital lease obligations Principal repayments of finance lease obligations Free cash flow less lease...

  • Page 43
    ... cash salary expense included in the "Fulfillment," "Marketing," "Technology and content," and "General and administrative" line items would be higher. Effect of Foreign Exchange Rates Information regarding the effect of foreign exchange rates, versus the U.S. Dollar, on our consolidated statements...

  • Page 44
    ...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 grade short- to intermediateterm fixed income securities and AAA-rated money...

  • Page 45
    ... of increasing rates of interest. Based upon quoted market prices and Level 2 inputs, the fair value of our total debt was $8.8 billion as of December 31, 2015. Foreign Exchange Risk During 2015, net sales from our International segment accounted for 33% of our consolidated revenues. Net sales and...

  • Page 46
    ...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 Statements of Comprehensive Income (Loss) Consolidated Balance Sheets Consolidated Statements...

  • Page 47
    ... Accounting Oversight Board (United States), Amazon.com, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework...

  • Page 48
    ...cash from operating activities: Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs Stock-based compensation Other operating expense (income), net Losses (gains) on sales of marketable securities...

  • Page 49
    AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) Year Ended December 31, 2015 2014 2013 Net product sales Net service sales Total net sales Operating expenses (1): Cost of sales Fulfillment Marketing Technology and content General and administrative Other ...

  • Page 50
    AMAZON.COM, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) Year Ended December 31, 2015 2014 2013 Net income (loss) $ Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $10, $(3), and $(20) Net change in unrealized gains (losses) on...

  • Page 51
    AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in millions, except per share data) December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Total current assets Property and equipment, net Goodwill Other assets Total...

  • Page 52
    ... 31, 2014 Net income Other comprehensive income (loss) Exercise of common stock options Excess tax benefits from stock-based compensation Stock-based compensation and issuance of employee benefit plan stock Issuance of common stock for acquisition activity Balance as of December 31, 2015 454...

  • Page 53
    ...publish and sell content. We serve developers and enterprises of all sizes through our AWS segment, which provides access to technology infrastructure that enables virtually any type of business. In addition, we provide services, such as advertising services and co-branded credit card agreements. We...

  • Page 54
    ... to consumers. Service sales represent third-party seller fees earned (including commissions) and related shipping fees, AWS sales, digital content subscriptions, advertising services, and our co-branded credit card agreements. Service sales, net of promotional discounts and return allowances, are...

  • Page 55
    ... activities including payroll and related expenses for employees involved in application, production, maintenance, operation, and platform development for new and existing products and services, as well as AWS and other technology infrastructure expenses. Content costs consist principally of payroll...

  • Page 56
    ... We did not hold any cash, cash equivalents, or marketable securities categorized as Level 3 assets as of December 31, 2015, or December 31, 2014. As part of entering into commercial agreements, we often obtain equity warrant assets giving us the right to acquire stock primarily in private companies...

  • Page 57
    ... software. Costs related to design or maintenance of internal-use software and website development are expensed as incurred. For the years ended 2015, 2014, and 2013, we capitalized $642 million (including $114 million of stockbased compensation), $641 million (including $104 million of stock-based...

  • Page 58
    ... The production costs of internally developed content are capitalized only if persuasive evidence exists that the production will generate revenue. Prior to 2015, because we had limited history to support the economic benefits of our content, we generally expensed such costs as incurred. In 2015, we...

  • Page 59
    ...reported at the lower of cost or fair value less costs to sell. Assets held for sale were not significant as of December 31, 2015 or 2014. Accrued Expenses and Other Included in "Accrued expenses and other" on our consolidated balance sheets are liabilities primarily related to unredeemed gift cards...

  • Page 60
    Foreign Currency We have internationally-focused websites for Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, the Netherlands, Spain, and the United Kingdom. Net sales generated from these websites, as well as most of the related expenses directly incurred from those ...

  • Page 61
    ... certain jurisdictions. We classify cash, cash equivalents, and marketable securities with use restrictions of less than twelve months as "Accounts receivable, net and other" and of twelve months or longer as non-current "Other assets" on our consolidated balance sheets. See "Note 7-Commitments and...

  • Page 62
    ...): Year Ended December 31, 2015 2014 2013 Realized gains Realized losses $ 2 $ 7 8 $ 5 6 7 The following table summarizes the contractual maturities of our cash equivalents and marketable fixed-income securities as of December 31, 2015 (in millions): Amortized Cost Estimated Fair Value Due...

  • Page 63
    ... individually material to our consolidated financial statements, were to acquire technologies and know-how to enable Amazon to serve customers more effectively. Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these acquisitions was allocated...

  • Page 64
    ... was allocated as follows (in millions): Purchase Price Cash paid, net of cash acquired Stock options assumed Indemnification holdback Allocation Goodwill Intangible assets (1): Marketing-related Contract-based Technology-based Customer-related Property and equipment Deferred tax assets Other assets...

  • Page 65
    ...product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition. The following summarizes our goodwill activity in 2015 and 2014 by segment (in millions): North America International AWS Consolidated Goodwill - January 1, 2014...

  • Page 66
    ...2014 is payable semi-annually in arrears in June and December. Interest on the Notes issued in 2012 is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial...

  • Page 67
    ..., and data centers. Tax Contingencies We have recorded tax reserves for tax contingencies, inclusive of accrued interest and penalties, for U.S. and foreign income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See "Note...

  • Page 68
    ... International Sales, Inc., Amazon EU S.Ã r.l., Amazon.de GmbH, Amazon.com GmbH, and Amazon Logistik in the Commercial Court of Vienna, Austria and in the District Court of Munich, Germany seeking to collect a tariff on blank digital media sold by our EU-based retail websites to customers located...

  • Page 69
    ... blank digital media sold by the Amazon.de retail website to customers located in Germany. In January 2013, a Belgian copyright collection society, AUVIBEL, filed a complaint against Amazon EU S.Ã r.l. in the Court of First Instance of Brussels, Belgium, seeking to collect a tariff on blank digital...

  • Page 70
    ..., Kindle e-bookstore, Amazon's proprietary Android operating system, and the servers involved in operating Amazon Appstore, Amazon Instant Video, Amazon Music, the Fire TV app, Audible Audiobooks, Cloud Drive, Cloud Player, Amazon Web Services, and Amazon Mobile Ad Network infringe seven related...

  • Page 71
    ... complaint against Amazon.com, Inc., Amazon.com, LLC, Amazon Web Services, Inc., and Amazon Web Services, LLC for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges that Elastic Compute Cloud, Virtual Private Cloud, Elastic Load Balancing...

  • Page 72
    ..., as of December 31, 2015, 2014, and 2013. The compensation expense for stock options, the total intrinsic value for stock options outstanding, the amount of cash received from the exercise of stock options, and the related tax benefits were not material for 2015, 2014, and 2013. The following table...

  • Page 73
    ... Note 10-INCOME TAXES In 2015, 2014, and 2013, we recorded net tax provisions of $950 million, $167 million, and $161 million. We have tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are being utilized to reduce our U.S. taxable income...

  • Page 74
    ... millions): Year Ended December 31, 2015 2014 2013 Income taxes computed at the federal statutory rate Effect of: Impact of foreign tax differential State taxes, net of federal benefits Tax credits Nondeductible compensation Domestic production activities deduction Other, net Total $ 549 $ 350 37...

  • Page 75
    ...'s consolidated balance sheets reflect deferred tax assets related to net operating losses and tax credit carryforwards excluding amounts resulting from excess stock-based compensation. Amounts related to excess stock-based compensation are accounted for as an increase to additional paid-in capital...

  • Page 76
    ... 31, 2015, 2014, and 2013 was $18 million, $8 million, and $8 million. We are under examination, or may be subject to examination, by the Internal Revenue Service ("IRS") for the calendar year 2005 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to...

  • Page 77
    ... our reportable segments to North America, International, and AWS. These segments reflect the way the Company evaluates its business performance and manages its operations. We allocate to segment results the operating expenses "Fulfillment," "Marketing," "Technology and content," and "General and...

  • Page 78
    ..., 2015 2014 2013 Net Sales: Media Electronics and other general merchandise AWS Other (1) $ $ 22,509 $ 75,597 7,880 1,020 107,006 $ 22,505 $ 60,886 4,644 953 88,988 $ 21,716 48,802 3,108 826 74,452 _____ (1) Includes sales from non-retail activities, such as certain advertising services, and...

  • Page 79
    ... exclude corporate assets, such as cash and cash equivalents, marketable securities, other long-term investments, corporate facilities, goodwill and other acquired intangible assets, capitalized internal-use software and website development costs, and tax assets. Technology infrastructure assets...

  • Page 80
    ...in 2015, 2014, and 2013. Except for the U.S., property and equipment, net, in any single country was less than 10% of consolidated property and equipment, net. Depreciation expense, including amortization of capitalized internal-use software and website development costs and other corporate property...

  • Page 81
    ...(UNAUDITED) The following tables contain selected unaudited statement of operations information for each quarter of 2015 and 2014. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results...

  • Page 82
    ... in Rule 13a-15(f) of the 1934 Act. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway...

  • Page 83
    ...internal control over financial reporting as of December 31, 2015, 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 of December 31, 2015 and 2014...

  • Page 84
    ... by which security holders may recommend nominees to the Board of Directors is included in our Proxy Statement relating to our 2016 Annual Meeting of Shareholders, and is incorporated herein by reference. Information relating to our Code of Business Conduct and Ethics and to compliance with Section...

  • Page 85
    ... 31, 2015 Consolidated Balance Sheets as of December 31, 2015 and 2014 Consolidated Statements of Stockholders' Equity for each of the three years ended December 31, 2015 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (2) Index...

  • Page 86
    ..., as of January 28, 2016. 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 on behalf of the...

  • Page 87
    ... 31, 2014). Credit Agreement, dated as of September 5, 2014, among Amazon.com, Inc., Bank of America, N.A., as administrative agent, and the other lenders party thereto, and conformed page thereto (incorporated by reference to the Company's Current Report on Form 8-K, filed September 5, 2014, and...

  • Page 88
    ... and Chief Financial Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350. The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of...

  • Page 89
    ... in the case of the Morgan Stanley Technology Index, assuming the reinvestment of any dividends, based on closing prices. Measurement points are the last trading day of each of Amazon's fiscal years ended December 31, 2010, 2011, 2012, 2013, 2014 and 2015. $400 $350 $300 $250 Dollars $200 $150...

  • Page 90
    amazon.com amazon.ca amazon.in amazon.co.uk amazon.cn amazon.de a m a z o n . it amazon.fr a m a z o n . es amazon.co.jp amazon.com.br amazon.nl amazon.com.mx amazon.com.au