2013 Other Jurisdiction of Title of Each Class Name of Each Exchange on Which Registered Item Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. In addition, we offer Amazon Prime, an annual membership program that includes unlimited free shipping on millions of items, access to unlimited instant streaming of thousands of movies and TV episodes, and access to hundreds of thousands of books to borrow and read for free on a Kindle device. sell content. Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter, which ends December 31. We recognized 2011. 17, 2014: Name Position Jeffrey P. Bezos Jeffrey M. Blackburn Shelley L. Reynolds Thomas J. Szkutak H. Brian Valentine Jeffrey A. Wilke Andrew R. Jassy. Mr. Jassy has served as Senior Vice President, Web Services, since April 2006. Diego Piacentini. Mr. Piacentini has served as Senior Vice President, International Consumer Business, since February 2012, and as Senior Vice President, International Retail, Name Position Jeffrey P. Bezos President, Chief Executive Officer, and Chairman of the Board Tom A. Alberg Managing Director, Madrona Venture Group John Seely Brown Visiting Scholar and Advisor to the Provost, University of Southern California William B. Gordon Partner, Kleiner Perkins Caufield & Byers Alain Monié Jonathan J. Rubinstein Former Chairman and CEO, Palm, Inc. Thomas O. Ryder Retired, Former Chairman, Reader’s Digest Association, Inc. Patricia Q. Stonesifer systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results. our ability to retain and increase 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 decreases, or improvements; changes in usage or adoption rates of the Internet, e-commerce, timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure; the extent to which we finance, and the terms of any such financing for, our current operations and future growth; variations in 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 the extent to which we invest in technology and content, fulfillment, and other expense categories; increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and commodities like paper and packing supplies; the extent to which our the extent to which operators of the networks between our customers and our websites successfully charge fees to grant our customers unimpaired and unconstrained access to our online services; our ability to collect amounts owed to us when they become due; the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; and terrorist attacks and armed hostilities. local economic and political conditions; government regulation of e-commerce and other restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights; business licensing or certification requirements, such as for imports, exports, web services, and electronic devices; limitations on the repatriation and investment of funds and foreign currency exchange restrictions; limited fulfillment and 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, payments, and restrictions on pricing or discounts; lower levels of use of the Internet; lower levels of consumer spending and fewer opportunities for growth compared to the U.S.; lower levels of credit card usage and increased payment risk; difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences; laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and geopolitical events, including war and terrorism. websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer disruption of our ongoing business, including loss of management focus on existing businesses; impairment of other relationships; variability in revenue and income from entering into, amending, or terminating such agreements or relationships; and difficulty integrating under the commercial agreements. disruption of our ongoing business, including loss of management focus on existing businesses; problems retaining key personnel; additional operating losses and expenses of the businesses we acquired or in which we invested; the potential impairment of tangible the potential impairment of customer and other relationships of the company we acquired or in which we invested or our own customers as a result of any integration of operations; the difficulty of 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 permit effective management, and the lack of control if such integration is delayed or not implemented; the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger public company; potential unknown liabilities associated with a company we acquire or in which we invest; and for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, political, and regulatory risks associated with specific countries. have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security. changes in interest rates; conditions or trends in the Internet and the quarterly variations in operating results; fluctuations in the stock market in general and market prices for Internet-related companies in particular; changes in financial estimates by us or securities analysts and recommendations by securities analysts; changes in our capital structure, including issuance of additional debt or equity to the public; transactions in our common stock by major investors and certain analyst reports, news, and speculation. communications, competition, consumer protection, web services, the provision of online payment services, unencumbered Internet access to our services, the design and operation of websites, and the characteristics and quality of products and services. 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 services. Jurisdictions may regulate consumer-to-consumer online businesses, including certain aspects of our seller programs. Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business. results if terminated. providing certain services. Description of Use Year ended December 31, 2010 First Quarter Second Quarter Third Quarter Fourth Quarter Year ended December 31, 2011 First Quarter Second Quarter Third Quarter Fourth Quarter As of January Statements of Operations: Net sales Income from operations Net income Basic earnings per share (1) Diluted earnings per share (1) Weighted average shares used in computation of earnings per share: Basic Diluted Statements of Cash Flows: Net cash provided by operating activities Purchases of fixed assets, including internal-use software and website development Free cash flow (2) Balance Sheets: Total assets Total long-term obligations 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 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, costs necessary to run AWS, and a portion of our marketing costs. Our fixed costs include the costs necessary to run our technology Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out (“FIFO”) method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on currently-available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently whether credit or stock price changes are a short-term swing or a longer-term trend. We have not made any significant changes to the accounting methodology used to evaluate goodwill impairment. Changes in our estimated future cash flows and asset fair values may cause us to realize material impairment charges in the future. As a measure of sensitivity, a prolonged 20% decrease from our Cash provided by (used in): Operating activities Investing activities Financing activities follows (in millions): Chinese Yuan. deductions. support of continued business growth due to investments in technology infrastructure, including AWS, strengthen our financial position. The sale of additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, and technologies, which might affect our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that additional lines-of-credit or financing instruments will be available in amounts or on terms acceptable to us, if at all. Net Sales: North America International Consolidated Year-over-year Percentage Growth: North America International Consolidated Year-over-year Percentage Growth, excluding effect of exchange rates: North America International Consolidated Net Sales Mix: North America International Consolidated follows (in millions): See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 12—Segment Information” for net sales attributed to foreign countries. Shipping Activity: Shipping revenue (1)(2) Outbound shipping costs Net shipping cost Year-over-year Percentage Growth: Shipping revenue Outbound shipping costs Net shipping cost Percent of Net Sales: Shipping revenue Outbound shipping costs Net shipping cost 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 Consolidated Media Electronics and other general merchandise Other (1) Total consolidated Year-over-year Percentage Growth: North America Media Electronics and other general merchandise Other Total North America International Media Electronics and other general merchandise Other Total International Consolidated Media Electronics and other general merchandise Other Total consolidated Year-over-year Percentage Growth: Excluding the effect 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 Other Total consolidated Operating Expenses: Cost of sales Fulfillment Marketing Technology and content General and administrative Other operating expense (income), net Total operating expenses Year-over-year Percentage Growth: Fulfillment Marketing Technology and content General and administrative Percent of Net Sales: Fulfillment Marketing Technology and content General and administrative sales, as well as from expansion of digital offerings. Gross profit (in millions) Gross margin previously capitalized amounts was $451 million, $327 million, and $236 million expenses. new employees. Q3 2013. $3.1 billion as of Debt and Note 7—Other Long-Term Liabilities” for additional information. are provided below (in millions): Net sales Operating expenses Income from operations Net cash provided by operating activities Purchases of fixed assets, including internal-use software and website development Free cash flow Net cash used in investing activities Net cash provided by (used in) financing activities We provided guidance on January as well as those outlined in Item 1A of Part I, “Risk Factors.” Money market funds Weighted average interest rate Corporate debt securities Weighted average interest rate U.S . Government and Agency Securities Weighted average interest rate Asset backed securities Weighted average interest rate Foreign government and agency securities Weighted average interest rate Other securities Weighted average interest rate Cash equivalents and marketable fixed -income securities 30, 2014 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD OPERATING ACTIVITIES: Net income Adjustments to reconcile net income to net cash from operating activities: Depreciation of fixed assets, including internal-use software and website development, and other amortization Stock-based compensation Other operating expense (income), net Losses (gains) on sales of marketable securities, net Other expense (income), net Deferred income taxes Excess tax benefits from stock-based compensation Changes in operating assets and liabilities: Inventories Accounts receivable, net and other Accounts payable Accrued expenses and other Additions to unearned revenue Amortization of previously unearned revenue Net cash provided by operating activities INVESTING ACTIVITIES: Purchases of fixed assets, including internal-use software and website development Acquisitions, net of cash acquired, and other Sales and maturities of marketable securities and other investments Purchases of marketable securities and other investments Net cash used in investing activities FINANCING ACTIVITIES: Excess tax benefits from stock-based compensation Common stock repurchased Proceeds from long-term debt and other Repayments of long-term debt, capital lease, and finance lease obligations Net cash provided by (used in) financing activities Foreign-currency effect on cash and cash equivalents Net increase in cash and cash equivalents CASH AND CASH EQUIVALENTS, END OF PERIOD SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on long term debt Cash paid for income taxes (net of refunds) Fixed assets acquired under capital leases Fixed assets acquired under build-to-suit leases Net product sales Net services sales Total net sales Operating expenses (1): Cost of sales Fulfillment Marketing Technology and content General and administrative Other operating expense (income), net Total operating expenses Income from operations Interest income Interest expense Other income (expense), net Total non-operating income (expense) Income before income taxes Provision for income taxes Equity-method investment activity, net of tax Net income Basic earnings per share Diluted earnings per share Weighted average shares used in computation of earnings per share: Basic Diluted (1) Includes stock-based compensation as follows: Fulfillment Marketing Technology and content General and administrative STATEMENTS OF COMPREHENSIVE INCOME Current assets: Cash and cash equivalents Marketable securities Inventories Accounts receivable, net and other Deferred tax assets Total current assets Fixed assets, net Deferred tax assets Goodwill Other assets Total assets Current liabilities: Accounts payable Accrued expenses and other Total current liabilities Long-term liabilities Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value: Authorized shares — 500 Issued and outstanding shares — none Common stock, $0.01 par value: Authorized shares — 5,000 Issued shares — 473 and 468 Outstanding shares — 455 and 451 Treasury stock, at cost Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity millions) BALANCE SHEETS Balance at December 31, 2008 Net income Foreign currency translation gains, net of tax Change in unrealized gains on available-for-sale securities, net of tax Amortization of unrealized loss on terminated Euro Currency Swap, net of tax Comprehensive income Exercise of common stock options Issuance of common stock for acquisition activity Excess tax benefits from stock-based compensation Stock-based compensation and issuance of employee benefit plan stock Balance at December 31, 2009 Net income Foreign currency translation gains, net of tax Change in unrealized gains on available-for-sale securities, net of tax Comprehensive income Exercise of common stock options Excess tax benefits from stock-based compensation Stock-based compensation and issuance of employee benefit plan stock Balance at December 31, 2010 Net income Foreign currency translation gains, net of tax Change in unrealized gains on available-for-sale securities, net of tax Comprehensive income Exercise of common stock options Repurchase of common stock 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 at December 31, 2011 millions, except per share data) on our consolidated balance sheets. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect. Shares used in computation of basic earnings per share Total dilutive effect of outstanding stock awards (1) Shares used in computation of diluted earnings per share $1.5 billion. 2011. Additions to the allowance were $172 million, $136 million, and $87 million, and deductions to the allowance were $135 million, $102 million, and $82 million as of December 31, 2013, 2012, and 2011. payments. Additionally, incentives we receive are treated as a reduction of our costs over the term of the agreement. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the non-cancellable term of the lease. equity-method investment activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our 2012. Cash Level 1 securities: Money market funds Equity securities Level 2 securities: Foreign government and agency securities U.S. government and agency securities Corporate debt securities Asset-backed securities Other fixed income securities Less: Long-term restricted cash, cash equivalents, and marketable securities (1) Total cash, cash equivalents, and marketable securities Cash Level 1 securities: Money market funds Equity securities Level 2 securities: Foreign government and agency securities U.S. government and agency securities Corporate debt securities Asset-backed securities Other fixed income securities Less: Long-term restricted cash, cash equivalents, and marketable securities (1) Total cash, cash equivalents, and marketable securities Realized gains Realized losses Due within one year Due after one year through five years Gross Fixed Assets (1): Fulfillment and customer service Technology infrastructure Internal-use software, content, and website development Other corporate assets Construction in progress Gross fixed assets Accumulated Depreciation (1): Fulfillment and customer service Technology infrastructure Internal-use software, content, and website development Other corporate assets Total accumulated depreciation Total fixed assets, net 2011. period. For buildings under build-to-suit lease arrangements where we have taken occupancy, which do not qualify for sales recognition under the sale-leaseback accounting guidance, we determined that we continue to be the deemed owner of these buildings. This is principally due to our 2012. $195 million, resulting in goodwill of $103 million and acquired intangible assets of $83 million. The primary reasons for these acquisitions were to expand our customer base and sales channels and to obtain certain technologies to be used in product development. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives. Acquisition-related costs were expensed as incurred and were not significant. Purchase Price Cash 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 Debt Deferred tax liabilities Other liabilities assumed (2) Stock issued Assumed stock options, net Goodwill Other net assets acquired Deferred tax liabilities net Intangible assets (1): Marketing-related Contract-based Customer-related Net sales Net income Goodwill—January 1, 2010 New acquisitions Other adjustments (1) Goodwill—December 31, 2010 New acquisitions Other adjustments (1) Goodwill—December 31, 2011 Marketing-related Contract-based Technology and content Customer-related Acquired intangibles (2) Year Ended December 31, 2012 2013 2014 2015 2016 Thereafter Statement of Operations: Revenue Operating expense Other income (expense) Net loss Balance Sheet: Current assets Noncurrent assets Current liabilities Noncurrent liabilities Mandatorily redeemable stock investment, bringing our total investment in LivingSocial to approximately Long-term debt Long-term capital lease obligations Long-term financing lease obligations Construction liability Tax contingencies Other of Debt obligations Less current portion of debt obligation Total long-term debt obligations follows (in millions): Gross capital lease obligations Less imputed interest Present value of net minimum lease payments Less current portion of capital lease obligation Total long-term capital lease obligations follows (in millions): Gross financing lease obligations Less imputed interest Present value of net minimum lease payments Less current portion of financing lease obligation Total long-term financing lease obligations follows (in millions): purposes. We have entered into non-cancellable operating, capital, and financing leases for equipment and office, fulfillment center, and data center facilities. Rental expense under operating lease agreements was 2011. Operating and capital commitments: Debt principal and interest Capital leases, including interest Financing lease obligations, including interest (1) Operating leases Unconditional purchase obligations Other commitments (2) (3) (4) Total commitments Justice (ECJ). In these matters. this matter. other things, that non-monetary remedies. including those awards we estimate will be forfeited. with no fixed expiration. We have Scheduled vesting for outstanding restricted stock units Scheduled vesting—restricted stock units Net income Net change in unrealized gains/losses on available-for-sale securities: Unrealized gains (losses), net of tax of $1, $(2), and $(2) Reclassification adjustment for losses (gains) included in net income, net of tax effect of $1, $0, and $1 Net unrealized gains (losses) on available for sale securities Foreign currency translation adjustment, net of tax effect of $20, $29, and $0 Other Other comprehensive income (loss) Comprehensive income Net unrealized losses on foreign currency translation, net of tax Net unrealized gains on available-for-sale securities, net of tax Total accumulated other comprehensive income (loss) follows (in millions): 2011. Current taxes: U.S. and state International Current taxes Deferred taxes: U.S. and state International Deferred taxes Provision for income taxes, net follows (in millions): U.S. International Income before income taxes follows (in millions): 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 rate was lower than the 35% U.S. federal statutory rate. Deferred tax assets: Net operating losses (1) Stock-based compensation Assets held for investment Deferred revenue Accrued liabilities, reserves, & other expenses Other items Tax credits (2) Total gross deferred tax assets Less valuation allowance (3) Deferred tax assets, net of valuation allowance Deferred tax liabilities: Acquisition related intangible assets Depreciation & amortization Other items Net deferred tax assets (liabilities), net of valuation allowance 2020. Gross tax contingencies—January 1 Gross increases to tax positions in prior periods Gross decreases to tax positions in prior periods Gross increases to current period tax positions Audit settlements paid Lapse of statute of limitations Foreign exchange gain (loss) on tax contingencies Gross tax contingencies—December 31 (1) websites. North America Net sales Segment operating expenses (1) Segment operating income International Net sales Segment operating expenses (1) Segment operating income Consolidated Net sales Segment operating expenses (1) Segment operating income Stock-based compensation Other operating income (expense), net Income from operations Total non-operating income (expense) Provision for income taxes Equity-method investment activity, net of tax Net income Net Sales: Consolidated Media Electronics and other general merchandise Other (1) Total consolidated foreign countries are as follows (in millions): North America Total assets Fixed assets, net Total fixed asset additions International Total assets Fixed assets, net Total fixed asset additions Consolidated Total assets Fixed assets, net Total fixed asset additions property and equipment, net. North America International Consolidated 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 earnings per share: Basic Diluted 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 earnings per share: Basic Diluted disclosure. 30, 2014 2013 2013 2012 2013 Jeffrey P. Bezos Signature Title / s/ Jeffrey P. Bezos / s/ Thomas J. Szkutak / s/ Tom A. Alberg s/ John Seely Brown s/ William B. Gordon Director Jamie S. Gorelick s/ Jonathan J. Rubinstein s/ Thomas O. Ryder s/ Patricia Q. Stonesifer Allowance for doubtful accounts December 31, 2011 December 31, 2010 December 31, 2009 Allowance for sales returns and commissions December 31, 2011 December 31, 2010 December 31, 2009 Exhibit Number Descriptionx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 2011¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)Delaware 91-1646860 other jurisdiction incorporationorganization)Organization) Common Stock, par value $.01 per share Nasdaq Global Select Market None¨xnon-accelerated filer.smaller reporting company. See definitiondefinitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer x Accelerated filer ¨ Non-accelerated filer Smaller reporting company ¨ Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2011$ 74,662,887,792Number of shares of common stock outstanding as of January 19, 2012455,068,465Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013 $ 102,548,300,912 Number of shares of common stock outstanding as of January 17, 2014 459,264,535 2012,2014, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.20112013 Page PagePART I Item 1. PART IItem 1A. 1.Item 2. Item 3. Item 4. 2PART II Item 1A.5Item 1B.14Item 2.15Item 3.15Item 4.15PART II1617183234Item 9A. 72Item 9B. Item 9A.72PART III Item 9B.74PART III74747474 74 PART IV PART IV“our”“our,” and similar terms include Amazon.com, Inc. and its subsidiaries, unless the context indicates otherwise.1995 and offers Earth’s Biggest Selection.1995. We seek to be Earth’s most customer-centric company for fourcompany. In each of our two geographic segments, we serve our primary customer sets:sets, consisting of consumers, sellers, enterprises, and content creators. In addition, we generate revenue through other marketing and promotionalprovide services, such as online advertising services and co-branded credit card agreements.principal segments: North America and International. SeeWhile each reportable operating segment provides similar products and services, a majority of our technology costs are incurred in the U.S. and allocated to our North America segment. Additional information on our operating segments and product information is contained in Item 8 of Part II, “Financial Statements and Supplementary Data—Note 11—12—Segment Information.” See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Supplemental Information” for supplemental information about our net sales.Kindleelectronic devices. We strive to offer our customers the lowest prices possible through low everyday product pricing and shipping offers, including through membership in Amazon Prime, and to improve our operating efficiencies so that we can continue to lower prices for our customers. We also provide easy-to-use functionality, fast and reliable fulfillment, and timely customer service.U.S.North America and internationalInternational fulfillment centers and warehouses that we operate, through co-sourced and outsourced arrangements in certain countries, and through digital delivery. We operate customer service centers globally, which are supplemented by co-sourced arrangements. See Item 2 of Part I, “Properties.”access to technology infrastructure services that enablesenable virtually any type of business.Store.Store, along with Amazon’s own publishing arm, Amazon Publishing, offers authors another outlet to publish their books.Publishing. We also serveoffer programs that allow authors, musicians, filmmakers, app developers, and other content creators through CreateSpace, which provides on-demand publishingothers to publish and manufacturing for independent content creators, publishers, film studios, and music labels.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, customer service, and customer service;payment processing; (5) companies that provide infrastructure web services or other information storage or computing services or products;products, including infrastructure and other web services; and (6) companies that design, manufacture, market, or sell digital mediaconsumer electronics, telecommunication, and electronic devices. We believe that the principal competitive factors in our retail businesses include selection, price, and convenience, including fast and reliable fulfillment. Additional competitive factors for our seller and enterprise services include the quality, speed, and reliability of our services and tools. Many of our current and potential competitors have greater resources, longer histories, more customers, and greater brand recognition. They may secure better terms from suppliers, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing. Other companies also may enter into business combinations or alliances that strengthen their competitive positions.Seasonality36%34%, 38%35%, and 39%36% of our annual revenue during the fourth quarter of 2011, 2010,2013, 2012, and 2009.56,200117,300 full-time and part-time employees at as of December 31, 2011.2013. However, employment levels fluctuate due to seasonal factors affecting our business. Additionally, we utilize independent contractors and temporary personnel to supplement our workforce, particularly on a seasonal basis. Although weworkforce. We have works councils and statutory employee representation obligations in certain countries,countries. Except where required by law, unions are not the collective bargaining representatives of our employees are not represented by a labor union and wein any facility with more than five employees. We consider our employee relations to be good. Competition for qualified personnel in our industry has historically been intense, particularly for software engineers, computer scientists, and other technical staff.19, 2012: Age 50 48 President, Chief Executive Officer, and Chairman of the Board 44 42 Senior Vice President, Business Development Sebastian J. Gunningham 46 49Senior Vice President, Seller ServicesAndrew R. Jassy44 Senior Vice President, Web Services Steven Kessel 53 46Senior Vice President, Worldwide Digital MediaMarc A. Onetto61Senior Vice President, Worldwide OperationsDiego Piacentini51 Senior Vice President, International RetailConsumer Business 49 47 Vice President, Worldwide Controller, and Principal Accounting Officer 53 51 Senior Vice President and Chief Financial Officer 54 52 Senior Vice President, Ecommerce Platform 47 45 Senior Vice President, North America RetailConsumer BusinessL. Michelle Wilson 50 48 Senior Vice President, General Counsel, and SecretarySebastian J. Gunningham. Mr. Gunningham has served as Senior Vice President, Seller Services, since joining Amazon.com in March 2007. Prior to joining Amazon.com, Mr. Gunningham was President of First Data Utilities from August 2006 to February 2007.Steven Kessel. Mr. Kessel has served as Senior Vice President, Worldwide Digital Media, since April 2006.Marc A. Onetto. Mr. Onetto has served as Senior Vice President, Worldwide Operations, since joining Amazon.com in December 2006.sincefrom January 2007.2007 until February 2012. From February 2006 to April 2007, she was Vice President, Finance and Controller.sincefrom January 2007.2007 until February 2012.L. Michelle Wilson. Ms. WilsonDavid A. Zapolsky. Mr. Zapolsky has served as Senior Vice President, General Counsel, and Secretary since July 2003.September 2012, and as Vice President and Associate General Counsel for Litigation and Regulatory matters from April 2002 until September 2012. Age 50 48 73 71 73 71 63 61 Blake G. Krikorian 63 44 FounderPartner, Wilmer Cutler Pickering Hale and Chief Executive Officer, id8 Group Productions, Inc. 63 61 President and Chief Executive Officer, Ingram Micro Inc. 57 55 69 67 57 55 Vice Chair, Board of Regents, Smithsonian Institutiondigital mediaelectronic devices, and web and infrastructure computing services. ManySome of our current and potential competitors have greater resources, longer histories, more customers, andand/or greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing.intoto become competitive with our market segments.business. In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and digital,electronic devices, may increase our competition. The Internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.digital mediaelectronic devices, and web services, including in non-U.S. markets;claims;claims, which may include significant monetary damages or injunctive relief and could have a material adverse impact on our operating results;product prices worldwide, and provide additional benefits to our customers;equity methodequity-method investees record significant operating and non-operating items;online services, and electronic devices, and competition, and restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;workers’works councils and labor unions; the international e-commerce channel grows,and other online and web services grow, competition will intensify. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may limit our international growth.products.products and services. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals. Although we believe these structures comply with existing PRC laws, they involve unique risks. There are substantial uncertainties regarding the interpretation of PRC laws and regulations, and it is possible that the PRC government will ultimately take a view contrary to ours. If our Chinese business interests were found to be in violation of any existing or future PRC laws or regulations or if interpretations of those laws and regulations were to change, the business could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down entirely. In addition, the Chinese businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or enforce contractual relationships with respect to management and control of such businesses.atas of December 31 of each year, our cash, cash equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash flows provided by or used in investing and financing activities). This operating cycle results in a corresponding increase in accounts payable atas of December 31. Our accounts payable balance generally declines during the first three months of the year, resulting in a corresponding decline in our cash, cash equivalents, and marketable securities balances.other businesses through our seller programs and other commercial agreements, strategic alliances, and business relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage, and other services, as well as enable sellers to offer products or services through our websites and power their websites. These arrangements are complex and require substantial infrastructure capacity, personnel, and other resource commitments, by us, which may limit the agreementsamount of business we arecan service. We may not be able to enter into and our ability to integrate and deliver services under them. If we fail to implement, maintain, and develop the components of these commercial relationships, which may include web services, fulfillment, customer service, inventory management, tax collection, payment processing, licensing ofhardware, content, and third-party software, hardware, and content, and engaging third parties to perform hosting and other services, these initiatives may not be viable.services. The amount of compensation we receive under certain of theseour commercial agreements is partially dependent on the volume of the other company’s sales. Therefore, if the other company’s offering is not successful, the compensation we receive may be lower than expected or the agreement may be terminated. Moreover, we may not be able to enter into additional commercial relationships and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, maintaining, or developing these services.assets, such as inventory, and intangible assets and goodwill, acquired in theincluding as a result of acquisitions;British Pounds.Chinese Yuan. If the U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when translated, may be materially less than expected and vice versa. In addition, we rely on third party technology and systems in certain aspects of our businesses, including for encryption and authentication technology to securely transmit confidential information.own in providing e-commerce services to other businesses and individuals under commercial agreements.own. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.e-commerce industry;electronic devices.other services. Existing and future laws and regulations may impede our growth. These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other worldwide provision and accruals for these taxes. During the ordinary course of business, there are many transactions for which the ultimate tax determination is uncertain. For example, ourOur effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by losses incurred in jurisdictions for which we are not able to realize 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 (including integrations) and investments, by changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting and other laws, regulations, administrative practices, principles, and interpretations. Weinterpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The United States, many countries in the European Union, and a number of other countries are actively considering changes in this regard. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. Developments in an audit, litigation, or litigationthe relevant laws, regulations, administrative practices, principles, and interpretations could have a material 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.certificates,cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. AsFor existing and future payment options we offer new payment options to our customers, we may bebecome subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our 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 payments, and our business and operating results could be adversely affected. We also offer co-branded credit card programs, that represent a significant component of our services revenue. If one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, itwhich could adversely affect our operating results.qualify as a moneyprovide regulated services business in certain jurisdictions because we enable 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, the use, handling, and segregation of transferred funds, consumer disclosures, and consumer disclosures.authentication. We are also subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties, or forced to cease our payments services business.from selling goods in an unlawful manner, or violating the proprietary rights of others, and could face civil or criminal liability for unlawful activities by our sellers.2011,2013, we operated the following facilities:facilities (in thousands): Location Owned office space 1,802 North America OperatingSegments Lease4,485Expirations (1) (in thousands)North America From 2014 through 2028 Leased office space 3,002 International From 2014 through 2027 Sub-total 9,289 Office lease329 North America 3,416Leased fulfillment, data centers, and other 48,013 North America From 2012
2014 through 20262028Office lease122 International 837Leased fulfillment, data centers, and other 36,131 International From 2012
2014 through 20212033Sub-total 84,595 Total 93,884 Sub-total 4,253 Fulfillment and other26,364North AmericaFrom 2012through 2026Fulfillment and other17,690InternationalFrom 2012through 2025Sub-total44,054Total48,307(1) RepresentsFor leased properties, represents the total leased space excluding sub-leased space.7—8—Commitments and Contingencies—Legal Proceedings” and “—Other Contingencies.Proceedings.”Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities High Low $ 138.19 $ 113.82 151.09 106.01 161.78 105.80 185.65 151.40 $ 191.60 $ 160.59 206.39 175.37 244.00 177.10 246.71 166.97 High Low Year ended December 31, 2012 First Quarter $ 209.85 $ 172.00 Second Quarter 233.84 183.65 Third Quarter 264.11 212.61 Fourth Quarter 263.11 218.18 Year ended December 31, 2013 First Quarter $ 284.72 $ 252.07 Second Quarter 283.34 245.75 Third Quarter 320.57 277.16 Fourth Quarter 405.63 296.50 Holders19, 2012,17, 2014, there were 3,3272,922 shareholders of record of our common stock, although there areis a much larger number of beneficial owners.On January 28, 2010, we publicly announced that our Board Year Ended December 31, 2011 2010 2009 2008 2007 (in millions, except per share data) $ 48,077 $ 34,204 $ 24,509 $ 19,166 $ 14,835 862 1,406 1,129 842 655 631 1,152 902 645 476 $ 1.39 $ 2.58 $ 2.08 $ 1.52 $ 1.15 $ 1.37 $ 2.53 $ 2.04 $ 1.49 $ 1.12 453 447 433 423 413 461 456 442 432 424 $ 3,903 $ 3,495 $ 3,293 $ 1,697 $ 1,405 (1,811 ) (979 ) (373 ) (333 ) (224 ) $ 2,092 $ 2,516 $ 2,920 $ 1,364 $ 1,181 Year Ended December 31, 2011 2010 2009 2008 2007 (in millions) $ 25,278 $ 18,797 $ 13,813 $ 8,314 $ 6,485 2,625 1,561 1,192 896 1,574 Year Ended December 31, 2013 2012 2011 2010 2009 (in millions, except per share data) Statements of Operations: Net sales $ 74,452 $ 61,093 $ 48,077 $ 34,204 $ 24,509 Income from operations $ 745 $ 676 $ 862 $ 1,406 $ 1,129 Net income (loss) $ 274 $ (39 ) $ 631 $ 1,152 $ 902 Basic earnings per share (1) $ 0.60 $ (0.09 ) $ 1.39 $ 2.58 $ 2.08 Diluted earnings per share (1) $ 0.59 $ (0.09 ) $ 1.37 $ 2.53 $ 2.04 Weighted average shares used in computation of earnings per share: Basic 457 453 453 447 433 Diluted 465 453 461 456 442 Statements of Cash Flows: Net cash provided by (used in) operating activities $ 5,475 $ 4,180 $ 3,903 $ 3,495 $ 3,293 Purchases of property and equipment, including internal-use software and website development (3,444 ) (3,785 ) (1,811 ) (979 ) (373 ) Free cash flow (2) $ 2,031 $ 395 $ 2,092 $ 2,516 $ 2,920 December 31, 2013 2012 2011 2010 2009 (in millions) Balance Sheets: Total assets $ 40,159 $ 32,555 $ 25,278 $ 18,797 $ 13,813 Total long-term obligations $ 7,433 $ 5,361 $ 2,625 $ 1,561 $ 1,192 (1) For further discussion of earnings per share, see Item 8 of Part II, “Financial Statements and 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 cash expenditures for purchases of fixed assets,property and equipment, including capitalized internal-use software and website development, both of which are presented on our consolidated statements of cash flows. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Non-GAAP Financial Measures.”OverviewKindleelectronic 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, miscellaneous marketing and promotional agreements, such as online advertising, and co-branded credit cards.468476 million and 465470 million at as of December 31, 20112013 and 2010.2012.1Free 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 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.infrastructure and AWS;infrastructure; to build, enhance, and add features to our websites and web services, our Kindleelectronic devices, and digital offerings; and to 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 sourcing, increase 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.Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less cash expenditures for purchases of property and equipment, including 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. Working capital consists of accounts receivable, inventory, and accounts payable. 11,for 2013, 2012, and 12 for 2011 2010, and 2009.. We expect 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 and selection of product offerings, our investment in new geographies and product lines, and the extent to which we choose to utilize outsource fulfillment providers. Accounts payable days5 were 74, 72,76, and 6874 for 2011, 2010,2013, 2012, and 2009.2011. 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.including seller platforms, digital initiatives, andsuch as web services, expansion of new and existing physicalproduct categories and offerings, and initiatives to expand our ecosystem of digital product categories,products and services, as well as in technology infrastructure to enhance the customer experience and improve our process efficiencies, and support AWS.efficiencies. 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. To best take advantage of these continued advances in technology, we are investing in initiatives to build and deploy innovative and efficient software and electronic devices. We are also investing in AWS, which provides technology services that give developers and enterprises of all sizes access to technology infrastructure that enables virtually any type of business.3The operating cycle is number of days of sales in inventory plus number of days of sales in accounts receivable minus accounts payable days.4Inventory turnover is the quotient of trailing-twelve-month cost of sales to average inventory over five quarter-ends.5Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the number of days in the current quarter.The operating cycle is the number of days of sales in inventory plus the number of days of sales in accounts receivable minus accounts payable days. Inventory turnover is the quotient of trailing twelve month cost of sales to average inventory over five quarter ends. Accounts payable days, calculated as the quotient of accounts payable to current quarter cost of sales, multiplied by the number of days in the current quarter. Inventoriesuncertain.uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance at as of December 31, 20112013, we would have recorded an additional cost of sales of approximately $50$79 million.flowflows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Certain estimates of discounted cash flows involve businesses and geographies with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.20112013 would have had no impact on the carrying value of our goodwill.2011,2013 closing stock price would not be an indicator of possible impairment.AWe have not made any significant changes to the accounting methodology used to evaluate stock-based compensation. Changes in our estimates and assumptions may cause us to realize material changes in stock-based compensation expense in the future. As a measure of sensitivity, a 1% change to our estimated forfeiture rate would have had an approximately $24$32 million impact on our 20112013 operating income. Our estimated forfeiture rates at rate as of December 31, 20112013 and 2010, were 28% and 30%2012 was 27%.Under this method,For example, over 50% of the compensation cost related to an award vesting ratably over four years is expensed in the first year of a four year vesting term.year. If forfeited early in the life of an award, the forfeited amountcompensation expense adjustment is much greater under an accelerated method than under a straight-line method. both the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our tax positions and determining our provision and accruals for these taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, ourOur effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by losses incurred in jurisdictions for which we are not able to realize 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(including integrations) and investments, changes in the valuation of our deferred tax assets and liabilities, or by changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations. Weinterpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final determinationoutcome of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. The results ofDevelopments in an audit, litigation, or litigationthe relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that determination is made,development occurs, as well as for prior and subsequent periods.If we determine that additional portionsfollows: Year Ended December 31, 2011 2010 2009 (in millions) $ 3,903 $ 3,495 $ 3,293 (1,930 ) (3,360 ) (2,337 ) (482 ) 181 (280 ) Year Ended December 31, 2013 2012 2011 Cash provided by (used in): Operating activities $ 5,475 $ 4,180 $ 3,903 Investing activities (4,276 ) (3,595 ) (1,930 ) Financing activities (539 ) 2,259 (482 ) $2.09$2.0 billion for 2013, compared to $395 million and $2.1 billion for 2011, compared to $2.52 billion2012 and $2.92 billion for 2010 and 2009.2011. See “Results of Operations—Non-GAAP Financial Measures” below for a reconciliation of free cash flow to cash provided by operating activities. The decreaseincrease in free cash flow in 2011for 2013, compared to the comparable prior year period, was primarily due to increasedhigher operating cash flows and decreased capital expenditures and changes in working capital, partially offset by increases in sales of gift certificates to our customers, decreased tax benefits on excess stock-based compensation deductions, and increases in net income, excluding depreciation, amortization, and stock-based compensation expense.expenditures. The decrease in free cash flow in 2010for 2012, compared to the comparable prior year period, was primarily due to increased capital expenditures, changesincluding a $1.4 billion purchase of property in working capital, and utilization of excess stock-based compensation deductions,December 2012, partially offset by increases in net income, excluding depreciation, amortization, and stock-based compensation expense. Tax benefits relating to excess stock-based compensation deductions are presented in the statement of cash flows as financing cash inflows; accordingly, as such tax benefits decline, a greater amount of cash is classified ashigher operating cash inflow.flows. Operating cash flows and free cash flows can be volatile and are sensitive to many factors, including changes in working capital, the timing and magnitude of capital expenditures, and our federal taxable income.net income (loss). Working capital at any specific point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.$8.8 billion, and $6.4 billion, at as of December 31, 2011, 2010,2013, 2012, and 2009.2011. Amounts held in foreign currencies were $5.6 billion, $5.1 billion, and $4.1 billion $3.4 billion, and $2.8 billion at as of December 31, 2011, 2010,2013, 2012, and 2009,2011, and were primarily Euros, British Pounds, Japanese Yen, and Japanese Yen.$3.5 billion,in 2013, 2012, and $3.3 billion in 2011 2010, and 2009.. Our operating cash flows result primarily from cash received from our consumer, seller, and enterprise customers, miscellaneous marketing and promotionaladvertising 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 useinternal-use software that are reflected as cash used in investing activities), payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received from our consumer, seller, and enterprise customers, and other activities generally corresponds to our net sales. Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. Changes to ourThe increase in operating cash flows have historically been drivenflow in 2013, compared to the comparable prior year period, was primarily due to the increase in net income, excluding depreciation, amortization, and stock-based compensation, partially offset by changes in working capital. The increase in operating cash flow in 2012, compared to the comparable prior year period, was primarily due to the increase in net income, excluding depreciation, amortization, and stock-based compensation, additions to unearned revenue, and changes to the components ofin working capital, including changes to receivable and payable days and inventory turns, as well as changes to non-cash items such aspartially offset by increased tax benefits on excess stock-based compensation and deferred taxes.used inprovided by (used in) investing activities corresponds with capital expenditures, including leasehold improvements, internal-use software and website development costs, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash used inprovided by (used in) investing activities was $(4.3) billion, $(3.6) billion, and $(1.9) billion $(3.4) billion,in 2013, 2012, and $(2.3) billion in 2011 2010, and 2009,, with the variability caused primarily by changes in capital expenditures, and changes in cash paid for acquisitions, and purchases, maturities, and sales of marketable securities and other investments.investments, and changes in cash paid for acquisitions. Capital expenditures were $3.4 billion, $3.8 billion, and $1.8 billion $979during 2013, 2012, and 2011. In December 2012, we acquired 11 buildings comprising 1.8 million square feet of our previously leased corporate office space and $373 millionthree city blocks in 2011, 2010,Seattle, Washington for $1.4 billion. Excluding this acquisition, increases in capital expenditures primarily reflect additional capacity to support our fulfillment operations and 2009, with the sequential increases primarily reflecting additional investments inand additional capacity to support our fulfillment operations.during all three periods. We expect this trend to continue over time. Capital expenditures included $256$493 million, $176$381 million, and $146$256 million for internal-use software and website development during 2011, 2010,2009.2011. Stock-based compensation capitalized for internal-use software and website development costs does not affect cash flows. In 2011, 2010,2013, 2012, and 2009,2011, we made cash payments, net of acquired cash, related to acquisition and other investment activity of $705$312 million, $352$745 million, and $40$705 million.$181 million,in 2013, 2012, and $(280) million in 2011 2010, and 2009.. Cash outflows from financing activities result from common stock repurchases, payments on obligations related to capital leases and leases accounted for as financing arrangements, repurchases of common stock, and repayments of long-term debt. Payments on obligations related to capital leases and leases accounted for as financing arrangements and repayments of long-term debt were $1.0$221in 2013, 2012, and 2011. Property and equipment acquired under capital leases were $1.9 billion, $802 million, and $472$753 million in 2011, 2010,2013, 2012, and 2009.2011, with the increases primarily reflecting additional investments in support of continued business growth due to investments in technology infrastructure, including AWS. We repurchased 5.3 million shares of common stock for $960 million in 2012 and 1.5 million shares of common stock for $277 million in 2011 under the $2$2.0 billion repurchase program authorized by our Board of Directors in January 2010. Cash inflows from financing activities primarily result from proceeds from long term-debtlong-term debt and proceeds from tax benefits relating to excess stock-based compensation deductions. Proceeds from long-term debt and other were $394 million, $3.4 billion, and $177 million $143in 2013, 2012, and 2011. During 2012, cash inflows from financing activities consisted primarily of net proceeds from the issuance of $3.0 billion of senior nonconvertible unsecured debt in three tranches: $750 million of 0.65% notes due in 2015; $1.0 billion of 1.20% notes due in 2017; and $87 million$1.3 billion of 2.50% notes due in 2011, 2010,2022. See Item 8 of Part II, “Financial Statements and 2009.Supplementary Data—Note 6—Long-Term Debt” for additional discussion of the notes. Tax benefits relating to excess stock-based compensation deductions are presented as financing cash flows. Cash inflows from tax benefits related to stock-based compensation deductions were $78 million, $429 million, and $62 million $259 million,in 2013, 2012, and $105 million in 2011 2010,.2009.In 2010, and 2009 we recorded net tax provisions of $291$161 million, $352$428 million, and $253$291 million. A majority of this provision is non-cash. We have tax benefits relating to excess stock-based compensation deductions that are being utilized to reduce our U.S. taxable income. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. At If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings. As of December 31, 2011, amounts2013, cash held by foreign subsidiaries were $3.6was $4.6 billion, which include undistributed earnings of foreign subsidiaries indefinitely invested outside of the U.S. of $2.0$2.5 billion. If these fundsWe have tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions that are needed forbeing utilized to reduce our operationsU.S. taxable income. Accelerated depreciation deductions on qualifying property were a result of U.S. legislation that expired in the U.S., we would be required to accrue and pay U.S. taxes to repatriate them. CashDecember 2013. As such, cash taxes paid (net of refunds) were $169 million, $112 million, and $33 million $75 million,for 2013, 2012, and $48 million for 2011 2010, and 2009.. As of December 31, 2011,2013, our federal net operating loss carryforward was approximately $384 million. We also have$275 million and we had approximately $273$295 million of federal tax credits potentially available to offset future tax liabilities. OnceThe U.S. federal research and development credit expired in December 2013. As we utilize our federal net operating losses and tax credits, we expect cash paid for taxes to significantly increase. We endeavor to optimize our global taxes on a cash basis, rather than on a financial reporting basis.7—8—Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged securities.assets. Purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were $3$4.4 billion at as of December 31, 2011.2013. Purchase obligations and open purchase orders are generally cancelablecancellable in full or in part through the contractual provisions.turnovervelocity means we generally collect from our customersconsumers before our payments to suppliers come due. Inventory turnover was 9, 9, and 10 11,for 2013, 2012, and 12 for 2011 2010, and 2009.. We expect variability in inventory turnover over time assince it is affected by several factors, including category expansion and changes in our product mix, the mix of sales by us and by other sellers, our continuing focus on in-stock inventory availability and selection of product offerings, our investment in new geographies and product lines, and the extent to which we choose to utilize outsource fulfillment providers.currentcash flows generated from operations and our cash, cash equivalents, and marketable securities balances will be sufficient to meet our anticipated operating cash needs for at least the next 12 months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part I, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further principal segments: North America and International. We present our segment information along the same lines that our chief executiveChief Executive Officer reviews our operating results in assessing performance and allocating resources.activities.activities such as AWS, advertising services, and our co-branded credit card agreements. Amazon Prime membership fees are allocated between product sales and services sales. Net sales information is as follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 26,705 $ 18,707 $ 12,828 21,372 15,497 11,681 $ 48,077 $ 34,204 $ 24,509 43 % 46 % 25 % 38 33 31 41 40 28 43 % 46 % 26 % 31 34 33 37 40 29 56 % 55 % 52 % 44 45 48 100 % 100 % 100 % Year Ended December 31, 2013 2012 2011 Net Sales: North America $ 44,517 $ 34,813 $ 26,705 International 29,935 26,280 21,372 Consolidated $ 74,452 $ 61,093 $ 48,077 Year-over-year Percentage Growth: North America 28 % 30 % 43 % International 14 23 38 Consolidated 22 27 41 Year-over-year Percentage Growth, excluding effect of exchange rates: North America 28 % 30 % 43 % International 19 27 31 Consolidated 24 29 37 Net Sales Mix: North America 60 % 57 % 56 % International 40 43 44 Consolidated 100 % 100 % 100 % increased 41%grew22%, 40%27%, and 28%41% in 2011, 2010,2013, 2012, and 2009.2011, compared to the comparable prior year periods. Changes in currency exchange rates positively (negatively) affectedimpacted net sales by $(1.3) billion, $(854) million, and $1.1 billion $(86) million,for 2013, 2012, and $(182) million for 2011 2010, and 2009.. For a discussion of the effect on sales growth of exchange rates, see “Effect of Exchange Rates” below.The growth rate was 43%grew28%, 46%30%, and 25%43% in 2011, 2010,2013, 2012, and 2009.2011, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales.sales, including sales by marketplace sellers. Increased unit sales were driven 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 offerings. Additionally, North America sales growth reflects increased AWS activity.The growth rate was 38%grew14%, 33%23%, and 31%38% in 2011, 2010,2013, 2012, and 2009.2011, compared to the comparable prior year periods. The sales growth in each year primarily reflects increased unit sales.sales, including sales by marketplace sellers. Increased unit sales were driven 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 offerings. Additionally, changes in currency exchange rates positively (negatively) affectedimpacted International net sales by $1.1$(1.3) billion $(107), $(853) million, and $(174) million$1.1 billion in 2011, 2010,2013, 2012, and 2009.2011. We expect that, over time, our International segment will represent 50% or more of our consolidated net sales.follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 1,552 $ 1,193 $ 924 (3,989 ) (2,579 ) (1,773 ) $ (2,437 ) $ (1,386 ) $ (849 ) 30 % 29 % 11 % 55 45 21 76 63 35 3.2 % 3.5 % 3.8 % (8.3 ) (7.5 ) (7.2 ) (5.1 )% (4.0 )% (3.4 )% Year Ended December 31, 2013 2012 2011 Outbound Shipping Activity: Shipping revenue (1)(2)(3) $ 3,097 $ 2,280 $ 1,552 Shipping costs (6,635 ) (5,134 ) (3,989 ) Net shipping cost $ (3,538 ) $ (2,854 ) $ (2,437 ) Year-over-year Percentage Growth: Shipping revenue 36 % 47 % 30 % Shipping costs 29 29 55 Net shipping cost 24 17 76 Percent of Net Sales: Shipping revenue 4.1 % 3.7 % 3.2 % Shipping costs (8.9 ) (8.4 ) (8.3 ) Net shipping cost (4.8 )% (4.7 )% (5.1 )% (1) Excludes amounts earned on shipping activities by third-party sellers where we do not provide the fulfillment service. (2) Includes a portion of amounts earned from Amazon Prime memberships. (3) Shipping revenue for the years ended December 31, 2013 and 2012 include amounts earned from Fulfillment by Amazon programs related to shipping services. rate; to the extentrate, our product mix shifts to the electronics and other general merchandise category; to the extentcategory, we reduce shipping rates; to the extentrates, we use more expensive shipping methods;methods, and to the extent we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 7,959 $ 6,881 $ 5,964 17,315 10,998 6,314 1,431 828 550 $ 26,705 $ 18,707 $ 12,828 $ 9,820 $ 8,007 $ 6,810 11,397 7,365 4,768 155 125 103 $ 21,372 $ 15,497 $ 11,681 $ 17,779 $ 14,888 $ 12,774 28,712 18,363 11,082 1,586 953 653 $ 48,077 $ 34,204 $ 24,509 16 % 15 % 11 % 57 74 43 73 50 23 43 46 25 23 % 18 % 19 % 55 54 53 24 22 9 38 33 31 19 % 17 % 15 % 56 66 47 66 46 20 41 40 28 16 % 18 % 20 % 47 57 56 18 24 19 31 34 33 16 % 16 % 16 % 53 67 48 66 46 22 37 40 29 37 % 43 % 52 % 60 54 45 3 3 3 100 % 100 % 100 % Year Ended December 31, 2013 2012 2011 Net Sales: North America Media $ 10,809 $ 9,189 $ 7,959 Electronics and other general merchandise 29,985 23,273 17,315 Other (1) 3,723 2,351 1,431 Total North America $ 44,517 $ 34,813 $ 26,705 International Media $ 10,907 $ 10,753 $ 9,820 Electronics and other general merchandise 18,817 15,355 11,397 Other (1) 211 172 155 Total International $ 29,935 $ 26,280 $ 21,372 Consolidated Media $ 21,716 $ 19,942 $ 17,779 Electronics and other general merchandise 48,802 38,628 28,712 Other (1) 3,934 2,523 1,586 Total consolidated $ 74,452 $ 61,093 $ 48,077 Year-over-year Percentage Growth: North America Media 18 % 15 % 16 % Electronics and other general merchandise 29 34 57 Other 58 64 73 Total North America 28 30 43 International Media 1 % 9 % 23 % Electronics and other general merchandise 23 35 55 Other 22 11 24 Total International 14 23 38 Consolidated Media 9 % 12 % 19 % Electronics and other general merchandise 26 35 56 Other 56 59 66 Total consolidated 22 27 41 Year-over-year Percentage Growth: Excluding the effect of exchange rates International Media 7 % 12 % 16 % Electronics and other general merchandise 27 40 47 Other 26 15 18 Total International 19 27 31 Consolidated Media 12 % 14 % 16 % Electronics and other general merchandise 28 36 53 Other 56 59 66 Total consolidated 24 29 37 Consolidated Net Sales Mix: Media 29 % 33 % 37 % Electronics and other general merchandise 66 63 60 Other 5 4 3 Total consolidated 100 % 100 % 100 % (1) Includes sales from non-retail activities, such as AWS miscellaneous marketingsales, which are included in the North America segment, and promotional activities, other seller sites,advertising services and our co-branded credit card agreements.agreements, which are included in both segments. Year Ended December 31, 2011 Year Ended December 31, 2010 Year Ended December 31, 2009 As
Reported Stock-Based
Compensation Net As
Reported Stock-Based
Compensation Net As
Reported Stock-Based
Compensation Net $ 37,288 $ — $ 37,288 $ 26,561 $ — $ 26,561 $ 18,978 $ — $ 18,978 4,576 (133 ) 4,443 2,898 (90 ) 2,808 2,052 (79 ) 1,973 1,630 (39 ) 1,591 1,029 (27 ) 1,002 680 (20 ) 660 2,909 (292 ) 2,617 1,734 (223 ) 1,511 1,240 (182 ) 1,058 658 (93 ) 565 470 (84 ) 386 328 (60 ) 268 154 — 154 106 — 106 102 — 102 $ 47,215 $ (557 ) $ 46,658 $ 32,798 $ (424 ) $ 32,374 $ 23,380 $ (341 ) $ 23,039 58 % 58 % 41 % 42 % 24 % 24 % 58 59 51 52 41 41 68 73 40 43 20 20 40 46 44 45 17 17 9.5 % 9.2 % 8.5 % 8.2 % 8.4 % 8.1 % 3.4 3.3 3.0 2.9 2.8 2.7 6.1 5.4 5.1 4.4 5.1 4.3 1.4 1.2 1.4 1.1 1.3 1.1 Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended December 31, 2011 Net Net Net Operating Expenses: Cost of sales $ 54,181 $ — $ 54,181 $ 45,971 $ — $ 45,971 $ 37,288 $ — $ 37,288 Fulfillment 8,585 (294 ) 8,291 6,419 (212 ) 6,207 4,576 (133 ) 4,443 Marketing 3,133 (88 ) 3,045 2,408 (61 ) 2,347 1,630 (39 ) 1,591 Technology and content 6,565 (603 ) 5,962 4,564 (434 ) 4,130 2,909 (292 ) 2,617 General and administrative 1,129 (149 ) 980 896 (126 ) 770 658 (93 ) 565 Other operating expense (income), net 114 — 114 159 — 159 154 — 154 Total operating expenses $ 73,707 $ (1,134 ) $ 72,573 $ 60,417 $ (833 ) $ 59,584 $ 47,215 $ (557 ) $ 46,658 Year-over-year Percentage Growth: Fulfillment 34 % 34 % 40 % 40 % 58 % 58 % Marketing 30 30 48 47 58 59 Technology and content 44 44 57 58 68 73 General and administrative 26 27 36 36 40 46 Percent of Net Sales: Fulfillment 11.5 % 11.1 % 10.5 % 10.2 % 9.5 % 9.2 % Marketing 4.2 4.1 3.9 3.8 3.4 3.3 Technology and content 8.8 8.0 7.5 6.8 6.1 5.4 General and administrative 1.5 1.3 1.5 1.3 1.4 1.2 2011, 2010,2013, 2012, and 20092011, compared to the comparable prior year periods, is primarily due to increased product, digital content, including Prime Instant Video, and shipping costs resulting from increased sales. Year Ended December 31, 2011 2010 2009 $ 10,789 $ 7,643 $ 5,531 22.4 % 22.3 % 22.6 % Year Ended December 31, 2013 2012 2011 Gross profit (in millions) $ 20,271 $ 15,122 $ 10,789 Gross margin 27.2 % 24.8 % 22.4 % for 2011 remained relatively consistent withincreased in 2013, compared to the comparable prior year periods.periods, primarily due to services sales increasing as a percentage of total sales. Services sales represent third-party seller fees earned (including commissions) and related shipping fees, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements. We believe that income from operations is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services.2011, 2010,2013, 2012, and 2009,2011, compared to the comparable prior year periods, is primarily due to variable costs corresponding with increased physical and digital product and services sales volume, inventory levels, and sales mix; costs from expanding fulfillment capacity; and payment processing and related transaction costs.2011, 2010,2013, 2012, and 2009,2011, compared to the comparable prior year periods, is primarily due to increased spending on online marketing channels, such as our sponsored search programs and our Associates program, payroll and related expenses, and in 2011 and 2010 television and print advertising.seller platforms, digital initiatives, AWS, and expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and services, as well as in technology infrastructure so we may continue to enhance the customer experience and improve our process efficiency. We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure.2011, 2010,2013, 2012, and 20092011, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses, including those associated with our initiatives to expand our ecosystem of digital products and services, and increased spending on technology infrastructure, and increases in payroll and related expenses. Spending in technology and content significantly increased in 2011, and weincluding AWS. We expect this trendthese trends to continue over time as we invest in these areas by adding technology infrastructure and increasing payroll and related expenses. See “Overview” for a discussion of how management views advances inexpenses and adding technology infrastructure.the importance of innovation.For 2010, and 2009,, we capitalized $307$581 million (including $51$87 million of stock-based compensation), $213$454 million (including $38$74 million of stock-based compensation), and $187$307 million (including $35$51 million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of$184 million,for $172 million for 2011 2010, and 2009.. A majority of our technology costs are incurred in the U.S., most of which are allocated to our North America segment. Infrastructure, and other technology, and operating costs usedincurred to support AWS are included in technology and content.2011, 2010,2013, 2012, and 20092011, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses and professional service fees.$424 million,during 2013, 2012, and $341 million during 2011 2010, and 2009.. The increase in 2011, 2010,2013, 2012, and 20092011, compared to the comparable prior year periods, is primarily due to an increase in totalthe number of stock-based compensation valueawards granted to our employeesexisting and to a decrease in our estimated forfeiture rate.$106 million,during 2013, 2012, and $102 million during 2011 2010,, and 2009. In 2011, 2010, and 2009, the amountswas primarily related to the amortization of intangible assets, partially offset by the settlement of certain unclaimed property and additionally,indemnification claims in 2009, a $51 million legal settlement. and increased 25% and 34% in 2010 and 2009..$51 million,during 2013, 2012, and $37 million during 2011 2010, and 2009.. We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Our interest income corresponds with the average balance of invested funds and the prevailing rates we are earning on them, which vary depending on the geographies and currencies in which they are invested.componentcomponents of our interest expense isare related to our long-term debt and capital and financing leases and our long-term debt.lease arrangements. Interest expense was $141 million, $92 million, and $65 million $39 million,in 2013, 2012, and $34 million in 2011 2010,.2009.$2.6$4.2 billion and $1.6$2.3 billion at as of December 31, 20112013 and 2010.2012. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 6—Long-Term Liabilities.”$79 million,during 2013, 2012, and $29 million during 2011 2010, and 2009.. The primary component of other income (expense), net is related to foreign-currency gains (losses) on intercompany balances.We recorded a provision for income taxes of $291 million, $352 million, and $253 million in 2011, 2010, and 2009. The effective tax rate in 2011, 2010, and 2009 was lower than the 35% U.S. federal statutory rate primarily due to earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than inthe U.S. Earnings of our subsidiaries outside of the U.S. primarily relate to our European operations, which are headquartered in Luxembourg. The favorable effective tax rate impact of earnings in lower tax rate jurisdictions is offset by other items, principally losses incurred in jurisdictions for which we may not able to realize a related tax benefit. Depending upon the jurisdictional mix and amount of our income in 2012, the losses for which we may not receive a tax benefit in 2012 could result in an effective tax rate that is higher than the 35% U.S. federal statutory rate.accurately predicting our pre-tax and taxable income and loss and the taxablemix of jurisdictions to which it relates,they relate, changes in how we do business, acquisitions (including integrations) and investments, audit developments, foreign exchange rates,currency gains (losses), changes in law, regulations, and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized.2011,2013, our federal net operating loss carryforward was approximately $384 million. We also have$275 million and we had approximately $273$295 million of federal tax credits potentially available to offset future tax liabilities. Once we utilize our federal net operating losses and tax credits, we expect cash paid for taxes to significantly increase. As a resultEquity–methodgains (losses),activity, net of tax, werewas $(71) million, $(155) million, and $(12) million $7 million,in 2013, 2012, and $(6) million in 2011 2010, and 2009. The increase in equity-method investment. Details of the activity in 2011 compared to 2010 is primarily due to $175 million of equity-method losses, partially offset by gains of $163 million as a result of reductions in our equity ownership, through dilution, and a recovery on the sale of an equity position. The increase in equity-method investment activity in 2010 compared to 2009 is primarily due to the recognition of a non-cash gain on a previously held equity position in a company that was acquired in 2010.Year Ended December 31, 2013 2012 2011 Equity in earnings (loss) of LivingSocial: Impairment charges recorded by LivingSocial $ (12 ) $ (170 ) $ — Gain on existing equity interests, LivingSocial acquisitions — 75 — Operating and other losses (58 ) (96 ) (178 ) Total equity in earnings (loss) of LivingSocial (70 ) (191 ) (178 ) Other equity-method investment activity: Amazon dilution gains on LivingSocial investment — 37 114 Recovery on sale of equity position — — 49 Other, net (1 ) (1 ) 3 Total other equity-method investment activity (1 ) 36 166 Equity-method investment activity, net of tax $ (71 ) $ (155 ) $ (12 ) millions, except per share data)millions): Year Ended
December 31, 2011 Year Ended
December 31, 2010 Year Ended
December 31, 2009 At Prior
Year
Rates (1) Exchange
Rate
Effect (2) As
Reported At Prior
Year
Rates (1) Exchange
Rate
Effect (2) As
Reported At Prior
Year
Rates (1) Exchange
Rate
Effect (2) As
Reported $ 46,985 $ 1,092 $ 48,077 $ 34,290 $ (86 ) $ 34,204 $ 24,691 $ (182 ) $ 24,509 46,176 1,039 47,215 32,856 (58 ) 32,798 23,522 (142 ) 23,380 809 53 862 1,434 (28 ) 1,406 1,170 (41 ) 1,129 Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended December 31, 2011 Net sales $ 75,736 $ (1,284 ) $ 74,452 $ 61,947 $ (854 ) $ 61,093 $ 46,985 $ 1,092 $ 48,077 Operating expenses 74,962 (1,255 ) 73,707 61,257 (840 ) 60,417 46,176 1,039 47,215 Income from operations 774 (29 ) 745 690 (14 ) 676 809 53 862 (1) Represents the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results. (2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period for operating results. , and other SEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Our measures of “Free cash flow,” operating expenses with and without stock-based compensation, and the effect of exchange rates on our consolidated statementstatements of operations, meet the definition of non-GAAP financial measures.fixed assets,property and equipment, including internal-use software and website development.development,” which are included in cash flow from investing activities. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it typically will present a more conservative measure of cash flowsflow from operations since purchases of fixed assetsproperty and equipment, including internal-use software and website development, are a necessary component of ongoing operations.obligations related todebt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cashactivities”activities,” for 2011, 2010,2013, 2012, and 20092011 (in millions): Year Ended December 31, 2011 2010 2009 $ 3,903 $ 3,495 $ 3,293 (1,811 ) (979 ) (373 ) $ 2,092 $ 2,516 $ 2,920 $ (1,930 ) $ (3,360 ) $ (2,337 ) $ (482 ) $ 181 $ (280 ) Year Ended December 31, 2013 2012 2011 Net cash provided by (used in) operating activities $ 5,475 $ 4,180 $ 3,903 Purchases of property and equipment, including internal-use software and website development (3,444 ) (3,785 ) (1,811 ) Free cash flow $ 2,031 $ 395 $ 2,092 Net cash provided by (used in) investing activities $ (4,276 ) $ (3,595 ) $ (1,930 ) Net cash provided by (used in) financing activities $ (539 ) $ 2,259 $ (482 ) expenseexpenses is consistent with our segment presentation in our footnotes to the consolidated financial statements.” “Marketing,” and “General and administrative” line items would be higher.Guidance31, 201230, 2014, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of January 31, 2012.30, 2014, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as 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, and the various factors detailed below.20122014 Guidance$12.0$18.2 billion and $13.4$19.9 billion, or to grow between 22%13% and 36%24% compared with first quarter 2011.2013.$(200)$(200) million and $100$200 million or between 162% decline and 69% decline, compared withto $181 million in first quarter 2011.2013.$200$350 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings, or investmentslegal settlements are concluded and that there are no further revisions to stock-based compensation estimates.These projections are subject to substantial uncertainty. See Item 1Aportfolio.portfolio and our long-term debt. 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 grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.at as of December 31, 20112013 (in millions, except percentages): 2012 2013 2014 2015 2016 Thereafter Total Estimated
Fair Value at
December 31,
2011 $ 3,651 $ — $ — $ — $ — $ — $ 3,651 $ 3,651 0.06 % — — — — — 0.06 % 140 280 124 1 — — 545 563 1.46 % 1.88 % 2.01 % 1.66 % — — 1.80 % 1,390 963 179 31 — — 2,563 2,593 0.12 % 0.29 % 0.63 % 1.16 % — — 0.23 % 23 26 5 — — — 54 55 1.16 % 1.13 % 1.77 % — — — 1.21 % 782 279 450 81 — — 1,592 1,640 0.17 % 0.87 % 0.91 % 0.91 % — — 0.54 % 11 6 4 — — — 21 22 0.74 % 0.75 % 0.70 % — — — 0.74 % $ 5,997 $ 1,554 $ 762 $ 113 $ — $ — $ 8,426 $ 8,524 2014 2015 2016 2017 2018 Thereafter Total Estimated Fair Value as of December 31, 2013 Money market funds $ 5,914 $ — $ — $ — $ — $ — $ 5,914 $ 5,914 Weighted average interest rate 0.12 % — % — % — % — % — % 0.12 % Corporate debt securities 158 267 247 27 19 — 718 741 Weighted average interest rate 0.56 % 0.70 % 1.02 % 1.65 % 1.62 % — % 0.84 % U.S. government and agency securities 1,141 544 348 151 25 — 2,209 2,222 Weighted average interest rate 0.20 % 0.47 % 0.98 % 1.30 % 2.40 % — % 0.49 % Asset backed securities 25 20 19 — — — 64 65 Weighted average interest rate 0.57 % 0.72 % 1.01 % — % — % — % 0.75 % Foreign government and agency securities 62 289 351 24 3 — 729 758 Weighted average interest rate 0.19 % 0.22 % 0.35 % 0.64 % 1.49 % — % 0.30 % Other securities 7 14 13 2 — — 36 36 Weighted average interest rate 0.68 % 0.79 % 1.10 % 1.57 % — % — % 0.91 % $ 7,307 $ 1,134 $ 978 $ 204 $ 47 $ — $ 9,670 Cash equivalent and marketable fixed income securities $ 9,736 2011,2013, net sales from our International segment accounted for 44%40% 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 denominated in the functional currencies of the corresponding websites and primarily include Euros, British Pounds, Japanese Yen, and Japanese Yen.Chinese Yuan. The functional currency of our subsidiaries that either operate or support these websites is the same as the corresponding local currency. The results of operations of, and certain of our intercompany balances associated with, our internationally-focused websites are exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, net sales and other operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. For example, as a result of fluctuations in foreign exchange rates during 2011,2013, International segment revenues increased $1.1decreased $1.3 billion in comparison with the prior year.at as of December 31, 20112013, of $4.1$5.6 billion, an assumed 5%, 10%, and 20% negative currency movement would result in fair value declines of $205$280 million, $405$560 million, and $815 million.$1.1 billion. All investments are classified as “available-for-sale.” Fluctuations in fair value are recorded in “Accumulated other comprehensive income (loss),loss,” a separate component of stockholders’ equity.at as of December 31, 2011,2013, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $55 million, $110$120 million, and $220$270 million, recorded to “Other income (expense), net.”“Effect“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Effect of Exchange Rates,”Rates” for additional information on the effect on reported results of changes in exchange rates.2011,2013, our recorded basis in equity investments was $266$127 million. These investments primarily relate to equity-methodequity and cost method investments in private companies. We review our investments for impairment when events and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our analysis includes review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies are inherently more difficult due to the lack of readily available market data. As such, we believe that market sensitivities are not practicable. PagePage 35363720112013 and 2010,2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2).2013. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.20112013 and 2010,2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2011,2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.2011,2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated January 31, 201230, 2014 expressed an unqualified opinion thereon.31, 2012 Year Ended December 31, 2011 2010 2009 $ 3,777 $ 3,444 $ 2,769 631 1,152 902 1,083 568 378 557 424 341 154 106 103 (4 ) (2 ) (4 ) (56 ) (79 ) (15 ) 136 4 81 (62 ) (259 ) (105 ) (1,777 ) (1,019 ) (531 ) (866 ) (295 ) (481 ) 2,997 2,373 1,859 1,067 740 300 1,064 687 1,054 (1,021 ) (905 ) (589 ) 3,903 3,495 3,293 (1,811 ) (979 ) (373 ) (705 ) (352 ) (40 ) 6,843 4,250 1,966 (6,257 ) (6,279 ) (3,890 ) (1,930 ) (3,360 ) (2,337 ) 62 259 105 (277 ) — — 177 143 87 (444 ) (221 ) (472 ) (482 ) 181 (280 ) 1 17 (1 ) 1,492 333 675 $ 5,269 $ 3,777 $ 3,444 $ 14 $ 11 $ 32 33 75 48 753 405 147 259 172 188 Year Ended December 31, 2013 2012 2011 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 8,084 $ 5,269 $ 3,777 OPERATING ACTIVITIES: Net income (loss) 274 (39 ) 631 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation of property and equipment, including internal-use software and website development, and other amortization 3,253 2,159 1,083 Stock-based compensation 1,134 833 557 Other operating expense (income), net 114 154 154 Losses (gains) on sales of marketable securities, net 1 (9 ) (4 ) Other expense (income), net 166 253 (56 ) Deferred income taxes (156 ) (265 ) 136 Excess tax benefits from stock-based compensation (78 ) (429 ) (62 ) Changes in operating assets and liabilities: Inventories (1,410 ) (999 ) (1,777 ) Accounts receivable, net and other (846 ) (861 ) (866 ) Accounts payable 1,888 2,070 2,997 Accrued expenses and other 736 1,038 1,067 Additions to unearned revenue 2,691 1,796 1,064 Amortization of previously unearned revenue (2,292 ) (1,521 ) (1,021 ) Net cash provided by (used in) operating activities 5,475 4,180 3,903 INVESTING ACTIVITIES: Purchases of property and equipment, including internal-use software and website development (3,444 ) (3,785 ) (1,811 ) Acquisitions, net of cash acquired, and other (312 ) (745 ) (705 ) Sales and maturities of marketable securities and other investments 2,306 4,237 6,843 Purchases of marketable securities and other investments (2,826 ) (3,302 ) (6,257 ) Net cash provided by (used in) investing activities (4,276 ) (3,595 ) (1,930 ) FINANCING ACTIVITIES: Excess tax benefits from stock-based compensation 78 429 62 Common stock repurchased — (960 ) (277 ) Proceeds from long-term debt and other 394 3,378 177 Repayments of long-term debt, capital lease, and finance lease obligations (1,011 ) (588 ) (444 ) Net cash provided by (used in) financing activities (539 ) 2,259 (482 ) Foreign-currency effect on cash and cash equivalents (86 ) (29 ) 1 Net increase (decrease) in cash and cash equivalents 574 2,815 1,492 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,658 $ 8,084 $ 5,269 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on long-term debt $ 97 $ 31 $ 14 Cash paid for income taxes (net of refunds) 169 112 33 Property and equipment acquired under capital leases 1,867 802 753 Property and equipment acquired under build-to-suit leases 877 29 259 Year Ended December 31, 2011 2010 2009 $ 42,000 $ 30,792 $ 22,273 6,077 3,412 2,236 48,077 34,204 24,509 37,288 26,561 18,978 4,576 2,898 2,052 1,630 1,029 680 2,909 1,734 1,240 658 470 328 154 106 102 47,215 32,798 23,380 862 1,406 1,129 61 51 37 (65 ) (39 ) (34 ) 76 79 29 72 91 32 934 1,497 1,161 (291 ) (352 ) (253 ) (12 ) 7 (6 ) $ 631 $ 1,152 $ 902 $ 1.39 $ 2.58 $ 2.08 $ 1.37 $ 2.53 $ 2.04 453 447 433 461 456 442 $ 133 $ 90 $ 79 39 27 20 292 223 182 93 84 60 Year Ended December 31, 2013 2012 2011 Net product sales $ 60,903 $ 51,733 $ 42,000 Net services sales 13,549 9,360 6,077 Total net sales 74,452 61,093 48,077 Operating expenses (1): Cost of sales 54,181 45,971 37,288 Fulfillment 8,585 6,419 4,576 Marketing 3,133 2,408 1,630 Technology and content 6,565 4,564 2,909 General and administrative 1,129 896 658 Other operating expense (income), net 114 159 154 Total operating expenses 73,707 60,417 47,215 Income from operations 745 676 862 Interest income 38 40 61 Interest expense (141 ) (92 ) (65 ) Other income (expense), net (136 ) (80 ) 76 Total non-operating income (expense) (239 ) (132 ) 72 Income before income taxes 506 544 934 Provision for income taxes (161 ) (428 ) (291 ) Equity-method investment activity, net of tax (71 ) (155 ) (12 ) Net income (loss) $ 274 $ (39 ) $ 631 Basic earnings per share $ 0.60 $ (0.09 ) $ 1.39 Diluted earnings per share $ 0.59 $ (0.09 ) $ 1.37 Weighted average shares used in computation of earnings per share: Basic 457 453 453 Diluted 465 453 461 _____________ (1) Includes stock-based compensation as follows: Fulfillment $ 294 $ 212 $ 133 Marketing 88 61 39 Technology and content 603 434 292 General and administrative 149 126 93 BALANCE SHEETSmillions, except per share data) December 31, 2011 2010 A S S E T S $ 5,269 $ 3,777 4,307 4,985 4,992 3,202 2,571 1,587 351 196 17,490 13,747 4,417 2,414 28 22 1,955 1,349 1,388 1,265 $ 25,278 $ 18,797 L I A B I L I T I E S A N D S T O C K H O L D E R S’ E Q U I T Y $ 11,145 $ 8,051 3,751 2,321 14,896 10,372 2,625 1,561 0 0 5 5 (877 ) (600 ) 6,990 6,325 (316 ) (190 ) 1,955 1,324 7,757 6,864 $ 25,278 $ 18,797 Year Ended December 31, 2013 2012 2011 Net income (loss) $ 274 $ (39 ) $ 631 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $(20), $(30), and $20 63 76 (123 ) Net change in unrealized gains on available-for-sale securities: Unrealized gains (losses), net of tax of $3, $(3), and $1 (10 ) 8 (1 ) Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $(1), $3, and $1 1 (7 ) (2 ) Net unrealized gains (losses) on available-for-sale securities (9 ) 1 (3 ) Total other comprehensive income (loss) 54 77 (126 ) Comprehensive income $ 328 $ 38 $ 505 STATEMENTS OF STOCKHOLDERS’ EQUITYmillions) Common Stock Treasury
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings
(Accumulated
Deficit) Total
Stockholders’
Equity Shares Amount 428 $ 4 $ (600 ) $ 4,121 $ (123 ) $ (730 ) $ 2,672 — — — — — 902 902 — — — — 62 — 62 — — — — 4 — 4 — — — — 1 — 1 969 7 — — 19 — — 19 9 1 — 1,144 — — 1,145 — — — 103 — — 103 — — — 349 — — 349 444 5 (600 ) 5,736 (56 ) 172 5,257 — — — — — 1,152 1,152 — — — — (137 ) — (137 ) — — — — 3 — 3 1,018 7 — — 16 — — 16 — — — 145 — — 145 — — — 428 — — 428 451 5 (600 ) 6,325 (190 ) 1,324 6,864 — — — — — 631 631 — — — — (123 ) — (123 ) — — — — (3 ) — (3 ) 505 5 — — 7 — — 7 (1 ) — (277 ) — — — (277 ) — — — 62 — — 62 — — — 569 — — 569 — — — 27 — — 27 455 $ 5 $ (877 ) $ 6,990 $ (316 ) $ 1,955 $ 7,757 December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents $ 8,658 $ 8,084 Marketable securities 3,789 3,364 Inventories 7,411 6,031 Accounts receivable, net and other 4,767 3,817 Total current assets 24,625 21,296 Property and equipment, net 10,949 7,060 Goodwill 2,655 2,552 Other assets 1,930 1,647 Total assets $ 40,159 $ 32,555 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 15,133 $ 13,318 Accrued expenses and other 6,688 4,892 Unearned revenue 1,159 792 Total current liabilities 22,980 19,002 Long-term debt 3,191 3,084 Other long-term liabilities 4,242 2,277 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value: Authorized shares — 500 Issued and outstanding shares — none — — Common stock, $0.01 par value: Authorized shares — 5,000 Issued shares — 483 and 478 Outstanding shares — 459 and 454 5 5 Treasury stock, at cost (1,837 ) (1,837 ) Additional paid-in capital 9,573 8,347 Accumulated other comprehensive loss (185 ) (239 ) Retained earnings 2,190 1,916 Total stockholders’ equity 9,746 8,192 Total liabilities and stockholders’ equity $ 40,159 $ 32,555 Common Stock Shares Amount Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2011 451 $ 5 $ (600 ) $ 6,325 $ (190 ) $ 1,324 $ 6,864 Net income — — — — — 631 631 Other comprehensive income (loss) — — — — (126 ) — (126 ) Exercise of common stock options 5 — — 7 — — 7 Repurchase of common stock (1 ) — (277 ) — — — (277 ) Excess tax benefits from stock-based compensation — — — 62 — — 62 Stock-based compensation and issuance of employee benefit plan stock — — — 569 — — 569 Issuance of common stock for acquisition activity — — — 27 — — 27 Balance as of December 31, 2011 455 5 (877 ) 6,990 (316 ) 1,955 7,757 Net income (loss) — — — — — (39 ) (39 ) Other comprehensive income — — — — 77 — 77 Exercise of common stock options 4 — — 8 — — 8 Repurchase of common stock (5 ) — (960 ) — — — (960 ) Excess tax benefits from stock-based compensation — — — 429 — — 429 Stock-based compensation and issuance of employee benefit plan stock — — — 854 — — 854 Issuance of common stock for acquisition activity — — — 66 — — 66 Balance as of December 31, 2012 454 5 (1,837 ) 8,347 (239 ) 1,916 8,192 Net income — — — — — 274 274 Other comprehensive income — — — — 54 — 54 Exercise of common stock options 5 — — 4 — — 4 Repurchase of common stock — — — — — — — Excess tax benefits from stock-based compensation — — — 73 — — 73 Stock-based compensation and issuance of employee benefit plan stock — — — 1,149 — — 1,149 Balance as of December 31, 2013 459 $ 5 $ (1,837 ) $ 9,573 $ (185 ) $ 2,190 $ 9,746 1995 and offers Earth’s Biggest Selection.1995. We seek to be Earth’s most customer-centric company for fourcompany. In each of our two geographic segments, we serve our primary customer sets:sets, consisting of consumers, sellers, enterprises, and content creators. We serve consumers through our retail websites and focus on selection, price, and convenience. We also manufacture and sell Kindleelectronic devices. We offer programs that enable sellers to sell their products on our websites and their own branded websites and to fulfill orders through us.us, and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. We serve developers and enterprises of all sizes through AWS, which provides access to technology infrastructure that enables virtually any type of business. In addition, we generate revenue through other marketing and promotionalprovide services, such as online advertising services and co-branded credit card agreements.principal segments: North America and International. See “Note 11—12—Segment Information.”Services salesUnearned revenue is now presented separately because it is now more than 10% of total net sales.have beenbetween consolidated entities are eliminated.fixed assets ,property and internally-developedequipment, internal-use software, acquisition purchase price allocations, investments in equity interests, and contingencies. Actual results could differ materially from those estimates. Year Ended December 31, 2011 2010 2009 453 447 433 8 9 9 461 456 442 (1)Calculated using the treasury stock method, which assumes proceeds are used to reduce the dilutive effect of outstanding stock awards. Assumed proceeds include the unrecognized deferred compensation of stock awards, and assumed tax proceeds from excess stock-based compensation deductions.Year Ended December 31, 2013 2012 2011 Shares used in computation of basic earnings per share 457 453 453 Total dilutive effect of outstanding stock awards 8 — 8 Shares used in computation of diluted earnings per share 465 453 461 fulfillment-relatedFulfillment by Amazon services in connection with certain of our sellers’ programs. Third-party sellers maintain ownership of their inventory, regardless of whether fulfillment is provided by us or the third-party sellers, and therefore these products are not included in our inventories.AtAs of December 31, 20112013 and 2010,2012, vendor receivables, net, were $934 million$1.3 billion and $763 million,$1.1 billion, and customer receivables, net, were $1.2$1.7 billion and $561 million.and $77 million atas of December 31, 20112013, 2012, and 2010.2011, 2010,2013, 2012, and 2009,2011, we capitalized $307$581 million (including $51$87 million of stock-based compensation), $213$454 million (including $38$74 million of stock-based compensation), and $187$307 million (including $35$51 million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized amounts was $451 million, $327 million, and $236 million $184 million,for 2013, 2012, and $172 million for 2011, 2010,2011.2009.Depreciation of Fixed AssetsFixed assets includeEquipment, Netandfive years for networking equipment, five years for furniture and fixtures, and ten years for heavy equipment). Depreciation expense is classified within the corresponding operating expense categories on our consolidated statements of operations.20112013 that would require an update to our annual impairment test. See “Note 4—Acquisitions, Goodwill, and Acquired Intangible Assets.”acquired intangible assets, net of amortization; deferred costs; certain equity investments; and intellectual property rights, net of amortization.short-toshort- to intermediate-term fixed income securities and AAA-rated money market funds. Such investments are included in “Cash and cash equivalents,” or “Marketable securities” on the accompanying consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in “Accumulated other comprehensive income (loss).loss.” including our 31% investment in LivingSocial, are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee. The total of theseour investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, is classifiedincluded within “Other assets” on our consolidated balance sheets as “Other assets.”sheets. Our share of the investees’ earnings or losses as reported by equity methodequity-method investees, amortization of the related intangible assets, and related gains or losses, if any, are classified as “Equity-method“Equity-method investment activity, net of tax” on our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes operating and non-operating gains and charges, which can have a significant impact on our reportedequity methodequity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due.sheetsheets and are recorded at fair value with unrealized gains and losses, net of tax, included in “Accumulated other comprehensive loss.”atas of December 31, 20112013 or 2010.atas of December 31, 20112013 and 20102012 were liabilities of $788 million$1.4 billion and $503 million$1.1 billion for unredeemed gift certificates.cards. We reduce the liability for a gift certificatecard when redeemed by a customer. If a gift certificatecard is not redeemed, we recognize revenue when it expires or for a certificate without an expiration date, when the likelihood of its redemption becomes remote, generally two years from the date of issuance.Current unearnedUnearned revenue is included in “Accrued expenses and other” and non-current unearned revenue is included in “Long-term liabilities” on our consolidated balance sheets. Current unearned revenue was $462 million and $461 million at December 31, 2011 and 2010. Non-current unearned revenue was $87 million and $34 million at December 31, 2011 and 2010.Income TaxesIncome tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intendprimarily relates to invest such undistributed earnings indefinitely outside of the U.S. Undistributed earnings of foreign subsidiaries that are indefinitely invested outside of the U.S were $2.0 billion at December 31, 2011. Determination of the unrecognized deferred tax liability that would be incurred if such amounts were repatriated is not practicable.Deferred income tax balances reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered.Deferred tax assets are evaluated for future realization and reduced by a valuation allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent cumulative earnings experience and expectations of future taxable income and capital gains by taxing jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors. We allocate our valuation allowance to current and long-term deferred tax assets on a pro-rata basis.We utilize a two-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. We include interest and penalties related to our tax contingencies in income tax expense.Fair Value of Financial InstrumentsFair 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 date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold any cash, cash equivalents, or marketable securities categorized as Level 3 as of December 31, 2011, or December 31, 2010.RevenueWe recognize revenue from product sales or services rendered when the following four criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using estimated selling prices if we do not have vendor-specific objective evidence or third-party evidence of the selling prices of the deliverables. Sales of our Kindle device are considered arrangements with multiple deliverables, consisting of the device, 3G wireless access and delivery for some models, and software upgrades. We allocate the arrangement price to each of the elements based on the estimated selling prices of each element. Estimated selling prices are management’s best estimates of the prices that we would charge our customers if we were to sell the standalone elements separately and include considerations of customer demand, prices charged by us and others for similar deliverables, and the price if largely based on costs. The revenue related to the device, which is the substantial portion of the total sale price, and related costs are recognized upon delivery. Revenue related to 3G wireless access and delivery and software upgrades is amortized over the average life of the device, which is estimated to be three years.We evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. Generally, when we are primarily obligated in a transaction, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, or have several but not all of these indicators, revenue is recorded at the gross sales price. We generally record the net amounts as commissions earned if we are not primarily obligated and do not have latitude in establishing prices. Such amounts earned are determined 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, and return allowances, are recorded when the products are shipped and title passes to customers. Kindle devices sold through retailers are recognized at the point of sale to consumers. Retail sales to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier.Services sales represent third-party seller fees earned (including commissions) and related shipping fees and non-retail activities such as AWS, miscellaneous marketing and promotional activities, other seller sites, and our co-branded credit card arrangements. Services sales, net of promotional discounts and return allowances, are recognized when services have been rendered.Return allowances, which reduce revenue, are estimated using historical experience. Revenue from product sales and services rendered is recorded net of sales and consumption taxes. Amounts received in advance for subscription services, including amounts received for Amazon Prime memberships and other membership programs, are deferred and recognized as revenue over the subscription term.We periodically provide incentive offers to our customers to encourage purchases. Such offers include current discount offers, such as percentage discounts off current purchases, inducement offers, such as offers for future discounts subject to a minimum current purchase, and other similar offers. Current discount offers, when accepted by our customers, are treated as a reduction to the purchase price of the related transaction, while inducement offers, when accepted by our customers, are treated as a reduction to purchase price based on estimated future redemption rates. Redemption rates are estimated using our historical experience for similar inducement offers. Current discount offers and inducement offers are presented as a net amount in “Total sales.”Cost of SalesCost 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 from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers. Payment processing and related transaction costs, including those associated with seller transactions, are classified in “Fulfillment” on our consolidated statements of operations.Vendor AgreementsWe have agreements to receive cash consideration from certain of our vendors, including rebates and cooperative marketing reimbursements. We generally consider amounts received from our vendors as a reduction of the prices we pay for their products and, therefore, record such amounts as a reduction of the cost of inventory we buy from them. Vendor rebates are typically dependent upon reaching minimum purchase thresholds. We evaluate the likelihood of reaching purchase thresholds using past experience and current year forecasts. When volume rebates can be reasonably estimated, we record a portion of the rebate as we make progress towards the purchase threshold.When we receive direct reimbursements for costs incurred by us in advertising the vendor’s product or service, the amount we receive is recorded as an offset to “Marketing” on our consolidated statements of operations.FulfillmentFulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting, and warehousing inventories; picking, packaging, and preparing customer orders for shipment; payment processing and related transaction costs, including costs associated with our guarantee for certain seller transactions; responding to inquiries from customers, and supply chain management for our manufactured Kindle devices. Fulfillment costs also include amounts paid to third parties that assist us in fulfillment and customer service operations.MarketingMarketing costs consist primarily of targeted online advertising, television advertising, public relations expenditures; and payroll and related expenses for personnel engaged in marketing, business development, and selling activities. We pay commissions to participants in our Associates program when their customer referrals result in product sales and classify such costs as “Marketing” on our consolidated statements of operations. We also participate in cooperative advertising arrangements with certain of our vendors, and other third parties.Advertising and other promotional costs, are expensed as incurred, and were $1.4 billion, $890 million, and $593 million in 2011, 2010, and 2009. Prepaid advertising costs were not significant at December 31, 2011 and 2010.Technology and ContentTechnology and content expenses consist principally of technology infrastructure expenses and payroll and related expenses for employees involved in application, product, and platform development, category expansion, editorial content, buying, merchandising selection, and systems support, digital initiatives, as well as costs associated with the compute, storage and telecommunications infrastructure used internally and 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 and amortized over two years.General and AdministrativeGeneral and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal, and human relations, among others; costs associated with use by these functions of facilities and equipment, such as depreciation expense and rent; professional fees and litigation costs; and other general corporate costs.Stock-Based CompensationCompensation 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 of our common stock. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class, economic environment, and historical experience.Other Operating Expense (Income), NetOther operating expense (income), net, consists primarily of intangible asset amortization expense, expenses related to legal settlements, and certain gains and losses on the sale of assets.Other Income (Expense), NetOther income (expense), net, consists primarily of foreign currency transaction gains and losses of $64 million, $75 million, and $26 million in 2011, 2010, and 2009, and realized gains and losses on marketable securities sales of $4 million, $1 million, and $4 million in 2011, 2010, and 2009.SpainAustralia.Net sales generated from these websites, as well as most of the related expenses directly incurred from those operations, are denominated in thelocal functional currencies of the resident countries.currencies. The functional currency of our subsidiaries that either operate or support these websites is the same as the local currency. Assets and liabilities of these subsidiaries are translated into U.S. Dollars at period-end exchange rates, and revenues and expenses are translated at average rates prevailing throughout the period. Translation adjustments are included in “Accumulated other comprehensive income (loss),loss,” a separate component of stockholders’ equity, and in the “Foreign currency“Foreign-currency effect on cash and cash equivalents,” on our consolidated statements of cash flows. Transaction gains and losses including intercompany transactions denominated in a currency other than the functional currency of the entity involved are included in “Other income (expense), net” on our consolidated statements of operations. In connection with the settlement and remeasurement of intercompany balances, we recorded gains (losses) of $(84) million, $(95) million, and $70 million $70 million, and $5 million in 2011, 2010, and 2009.Recent Accounting PronouncementsIn 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to address diversity in practice in interpreting the pro forma revenue and earnings disclosure requirements for business combinations. The ASU specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the current year business combination(s) had occurred as of the beginning of the comparable prior annual reporting period. We prospectively adopted this ASU effective Q1 2011, with no material impact on our consolidated financial statements.In 2011, the FASB issued two ASUs which amend guidance for the presentation of comprehensive income. The amended guidance requires an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The current option to report other comprehensive income and its components in the statement of stockholders’ equity will be eliminated. Although the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under existing guidance. These ASUs are effective for us in Q12013, 2012, and retrospective application will be required. These ASUs will change our financial statement presentation2011.20112013 and 20102012, our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities. Such amountsCash equivalents and marketable securities are recorded at fair value. The following table summarizes, by major security type, our assetscash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions): December 31, 2011 Cost or
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Total
Estimated
Fair Value $ 1,207 $ 0 $ 0 $ 1,207 3,651 0 0 3,651 2 0 (1 ) 1 1,627 14 (1 ) 1,640 2,592 3 (2 ) 2,593 562 3 (2 ) 563 56 0 (1 ) 55 22 0 0 22 $ 9,719 $ 20 $ (7 ) $ 9,732 (156 ) $ 9,576 December 31, 2010 Cost or
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Total
Estimated
Fair Value $ 613 $ — $ — $ 613 1,882 — — 1,882 2 — (1 ) 1 2,152 7 (1 ) 2,158 3,746 11 (1 ) 3,756 457 3 (1 ) 459 32 1 — 33 17 — — 17 $ 8,901 $ 22 $ (4 ) $ 8,919 (157 ) $ 8,762 December 31, 2013 Cash $ 3,008 $ — $ — $ 3,008 Level 1 securities: Money market funds 5,914 — — 5,914 Equity securities 3 1 — 4 Level 2 securities: Foreign government and agency securities 757 2 (1 ) 758 U.S. government and agency securities 2,224 1 (3 ) 2,222 Corporate debt securities 739 3 (1 ) 741 Asset-backed securities 65 — — 65 Other fixed income securities 36 — — 36 $ 12,746 $ 7 $ (5 ) $ 12,748 Less: Restricted cash, cash equivalents, and marketable securities (1) (301 ) Total cash, cash equivalents, and marketable securities $ 12,447 December 31, 2012 Cash $ 2,595 $ — $ — $ 2,595 Level 1 securities: Money market funds 5,561 — — 5,561 Equity securities 2 — — 2 Level 2 securities: Foreign government and agency securities 763 9 — 772 U.S. government and agency securities 1,809 3 (2 ) 1,810 Corporate debt securities 719 6 — 725 Asset-backed securities 49 — — 49 Other fixed income securities 33 — — 33 $ 11,531 $ 18 $ (2 ) $ 11,547 Less: Restricted cash, cash equivalents, and marketable securities (1) (99 ) Total cash, cash equivalents, and marketable securities $ 11,448 (1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral for standby and trade letters of credit, guarantees, debt, and real estate lease agreements. We classify cash 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—8—Commitments and Contingencies.” Year Ended December 31, 2011 2010 2009 $ 15 $ 5 $ 4 11 4 — Year Ended December 31, 2013 2012 2011 Realized gains $ 6 $ 20 $ 15 Realized losses (7 ) 10 11 fixed-incomefixed income securities as of December 31, 20112013 (in millions): Amortized
Cost Estimated
Fair Value $ 6,011 $ 6,012 2,498 2,512 $ 8,509 $ 8,524 Due within one year $ 7,226 $ 7,227 Due after one year through five years 2,115 2,118 Due after five years through ten years 133 132 Due after ten years 261 259 $ 9,735 $ 9,736 FIXED ASSETSFixed assets,PROPERTY AND EQUIPMENT December 31, 2011 2010 $ 1,633 $ 775 2,573 1,192 643 487 831 418 106 384 $ 5,786 $ 3,256 364 211 610 316 294 255 101 60 1,369 842 $ 4,417 $ 2,414 December 31, 2013 2012 Gross property and equipment (1): Land and buildings $ 4,584 $ 2,966 Equipment and internal-use software (2) 9,274 6,228 Other corporate assets 231 174 Construction in progress 720 214 Gross property and equipment 14,809 9,582 Total accumulated depreciation (1) 3,860 2,522 Total property and equipment, net $ 10,949 $ 7,060 (1) Excludes the original cost and accumulated depreciation of fully-depreciated assets. (2) Includes internal-use software of $1.1 billion and $866 million as of December 31, 2013 and 2012. fixed assetsproperty and equipment was $2.5 billion, $1.7 billion, and $1.0 billion, $552 million, and $384 million which includes amortization of fixed assetsproperty and equipment acquired under capital lease obligations of $826 million, $510 million, and $335 million $164 million,for 2013, 2012, and $88 million for 2011, 2010, and 2009.2011. Gross assets remaining under capital leases were $1.6$4.2 billion and $818 million at$2.3 billion as of December 31, 20112013 and 2010.2012. Accumulated depreciation associated with capital leases was $603$1.9 billion and $1.1 billion as of December 31, 2013 and 2012. Cash paid for interest on capital leases was $41 million, $51 million, and $331$44 million at December 31, 2011for 2013, 2012, and 2010.period for accounting purposes, including portions of our Seattle, Washington, corporate office space that we do not currently occupy. The building which we have not yet occupied is scheduled to be completed in 2012 and 2013.TheAdditionally, certain build-to-suit lease arrangements and financing leases provide purchase options. Upon occupancy, the long-term construction obligation is nowobligations are considered long-term financing lease obligations with amounts payable during the next 12 months recorded as “Accrued expenses and other.” Gross assets remaining under financing leases were $595$578 million and $189$9 million at as of December 31, 20112013 and 2010.2012. Accumulated depreciation associated with financing leases was $37$22 million and $8$5 million at as of December 31, 20112013 and 2010. Purchase Price Cash paid, net of cash acquired $ 613 Stock options assumed 65 $ 678 Allocation Goodwill $ 560 Intangible assets (1): Marketing-related 5 Contract-based 3 Technology-based 168 Customer-related 17 193 Property and equipment 9 Deferred tax assets 34 Other assets acquired 41 Deferred tax liabilities (81 ) Other liabilities assumed (78 ) $ 678 (1) Acquired intangible assets have estimated useful lives of between four and 10 years, with a weighted-average amortization period of five years. 2012 2011 Net sales $ 61,118 $ 48,157 Net income (loss) (2 ) 499 $ 637 89 25 20 $ 771 $ 615 130 94 6 230 119 49 68 (65 ) (70 ) (75 ) (100 ) $ 771 Purchase Price Cash paid, net of cash acquired $ 637 Existing equity interest 89 Indemnification holdbacks 25 Stock options assumed 20 $ 771 Allocation Goodwill $ 615 Intangible assets (1): Marketing-related 130 Customer-related 94 Contract-based 6 230 Property and equipment 119 Deferred tax assets 49 Other assets acquired 68 Accounts payable (65 ) Debt (70 ) Deferred tax liabilities (75 ) Other liabilities assumed (100 ) $ 771 (1) Amortization periods range from 2two to 10 years, with a weighted-average amortization period of 8eight years.(2)Includes a $38 million contingent liability related to historic tax exposures.“equity-method“Equity-method investment activity, net of tax,” in our 2011 consolidated statement of operations. The fair value of assumed stock options was estimated using the Black-Scholes model. We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income and cost approaches. Purchased identifiable intangible assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line or accelerated basis over their estimated useful lives.Pro Forma Financial Information (unaudited)The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The aggregate net sales and net lossesbusiness combinations,acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.2009 Acquisition ActivityOn November 1, 2009, we acquired 100% of the outstanding equity of Zappos.com, Inc. (“Zappos”), in exchange for shares of our common stock, to expand our presence in softline retail categories, such as shoes and apparel.The fair value of Zappos’ stock options assumed was determined using the Black-Scholes model. The following table summarizes the consideration paid for Zappos (in millions): $ 1,079 55 $ 1,134 The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach. Purchased identifiable intangible assets are being amortized on a straight-line or accelerated basis over their respective useful lives.The following summarizes the allocation of the Zappos purchase price (in millions): $ 778 83 (167 ) 223 103 114 $ 1,134 (1)Acquired intangible assets have estimated useful lives of between 1 and 10 years.Zappos’ financial results have been included in our consolidated statements of income since November 1, 2009. The following pro forma financial information presents our results as if the Zappos acquisition had occurred at the beginning of 2009 (in millions): Year Ended
December 31, 2009 $ 25,064 853 We acquired certain additional companies during 2009 for an aggregate purchase price of $26 million, resulting in goodwill of $16 million and acquired intangible assets of $5 million. All of the entities have been consolidated into our financial statements since their respective acquisition dates. Pro forma results of operations have not been presented because the effects of these business combinations, individually and in the aggregate, were not material to our consolidated results of operations.20112013 and 20102012 by segment (in millions): North America International Consolidated $ 1,055 $ 179 $ 1,234 60 51 111 1 3 4 1,116 233 1,349 417 198 615 — (9 ) (9 ) $ 1,533 $ 422 $ 1,955 International Consolidated Goodwill - January 1, 2012 $ 1,533 $ 422 $ 1,955 New acquisitions (1) 403 184 587 Other adjustments (2) 1 9 10 Goodwill - December 31, 2012 1,937 615 2,552 New acquisitions 99 4 103 Other adjustments (2) (3 ) 3 — Goodwill - December 31, 2013 $ 2,033 $ 622 $ 2,655 (1) Primarily includesconsists of the goodwill of Kiva.(2) Primarily consists of changes in foreign exchange for goodwill in our International segment.exchange.following: Weighted
Average Life
Remaining December 31, 2011 2010 Acquired
Intangibles,
Gross (1) Accumulated
Amortization (1) Acquired
Intangibles,
Net Acquired
Intangibles,
Gross (1) Accumulated
Amortization (1) Acquired
Intangibles,
Net (in millions) 8.2 $ 408 $ (74 ) $ 334 $ 277 $ (37 ) $ 240 4.5 189 (74 ) 115 183 (43 ) 140 6.1 37 (13 ) 24 34 (10 ) 24 3.9 343 (169 ) 174 251 (92 ) 159 5.9 $ 977 $ (330 ) $ 647 $ 745 $ (182 ) $ 563 December 31, 2013 2012 Marketing-related 6.3 $ 429 $ (156 ) $ 273 $ 422 $ (113 ) $ 309 Contract-based 3.0 173 (110 ) 63 177 (89 ) 88 Technology- and content-based 4.4 278 (74 ) 204 231 (30 ) 201 Customer-related 2.4 368 (263 ) 105 332 (205 ) 127 Acquired intangibles (2) 4.2 $ 1,248 $ (603 ) $ 645 $ 1,162 $ (437 ) $ 725 (1) Excludes the original cost and accumulated amortization of fully-amortized intangibles. (2) Intangible assets have estimated useful lives of between 1one and 10 years.$105 million,in 2013, 2012, and $48 million in 2011, 2010, and 2009.2011. Expected future amortization expense of acquired intangible assets as of December 31, 20112013 is as follows (in millions): $ 135 114 95 79 65 159 $ 647 Year Ended December 31, 2014 $ 157 2015 140 2016 121 2017 101 2018 54 Thereafter 72 $ 645 Our equity-method investments include a 31% interest in LivingSocial. Summarized for this investee, as provided to us by LivingSocial, is as follows (in millions): Year Ended
December 31, 2011 $ 245 686 (117 ) $ (558 ) December 31, 2011 $ 156 285 225 21 199 Year Ended December 31, 2013 2012 2011 Statement of Operations: Revenue $ 399 $ 455 $ 238 Operating expense 461 666 613 Impairment charge 41 579 — Operating loss from continuing operations (103 ) (790 ) (375 ) Net loss from continuing operations (1) (101 ) (532 ) (417 ) Loss from discontinued operations, net of tax (2) (82 ) (121 ) (82 ) Net loss $ (183 ) $ (653 ) $ (499 ) (1) The difference between operating loss from continuing operations and net loss from continuing operations for 2012 is primarily due to non-operating, non-cash gains on previously held equity positions in companies that LivingSocial acquired during Q1 2012. (2) In November 2013, LivingSocial announced that it had reached an agreement to sell its Korean operations for $260 million. The transaction closed in January 2014. The statement of operations information above has been recast to present its Korean operations as discontinued operations. December 31, 2013 2012 Balance Sheet: Current assets $ 81 $ 74 Non-current assets 152 216 Current liabilities 298 336 Non-current liabilities 36 14 Redeemable stock 315 205 2011,2013, the book value of our equity-method investment in LivingSocial has been reduced to zero due to our recognition of equity-method losses over time. In Q1 2013 we made a $56 millioninvestment was $208 million. The summarized financial information is included for the periods in whichLivingSocial that we held an equityhave recorded as a cost method ownership interest.LIABILITIESDEBTOur$3.0 billion of unsecured senior notes in three tranches as described in the table below (collectively, the “Notes”). As of December 31, 2013 and 2012, the unamortized discount on the Notes was $23 million and $27 million. We also have other long-term liabilitiesdebt with a carrying amount, including the current portion, of $967 million and $691 million as of December 31, 2013 and 2012. The face value of our total long-term debt obligations is as follows (in millions): December 31, 2013 2012 0.65% Notes due on November 27, 2015 $ 750 $ 750 1.20% Notes due on November 29, 2017 1,000 1,000 2.50% Notes due on November 29, 2022 1,250 1,250 Other long-term debt 967 691 Total debt 3,967 3,691 Less current portion of long-term debt (753 ) (579 ) Face value of long-term debt $ 3,214 $ 3,112 summarizednot subject to any financial covenants under the Notes. We used the net proceeds from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9 billion and $3.0 billion as follows: December 31, 2011 2010 (in millions) $ 255 $ 184 598 276 562 181 57 260 266 243 887 417 $ 2,625 $ 1,561 Long-term DebtDecember 31, 2013Our long-term and 2012, which is based on quoted prices for our publicly-traded debt as of that date.5.8%5.5% and 5.5% in 20116.4% as of December 31, 2013 and 2010 and has maturities in 2012 and 2013. Long-term2012. We used the net proceeds from the issuance of the debt relates to amounts borrowed toprimarily fund certain international operations. Long-termThe estimated fair value of the other long-term debt, obligationswhich is based on Level 2 inputs, approximated its carrying value as of December 31, 2013 and 2012.Year Ended December 31, 2014 $ 753 2015 853 2016 36 2017 1,037 2018 38 Thereafter 1,250 $ 3,967 follows: December 31, 2011 (in millions) $ 384 (129 ) $ 255 December 31, 2013 2012 Long-term capital lease obligations $ 1,435 $ 737 Long-term financing lease obligations 555 9 Construction liabilities 385 87 Tax contingencies 457 336 Long-term deferred tax liabilities 571 476 Other 839 632 $ 4,242 $ 2,277 fixed assets, primarily related to technology infrastructure, and buildings have been acquired under capital leases. Long-term capital lease obligations are as follows: December 31, 2011 (in millions) $ 1,024 (49 ) 975 (377 ) $ 598 December 31, 2013 Gross capital lease obligations $ 2,437 Less imputed interest (47 ) Present value of net minimum lease payments 2,390 Less current portion of capital lease obligations (955 ) Total long-term capital lease obligations $ 1,435 liability.liabilities.” As such, these arrangements are accounted for as financing leases. Long-term finance lease obligations are as follows: December 31, 2011 (in millions) $ 863 (283 ) 580 (18 ) $ 562 December 31, 2013 Gross financing lease obligations $ 783 Less imputed interest (200 ) Present value of net minimum lease payments 583 Less current portion of financing lease obligations (28 ) Total long-term financing lease obligations $ 555 certain build-to-suit lease agreements where we are considered the owner during the construction period for accounting purposes, including our Seattle, Washington, corporate office space that we do not currently occupy. See “Note 3—Fixed Assets” for a discussion of these leases.As of December 31, 2011 and 2010, we$266$457 million as of December 31, 2013, and $243$336 million as of December 31, 2012, for U.S. and foreign income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See “Note 10—11—Income Taxes” for discussion of tax contingencies.The remainder7—8—COMMITMENTS AND CONTINGENCIESCommitments$362$759 million $225, $561 million, and $171$381 million for 2011, 2010,2013, 2012, and 2009.inventory purchases that support normal operations, as of December 31, 2011: Year Ended December 31, 2012 2013 2014 2015 2016 Thereafter Total (in millions) $ 147 $ 265 $ — $ — $ — $ — $ 412 397 316 150 58 29 74 1,024 49 51 54 55 56 598 863 380 420 407 354 300 1,232 3,093 117 84 66 48 23 — 338 325 127 72 66 61 664 1,315 $ 1,415 $ 1,263 $ 749 $ 581 $ 469 $ 2,568 $ 7,045 Year Ended December 31, 2014 2015 2016 2017 2018 Thereafter Total Operating and capital commitments: Debt principal and interest $ 835 $ 906 $ 81 $ 1,081 $ 69 $ 1,375 $ 4,347 Capital leases, including interest 963 883 361 71 42 117 2,437 Financing lease obligations, including interest 49 48 52 52 53 529 783 Operating leases 752 654 604 539 470 2,116 5,135 Unconditional purchase obligations (1) 539 386 80 37 29 27 1,098 Other commitments (2) (3) 746 275 167 137 110 1,194 2,629 Total commitments $ 3,884 $ 3,152 $ 1,345 $ 1,917 $ 773 $ 5,358 $ 16,429 (1) RelatesIncludes unconditional purchase obligations related to the 1,370,000 square feet of occupied corporate office space under build-to-suit lease arrangements.(2)Includes contractual obligations with minimum firm commitments recorded asagreements to acquire and license digital video content that represent long-term liabilities or are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.(3)(2) Includes the estimated timing and amounts of payments for rent operating expenses, and tenant improvements associated with approximately 330,000 square feet of corporate office space currently being developed under build-to-suit leases and which we anticipate occupyinglease arrangements that have not been placed in 2012 to 2013. The amount of space available and our financial and other obligations under the lease agreements are affected by various factors, including government approvals and permits, interest rates, development costs and other expenses and our exercise of certain rights under the lease agreements. See “Note 3—Fixed Assets” for a discussion of these leases.service.(4)(3) Excludes $229$407 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.SecuritiesAssetsWeDecember 31, 2013 and 2012, we have pledged or otherwise restricted $156$482 million and $160$99 million in 2011 and 2010 of our cash, and marketable securities, and certain fixed assets as collateral for standby and trade letters of credit, guarantees, debt, related to our international operations, as well asand real estate leases. We classify cash and marketable securities with use restrictions of twelve months or longer as non-current “Other assets” on our consolidated balance sheets.Inventory 2011,2013, no vendor accounted for 10% or more of our inventory purchases. We generally do not have long-term contracts or arrangements with our vendors to guarantee the availability of merchandise, particular payment terms, or the extension of credit limits.In June 2001, Audible, Inc., our subsidiary acquired in March 2008, was named as a defendant in a securities class-action filed in United States District Court for the Southern District of New York related to its initial public offering in July 1999. The lawsuit also named certain of the offering’s underwriters, as well as Audible’s officers and directors as defendants. Approximately 300 other issuers and their underwriters have had similar suits filed against them, all of which are included in a single coordinated proceeding in the SouthernDistrict of New York. The complaints allege that the prospectus and the registration statement for Audible’s offering failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of Audible’s stock. Audible and its officers and directors were named in the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs. In March 2009, all parties, including Audible, reached a settlement of these class actions that would resolve this dispute entirely with no payment required from Audible. The settlement was approved by the Court in October 2009, and subsequently upheld by the United States Court of Appeals for the Second Circuit, and the appeal of the last remaining objector to the settlement was dismissed in January 2012.Beginning in March 2003, we were served with complaints filed in several different states, including Illinois, by a private litigant, Beeler, Schad & Diamond, P.C., purportedly on behalf of the state governments under various state False Claims Acts. The complaints allege that we (along with other companies with which we have commercial agreements) wrongfully failed to collect and remit sales and use taxes for sales of personal property to customers in those states and knowingly created records and statements falsely stating we were not required to collect or remit such taxes. In December 2006, we learned that one additional complaint was filed in the state of Illinois by a different private litigant, Matthew T. Hurst, alleging similar violations of the Illinois state law. All of the complaints seek injunctive relief, unpaid taxes, interest, attorneys’ fees, civil penalties of up to $10,000 per violation, and treble or punitive damages under the various state False Claims Acts. It is possible that we have been or will be named in similar cases in other states as well. We dispute the allegations of wrongdoing in these complaints and intend to vigorously defend ourselves in these matters.several Amazon.com International Sales, Inc., Amazon EU subsidiariesSarl, 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 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 products to which the tariff potentially applies for a determination of damages. We contested Austro-Mechana’s claim and in September 2010 commenced an appeal in the Commercial Court of Vienna. We lost this appeal and in March 2011 commenced an appeal in the Supreme Court of Austria. In October 2011, the Austrian Supreme Court referred the case to the European Court of Justice.March 2009, Discovery Communications, Inc.July 2013, the European Court of Justice ruled that EU law does not preclude applicationus for patent infringementAmazon EU Sarl, Amazon Media EU Sarl, Amazon Services Europe Sarl, Amazon Payments Europe SCA, Amazon Europe Holding Technologies SCS, and Amazon Eurasia Holdings Sarl in the United States District Court forof Luxembourg seeking to collect a tariff on blank digital media sold by the District of Delaware. The complaint alleged that our Kindle e-reader infringedAmazon.de retail website to customers located in Germany. In January 2013, a patent owned by Discovery purporting to cover an “Electronic Book Security and Copyright Protection System” (U.S. Patent No. 7,298,851) and sought monetary damages, a continuing royalty sufficient to compensate Discovery for any future infringement, treble damages, costs and attorneys’ fees. In May 2009, we filed counterclaims and an additional lawsuit in the United States District Court for the Western District of Washington against Discovery alleging infringement of several patents owned by Amazon and requesting a declaration that several Discovery patents, including the one listed above, are invalid and unenforceable. In November 2011, we entered into a settlement of the litigation that included, among other things, a payment to the plaintiff and a non-exclusive patent cross-license agreement. The settlement was not material to either the current or future years.In April 2009, Parallel Networks, LLCBelgian copyright collection society, AUVIBEL, filed a complaint against us for patent infringementAmazon EU Sarl in the United States District Court of First Instance of Brussels, Belgium, seeking to collect a tariff on blank digital media sold by the Amazon.fr retail website to customers located in Belgium. In November 2013, the Belgian court ruled in favor of AUVIBEL and ordered us to report all sales of products to which the tariff potentially applies for the Eastern Districta determination of Texas. The complaint alleges, among other things, that our website technology infringes a patent owned by Parallel Networks purporting to cover a “Method And Apparatus For Client-Server Communication Using a Limited Capability Client Over A Low-Speed Communications Link” (U.S. Patent No. 6,446,111) and seeks injunctive relief, monetary damages, costs and attorneys’ fees. The complaint was dismissed without prejudice in February 2010, but the plaintiff filed a new complaint against us the following month containing similar allegations.damages. We dispute the allegations of wrongdoing and intend tovigorously defend ourselves vigorously in this matter. In December 2011 the Court granted Amazon’s motion for summary judgment and dismissed the claims against Amazon with prejudice. The plaintiff is appealing that decision.usAmazon.com, Inc. and Amazon Payments, Inc. for patent infringement in the United States District Court for the Central District of California. The complaint alleges, among other things, that our third-party selling and payments technology infringes a patentpatents owned by Big Baboon, Inc. purporting to cover an “Integrated Business-to-Business Web Commerce andAnd Business Automation System” (U.S. Patent No. 6,115,690)Nos. 6,115,690 and 6,343,275) and seeks injunctive relief, monetary damages, treble damages, costs, and attorneys’ fees. In February 2011, the Court entered an order staying the lawsuit pending the outcome of the Patent and Trademark Office’s re-examination of the patent in suit.patent. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.In September 2009, SpeedTrack, Inc. filed a complaint against us for patent infringement in the United States District Court for the Northern District of California. The complaint alleges, among other things, that our website technology infringes a patent owned by SpeedTrack purporting to cover a “Method For Accessing Computer Files and Data, Using Linked Categories Assigned to Each Data File Record on Entry of the Data File Record” (U.S. Patent Nos. 5,544,360) and seeks injunctive relief, monetary damages, enhanced damages, costs and attorneys’ fees. In November 2009, the Court entered an order staying the lawsuit pending the outcome of the Patent and Trademark Office’s re-examination of the patent in suit and the resolution of similar litigation against another party. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In October 2009, Eolas Technologies Incorporated filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that our website technology infringes two patents owned by Eolas purporting to cover “Distributed Hypermedia Method for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 5,838,906) and “Distributed Hypermedia Method and System for Automatically Invoking External Application Providing Interaction and Display of Embedded Objects within a Hypermedia Document” (U.S. Patent No. 7,599,985) and seeks injunctive relief, monetary damages, costs and attorneys’ fees. In July 2011, Eolas’s damages expert opined that, if we are found to infringe the patents-in-suit and the patents are found to be valid (both of which we dispute), Amazon and its affiliates should pay damages of approximately $135 million. Amazon’s damages expert has opined that, under the same circumstances, the maximum damages fairly recoverable against Amazon and its affiliates would be $1.2 million. Eolas’s damages could be trebled if Eolas prevails in its claim that any infringement was willful. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In December 2009, Nazomi Communications, Inc. filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that the processor core in our Kindle e-reader infringes two patents owned by Nazomi purporting to cover “Java virtual machine hardware for RISC and CISC processors” and “Java hardware accelerator using microcode engine” (U.S. Patent Nos. 7,080,362 and 7,225,436) and seeks monetary damages, injunctive relief, costs and attorneys’ fees. In January 2012, Nazomi added Amazon to a second lawsuit, which alleges, among other things, that the Kindle Fire infringes a patent owned by Nazomi purporting to cover a “Constant Pool Reference Resolution Method” (U.S. Patent No. 6,338,160) also seeking monetary damages, injunctive relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In May 2010, Site Update Solutions LLC filed a complaint against us for patent infringement in the United States District 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 monetary damages, a future royalty, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In July 2010, Positive Technologies Inc. filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain of our products, including our Kindle e-reader, infringe three patents owned by the plaintiff purporting to cover a “DC Integrating Display Driver Employing Pixel Status Memories” (U.S. Patent Nos. 5,444,457; 5,627,558 and 5,831,588) and seeks monetary damages, injunctive relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In July 2010, the Federal Trade Commission (“FTC”) staff informed us that it was considering whether to recommend enforcement proceedings against us for advertising and selling certain textile fiber products as “bamboo” when they are made of rayon manufactured from bamboo, in violation of the Textile Fiber Product Identification Act, the FTC Act, and the regulations promulgated thereunder. We do not believe we have violated these laws and regulations and are cooperating voluntarily with the Commission’s inquiry. In September 2011, we learned that the Commission voted to refer the matter to the Department of Justice for enforcement proceedings.In September 2010, Olympic Developments AG, LLC filed a complaint against us for patent infringement in the United States District Court for the Central District of California. The complaint alleges, among other things, that certain aspects of our technology, including our Kindle e-reader, infringe two patents owned by the plaintiff purporting to cover a “Transactional Processing System” (U.S. Patent No. 5,475,585) and a “Device for Controlling Remote Interactive Receiver” (U.S. Patent No. 6,246,400B1) and seeks monetary damages, injunctive relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In November 2010, Kelora Systems, LLC filed a complaint against us for patent infringement in the United States District Court for the Western District of Wisconsin. The complaint alleges that our website infringes a patent owned by Kelora Systems purporting 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 allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In December 2010, Global Sessions LP filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain Amazon and AWS technologies infringe four patents owned by the plaintiff purporting to cover a “System And Method For Maintaining A State For A User Session Using A Web System Having A Global Session Server” (U.S. Patent No. 6,076,108), an “Enterprise Interaction Hub For Managing An Enterprise Web System” (U.S. Patent Nos. 6,085,220 and 6,360,249), and a “System And Method For Maintaining A State For A User Session Using A Web System” (U.S. Patent No. 6,480,894), and seeks monetary damages, a future royalty, injunctive relief, costs and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In December 2010, Technology Innovations, LLC filed a complaint against us for patent infringement in the United States District Court for the Southern District of Texas. The complaint alleges, among other things, that Amazon’s sale of e-books and Kindle e-readers infringes a patent owned by the plaintiff purporting to cover a “Device For Including Enhancing Information With Printed Information And Method For Electronic Searching Thereof” (U.S. Patent No. 5,517,407) and seeks monetary damages, injunctive relief, costs, interest, and attorneys’ fees. The complaint was dismissed without prejudice in August 2011, but the plaintiff filed a new complaint against us in the United States District Court for the District of Delaware containing similar allegations and alleging infringement of an additional patent purporting to cover an “Apparatus for the Display of Embedded Information” (U.S. Patent No. 7,429,965). We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In February 2011, SFA Systems, LLC, filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that by using computer-implemented systems and methods for personalization Amazon and Zappos infringe a patent owned by the plaintiff purporting to cover an “Integrated Computerized Sales Force Automation System” (U.S. Patent No. 6,067,525), and seeks monetary damages, interest, costs, and attorneys’ 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 owned by the plaintiff purporting to cover a “Sales Force Automation System and Method” (U.S. Patent No. 7,941,341), and seeking monetary damages, interest, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.sixseveral complaints against usAmazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaints allege that we infringe several of the plaintiff’s U.S. patents by, among other things, providing “cross benefits” to customers through our promotions (U.S. Patent Nos. 7,831,470 and 7,827,056), using a customer’s identified original product to offer a substitute product (U.S. Patent No. 7,236,942), offering products and services from retailers at discounted prices and arranging for users to buy them from merchants (U.S. Patent No. 6,249,772), using our product recommendations and personalization features to offer complementary products together (U.S. Patent Nos. 6,601,036 and 6,138,105), enabling customers to subscribe to a delivery schedule for products they routinely use at reduced prices (U.S. Patent No. 5,970,470), and offering personalized advertising based on customers’ preferences identified using a data pattern (U.S. Patent No. 7,933,893). A seventhAnother complaint, filed in the same court in October 2011, alleges that we infringe plaintiff’s U.S. Patent No. 8,041,711 by offering personalized advertising based on customer preferences that associate data with resource locators. TheAnother complaint, filed in the same court in February 2012, alleges that we infringe plaintiff’s U.S. Patent No. 8,112,359 by using product information received from customers to identify and offer substitute products using a manufacturer database. In January 2013, the plaintiff filed another complaint in the same court alleging that we infringe U.S. Patent No. 6,381,582 by allowing customers to make local payments for products ordered online. All of the complaints seek monetary damages, interest, injunctive relief, costs, and attorneys’ fees. In March 2013, the complaints asserting U.S. Patent Nos. 7,236,942 and 7,933,893 were voluntarily dismissed with prejudice. In April 2013, the case asserting U.S. Patent No. 8,041,711 was stayed pending final resolution of the reexamination of that patent. In June 2013, the court granted defendants’ motions to dismiss the complaints asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359 for lack of standing. In July 2013, we filed motions seeking entry of a final judgment dismissing those claims with prejudice and for attorneys' fees, and plaintiff filed notices of appeal from the June 2013 order granting the motions to dismiss. In October 2013, the court ruled that its dismissals are with prejudice, and Walker has appealed those rulings. We dispute the remaining allegations of wrongdoing and intend to defend ourselves vigorously in these matters.vigorously defend ourselves vigorously in these matters. In June 2011, the complaint alleging that we infringed U.S. Patent No. 6,249,772 was dismissed.2011, GPNE Corp.2013, Telebuyer, LLC filed a complaint against usAmazon.com, Inc., Amazon Web Services, LLC, and VADATA, Inc. in the United States District Court for the Eastern District of Virginia. The complaint alleges, among other things, that certain features used on our retail website-including high resolution video and still images, user-indicated areas of interest, targeted follow-up communications, vendor proposals, on-line chat, Gold Box and Lightning Deals, and vendor ratings-infringe seven U.S. patents: Nos. 6,323,894, 7,835,508, 7,835,509, 7,839,984, 8,059,796, and 8,098,272, all entitled “Commercial Product Routing System With Video Vending Capability,” and 8,315,364, entitled “Commercial Product Routing System With Mobile Wireless And Video Vending Capability.” The complaint seeks an unspecified amount of damages, interest, and injunctive relief. In September 2013, the case was transferred to the United States District Court for the Western District of Washington. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.Hawaii.Texas. The complaint alleges, among other things, that certain aspects of our technology, includingnetwork operation centers and our mobile devices, such as Kindle e-reader,Fire models based on the Android operating system that provide XMPP-compliant messaging services and applications, infringe three patents owned by the plaintiff purporting to cover a “Network Communication System Wherein a Node Obtains Resources for Transmitting Data by Transmitting Two Reservation Requests” (U.S.U.S. Patent No. 7,555,267), a “Communication System Wherein a Clocking Signal from a Controller, a Request from a Node, Acknowledgement of the Request, and5,809,428, entitled “Method And Device For Processing Undelivered Data Transferred from the Node are all Provided on Different Frequencies, Enabling Simultaneous Transmission of these Signals” (U.S.Messages In A Two-Way Wireless Communications System.” The complaint also alleges that Amazon’s mobile devices infringe U.S. Patent No. 7,570,954)5,754,946, entitled “Nationwide Communication System,” and a “Network Communication System with an Alignment Signal to Allow a Controller to Provide Messages to Nodes and Transmission of the Messages over Four Independent Frequencies” (U.S.that Amazon.com, Inc. infringes U.S. Patent No. 7,792,492)5,786,748, entitled “Method And Apparatus For Giving Notification Of Express Mail Delivery,” by providing tracking and notification services to customers who purchase products directly from Amazon.com, Inc. The complaint seeks monetaryan unspecified amount of damages, enhanced damages, attorneys’ fees, costs, interest, costs, and attorneys’ fees.injunctive relief. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.September 2011, Parallel Iron,October 2013, Tuxis Technologies, LLC filed a complaint against usAmazon.com, Inc. for patent infringement in the United States District Court for District of Delaware. The complaint alleges, among other things, that “the Amazon.com website” with “recommendation features” infringes U.S. Patent No. 6,055,513, entitled “Methods And Apparatus For Intelligent Selection Of Goods And Services In Telephonic And Electronic Commerce.” The complaint seeks an unspecified amount of damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.AWS file storage systems that include a Hadoop Distributed File SystemKindle devices infringe a patent owned by the plaintiff purporting to cover “Methods and Systems for a Storage System With a Program-Controlled Switch for Routing Data” (U.S.U.S. Patent No. 7,415,565),7,296,121, entitled “Reducing Probe Traffic In Multiprocessor Systems.” The complaint seeks an unspecified amount of damages, costs, expenses, and seeks monetary damages, injunctive relief, costs, and attorneys’ fees.interest. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.September 2011, Lochner Technologies, LLC,November 2013, Vantage Point Technology, Inc. filed a complaint against usAmazon.com, Inc. for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that by offering products used for desktop virtualization or cloud computing solutions that provide virtual desktop environments Amazon infringesKindle devices with a patent owned by the plaintiff purporting to coverCortex A-9 core processor and OMAP 4430 chipset, Kindle device HD tablets with a “Modular Computer System” (U.S.Cortex A-9 core processor and OMAP 4470 chipset, and Kindle devices with a Cortex A-8 core processor and Freescale MX50 family chipset infringe U.S. Patent No. 7,035,598), and5,463,750, entitled “Method And Apparatus For Translating Virtual Addresses In A Data Processing System Having Multiple Instruction Pipelines And Separate TLB’s For Each Pipeline.” The complaint seeks monetaryan unspecified amount of damages, injunctive relief,enhanced damages, costs, and attorneys’ fees.interest. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.September 2011, Semiconductor Ideas to the Market BVDecember 2013, Appistry, Inc. filed a complaint against usAmazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the Eastern District of Texas.Missouri. The complaint alleges, amongby offering products including our Kindle e-reader that employ receiver technology designed to diminish signal leakage AmazonAmazon’s Elastic Compute Cloud infringes two patents owned by the plaintiff purporting to cover a “Receiver Comprising A Digitally Controlled Capacitor Bank” (U.S.U.S. Patent No. 7,299,018)Nos. 8,200,746, entitled “System And Method For Territory-Based Processing Of Information,” and a “Communication Device” (U.S. Patent No. 7,072,614), and8,341,209, entitled “System And Method For Processing Information Via Networked Computers Including Request Handlers, Process Handlers, And Task Handlers.” The complaint seeks injunctive relief, an unspecified amount of monetary damages, injunctive relief,trebled damages, costs, and attorneys’ fees.interest. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.September 2011, Droplets, Inc. filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that by offering web applicationsDecember 2013, Delaware Display Group LLC and software Amazon infringes two patents owned by the plaintiff purporting to cover a “System and Method for Delivering a Graphical User Interface of Remote Applications Over a Thin Client” (U.S. Patent No. 6,687,745) and a “System and Method for Delivering Remotely Stored Graphics and Information” (U.S. Patent No. 7,502,838), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In September 2011, Execware,Innovative Display Technologies LLC filed a complaint against usAmazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that by rapidly formattingAmazon’s tablets with liquid crystal displays infringe U.S. Patent Nos.: 6,755,547, 7,300,194, 7,384,177, 7,404,660, 7,434,974, 7,357,370, and reformatting tabular8,215,816, all entitled “Light Emitting Panel Assemblies.” The complaint also alleges that tablets with liquid crystal displays of records, such as product listings on our websites, Amazon infringes a patent owned by the plaintiff purporting to cover an “Integrated Dialog Box for Rapidly Altering Presentation of Parametric Text Data Objects on a Computer Display” (U.S.infringe U.S. Patent No. 6,216,139), and7,914,196, entitled “Light Redirecting Film Systems Having Pattern Of Variable Optical Elements.” The complaint seeks injunctive relief, an unspecified amount of monetary damages, injunctive relief, costs, interest, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves vigorously in this matter.September 2011, Select Retrieval,December 2013, ContentGuard Holdings, Inc. filed complaintsa complaint against us and one of our subsidiaries for patent infringement in the United States District Courts for the District of Oregon and the District of Delaware. The complaints allege, among other things, that certain aspects of our websites’ technology infringe a patent owned by the plaintiff purporting to cover “Data Display Software with Actions and Links Integrated with Information” (U.S. Patent No. 6,128,617), and seek monetary damages, injunctive relief, costs, and attorneys’ fees. In December 2011, the plaintiff dismissed all claims against us with prejudice.In September 2011, LVL Patent Group, LLC filed three complaints against usAmazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaints allege, among other things, that certain aspects of our technology, including our mobile applications, infringe four patents owned by the plaintiff purporting to cover a “Telephone/Transaction Entry Device and System for Entering Transaction Data into Databases (U.S. Patent Nos. 5,805,676; 5,987,103; and 8,019,060) and a “Data Transaction Assembly Server” (U.S. Patent No. 6,044,382), and seeks monetary damages, injunctive relief, costs, and attorneys’ fees. We dispute the allegations of wrongdoing and intend to vigorously defend ourselves in this matter.In October 2011, Smartphone Technologies LLC filed a complaint against us for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain aspectsdigital rights management software used by various Kindle Fire software applications, including the Kindle Reader and Amazon Instant Video, infringe seven U.S. Patents: Nos. 6,963,859, entitled “Content Rendering Repository”; 7,523,072, entitled “System For Controlling The Distribution And Use Of Digital Works”; 7,269,576, entitled “Content Rendering Apparatus”; 8,370,956, entitled “System And Method For Rendering Digital Content In Accordance With Usage Rights Information”; 8,393,007, entitled “System And Method For Distributing Digital Content In Accordance With Usage Rights Information”; 7,225,160, entitled “Digital Works Having Usage Rights And Method For Creating The Same”; and 8,583,556, entitled “Method For Providing A Digital Asset For Distribution.” The complaint seeks an unspecified amount of damages, an injunction, enhanced damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.Kindle devices infringe five patents owned by the plaintiff purportinglegal proceedings are inherently unpredictable, subject to cover a “Power-Conserving Intuitive Device Discovery Technique In A Bluetooth Environment” (U.S. Patent No. 6,950,645); a “Handheld Computer System That Attempts To Establish An Alternative Network Link Upon Failing To Establish A Requested Network Link” (U.S. Patent No. 7,506,064); a “Method And Apparatus For Communicating Information Over Low Bandwidth Communications Networks” (U.S. Patent No. RE 40,459); a “Method For Controlling A Handheld Computer By Entering Commands Onto A Displayed Feature Of The Handheld Computer” (U.S. Patent No. 6,956,562);significant uncertainties, and a “System and Method For Displaying And Manipulating Multiple Calendars On A Personal Digital Assistant” (U.S. Patent No. 6,466,236). In December 2011, we entered into a settlement of the litigation that included, among other things, a payment to the plaintiff and a non-exclusive patent license agreement. The settlement was notcould be material to either the currentour operating results and cash flows for a particular period. In addition, for some matters for which a loss is probable or future years.We cannot predict the impact (if any) that anyreasonably possible, an estimate of the matters described above may have on our business, results of operations, financial position, or cash flows. Because of the inherent uncertainties of such matters,including the early stage and lack of specific damage claims in many of them, we cannot estimate the range of possible losses from them (except as otherwise indicated).Other ContingenciesIn September 2010, the State of Texas issued an assessment of $269 million for uncollected sales taxes for the period from December 2005 to December 2009, including interest and penalties through the date of the assessment. The State of Texas is alleging that we should have collected sales taxes on applicable sales transactions during those years. We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. We intend to vigorously defend ourselves in this matter. In March 2011, the SEC staff notified us of an inquiry concerning this assessment. We cooperated with the staff’s inquiry, and in November 2011 the staff notified us that it had completed its inquiry.In November 2011, the State of Arizona issued assessments on behalf of the State and certain cities in the amount of approximately $53 million, including taxloss or range of loss is not possible and interest, for uncollected tax forwe may be unable to estimate the periods March 1, 2006 through December 31, 2010. The Statepossible loss or range of Arizona is alleginglosses that we should have collected a transaction tax that is similar to a sales tax on applicable transactions during those years. We believe thatcould potentially result from the assessment is without merit and intend to vigorously defend ourselves in this matter.Depending on the amount and the timing, an unfavorable resolutionapplication of this matter could materially affect our business, results of operations, financial position, or cash flows.10—11—Income Taxes.”8—STOCKHOLDERS’9—STOCKHOLDERS' EQUITYPreferred Stock.preferred stock. No preferred stock was outstanding for any period presented.465 million, and 461 million, atas of December 31, 2011, 2010,2013, 2012, and 2009.2011. These totals include all vested and unvested stock-basedstock awards outstanding, before consideration of estimated forfeitures.a programthe Company to repurchase up to $2$2.0 billion of our common stock. We repurchased 1.5 million shares of common stock for $277 million in 2011 under this repurchase program. We did not repurchase any of our common stock in 2010 or 2009.We granted restricted stock units representing 5.4 million, 5.3 million, and 6.0 million shares of common stock during 2011, 2010, and 2009 with a per share weighted average fair value of $192.82, $140.43, and $79.24. Number of Units Outstanding as of January 1, 2011 14.0 $ 96 Units granted 5.4 193 Units vested (5.1 ) 73 Units forfeited (1.2 ) 122 Outstanding as of December 31, 2011 13.1 143 Units granted 8.2 209 Units vested (4.2 ) 110 Units forfeited (1.7 ) 168 Outstanding as of December 31, 2012 15.4 184 Units granted 7.2 283 Units vested (4.5 ) 160 Units forfeited (1.8 ) 209 Outstanding as of December 31, 2013 16.3 $ 233 Number of UnitsOutstanding at January 1, 200916.7Units granted6.0Units vested(6.0) Units forfeited(1.0) Outstanding at December 31, 200915.7Units granted5.3Units vested(5.7) Units forfeited(1.3) Outstanding at December 31, 201014.0Units granted5.4Units vested(5.1) Units forfeited(1.2) Outstanding at December 31, 201113.1at as of December 31, 20112013, is as follows (in millions): Year Ended December 31, 2012 2013 2014 2015 2016 Thereafter Total 4.4 4.2 2.6 1.4 0.3 0.2 13.1 Year Ended December 31, 2014 2015 2016 2017 2018 Thereafter Total Scheduled vesting—restricted stock units 5.4 5.8 3.2 1.6 0.2 0.1 16.3 2011,2013, there was $842 million$1.7 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis resulting inwith approximately half of the compensation expected to be expensed in the next twelve months, and has a weighted averageweighted-average recognition period of 1.2 years.20112013 and 2010,2012, the fair value of restricted stock units that vested was $1.0$1.4 billion and $792$928 million.both 20112013 and 2010.2012. Shares granted as matching contributions under our 401(k) plan are included in outstanding common stock when issued.At2011,2013, common stock available for future issuance to employees is 155143 million shares.9—10—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)The componentsLOSS other comprehensive income (loss) are as follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 631 $ 1,152 $ 902 (1 ) 5 7 (2 ) (2 ) (3 ) (3 ) 3 4 (123 ) (137 ) 62 0 — 1 (126 ) (134 ) 67 $ 505 $ 1,018 $ 969 Balances within accumulated other comprehensive income (loss)loss for 2013, 2012, and 2011 are as follows: December 31, 2011 2010 (in millions) $ (326 ) $ (203 ) 10 13 $ (316 ) $ (190 ) Total Balances as of January 1, 2011 $ (203 ) $ 13 $ (190 ) Other comprehensive income (loss) (123 ) (3 ) (126 ) Balances as of December 31, 2011 (326 ) 10 (316 ) Other comprehensive income 76 1 77 Balances as of December 31, 2012 (250 ) 11 (239 ) Other comprehensive income (loss) 63 (9 ) 54 Balances as of December 31, 2013 $ (187 ) $ 2 $ (185 ) 10—11—INCOME TAXES2011, 2010,2013, 2012, and 20092011, we recorded net tax provisions of $291$161 million, $352$428 million, and $253$291 million. A majority of this provision is non-cash. 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. Accelerated depreciation deductions on qualifying property were a result of U.S. legislation that expired in December 2013. As such, cash taxes paid, net of refunds, were $169 million, $112 million, and $33 million $75 million,for 2013, 2012, and $48 million for 2011, 2010, and 2009.follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 103 $ 311 $ 149 52 37 23 155 348 172 157 1 89 (21 ) 3 (8 ) 136 4 81 $ 291 $ 352 $ 253 Year Ended December 31, 2013 2012 2011 Current taxes: U.S. and state $ 144 $ 562 $ 103 International 173 131 52 Current taxes 317 693 155 Deferred taxes: U.S. and state (133 ) (156 ) 157 International (23 ) (109 ) (21 ) Deferred taxes (156 ) (265 ) 136 Provision for income taxes, net $ 161 $ 428 $ 291 follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 658 $ 886 $ 529 276 611 632 $ 934 $ 1,497 $ 1,161 Year Ended December 31, 2013 2012 2011 U.S. $ 704 $ 882 $ 658 International (198 ) (338 ) 276 Income before income taxes $ 506 $ 544 $ 934 Year Ended December 31, 2011 2010 2009 35.0 % 35.0 % 35.0 % (8.4 ) (12.7 ) (16.9 ) 1.5 1.5 1.1 (3.2 ) (1.1 ) (0.4 ) 4.1 1.6 1.7 2.2 (0.8 ) 1.4 31.2 % 23.5 % 21.9 % The Year Ended December 31, 2013 2012 2011 Federal statutory rate 35.0 % 35.0 % 35.0 % Effect of: Impact of foreign tax differential (8.1 ) 31.5 (8.4 ) State taxes, net of federal benefits 2.7 0.2 1.5 Tax credits (16.6 ) (4.4 ) (3.2 ) Nondeductible compensation 16.9 13.3 4.9 Domestic production activities deduction (2.1 ) — — Other, net 4.0 3.0 1.4 Total 31.8 % 78.6 % 31.2 % 2011, 2010, and 20092013 was lower than the 35% U.S. federal statutory rate primarily due to earnings of our subsidiaries outside of the U.S. in jurisdictions whereand our effective tax rate isin 2012 primarily due to the favorable impact of earnings in lower thantax rate jurisdictions, a decline in the proportion of our losses for which we may not realize a related tax benefit, and the retroactive extension of the U.S. Suchfederal research and development credit, which expired in December 2013. The favorable impact of earnings in lower tax rate jurisdictions primarily relaterelates to our European operations, which are headquartered in Luxembourg. The favorableLosses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. In 2013, we recognized tax benefits for a greater proportion of these losses as compared to 2012. We have recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit.isprimarily related to our European operations. Additionally, our effective tax rate in 2012 was more volatile as compared to 2011 due to the lower level of pre-tax income generated during the year, relative to our tax expense. Our effective tax rate in 2012 was also adversely impacted by acquisitions (including integrations), audit developments, nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at the end of 2011.by other items, principallythe adverse impact of foreign jurisdiction losses incurred in jurisdictions for which we may not be able to realizeand as a relatedresult, the effective tax benefit.follows: Year Ended December 31, 2011 2010 (in millions) $ 156 $ 93 178 101 64 61 41 3 412 269 98 80 7 14 956 621 (227 ) (146 ) 729 475 (231 ) (209 ) (572 ) (135 ) (21 ) (91 ) $ (95 ) $ 40 December 31, 2013 2012 Deferred tax assets: Net operating losses U.S. - Federal/States (1) $ 53 $ 47 Net operating losses foreign (2) 427 289 Accrued liabilities, reserves, & other expenses 590 482 Stock-based compensation 396 281 Deferred revenue 249 129 Assets held for investment 164 129 Other items 177 133 Tax credits (3) 107 12 Total gross deferred tax assets 2,163 1,502 Less valuation allowance (4) (698 ) (415 ) Deferred tax assets, net of valuation allowance 1,465 1,087 Deferred tax liabilities: Depreciation & amortization (1,021 ) (698 ) Acquisition related intangible assets (201 ) (274 ) Other items (16 ) (29 ) Net deferred tax assets, net of valuation allowance $ 227 $ 86 (1) Excluding $129$81 million and $18$9 million of deferred tax assets atas of December 31, 20112013 and 2010,2012, related to net operating losses that result from excess stock based compensation.stock-based compensation and for which any benefit realized will be recorded to stockholders’ equity.(2) Excluding $278$2 million and $231$2 million of deferred tax assets atas of December 31, 20112013 and 2010,2012, related to net operating losses that result from excess stock-based compensation and for which any benefit realized will be recorded to stockholders’ equity.(3) Excluding $227 million and $146 million of deferred tax assets as of December 31, 2013 and 2012, related to tax credits that result from excess stock based compensation.stock-based compensation and for which any benefit realized will be recorded to stockholders’ equity.(3)(4) Relates primarily to deferred tax assets that would only be realizable upon the generation of future capital gains and net income in certain foreign taxing jurisdictions.jurisdictions and future capital gains.2011,2013, our federal, foreign, and state net operating loss carryforwards for income tax purposes were approximately $384$275 million, $474 million$1.6 billion, and $585$880 million. The federal and state net operating loss carryforwards are subject to limitations under Section 382 of the Internal Revenue Code and applicable state tax law. If not utilized, a portion of the federal, foreign, and state net operating loss carryforwards will begin to expire in 2025, 2012,2027, 2014, and 2012,2014, respectively. As of December 31, 2011,2013, our tax credit carryforwards for income tax purposes were approximately $285$334 million. If not utilized, a portion of the tax credit carryforwards will begin to expire in 2015.company’sCompany’s consolidated balance sheet reflects net operating losses andsheets reflect 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 creditan increase to additional paid-in capital if and when realized through a reduction in income taxes payable.follows: December 31, 2011 2010 2009 (in millions) $ 213 $ 181 $ 166 22 31 15 (3 ) (1 ) 0 4 5 1 (1 ) (3 ) 0 (6 ) 0 0 0 0 (1 ) $ 229 $ 213 $ 181 December 31, 2013 2012 2011 Gross tax contingencies – January 1 $ 294 $ 229 $ 213 Gross increases to tax positions in prior periods 78 91 22 Gross decreases to tax positions in prior periods (18 ) (47 ) (3 ) Gross increases to current period tax positions 54 26 4 Audit settlements paid (1 ) (4 ) (1 ) Lapse of statute of limitations — (1 ) (6 ) Gross tax contingencies – December 31 (1) $ 407 $ 294 $ 229 (1) As of December 31, 2011,2013, we had $229$407 million of tax contingencies, all of which $346 million, if fully recognized, would decrease our effective tax rate.20112013 and 2010,2012, we had accrued interest and penalties, net of federal income tax benefit, related to tax contingencies of $24$33 million and $21$25 million. Interest and penalties, net of federal income tax benefit, recognized for the yearyears ended December 31, 2013, 2012, and 2011 and 2010 was $3$8 million, $1 million, and $4$3 million.In addition, while we have not yet received a Revenue Agent’s Report generally issued at the conclusion of an IRS examination,As previously disclosed, we have received Notices of Proposed Adjustment from the IRS for the 2005 and 2006 calendar years relating to transfer pricing with our foreign subsidiaries. The notices propose anIRS is seeking to increase to our U.S. taxable income by an amount that would result in additional federal tax expense over a seven year period beginning in 2005, totaling approximately $1.5$1.5 billion, subject to interest. To date, we have not resolved this matter administratively and, in December 2012, we petitioned the U.S. Tax Court to resolve the matter. We continue to disagree with the proposed adjustmentsthese IRS positions and intend to vigorously contest them. If we are not able to resolve these proposed adjustments at the IRS examination level, we plan to pursue all available administrative and, if necessary, judicial remedies. them vigorously. the calendar year 2006 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes. While we have not yet received a final assessment from the FTA, in September 2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. The notices propose additional French tax of approximately $250 million, including interest and penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it vigorously. We plan to pursue all available administrative remedies at the FTA, and if we are not able to resolve this matter with the FTA, we plan to pursue judicial remedies. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by these particular tax authorities for the calendar year 2003 orand thereafter.Due to the nature of our business operations, wefor prior period positions will grow in 2012 in comparable amounts to 2011. Also,2014. In addition, changes in state, federal, and foreign tax laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we 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 2011.2013. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes.11—12—SEGMENT INFORMATION principal segments: North America and International. We present our segment information along the same lines that our chief executiveChief Executive Officer reviews our operating results in assessing performance and allocating resources.United StatesU.S. and most of these costs are allocated to our North America segment. There are no internal revenue transactions between our reporting segments.internationally focused locations.internationally-focused websites. This segment includes export sales from these internationally based locationswebsites (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.follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 26,705 $ 18,707 $ 12,828 25,772 17,752 12,119 $ 933 $ 955 $ 709 $ 21,372 $ 15,497 $ 11,681 20,732 14,516 10,818 $ 640 $ 981 $ 863 $ 48,077 $ 34,204 $ 24,509 46,504 32,268 22,937 1,573 1,936 1,572 (557 ) (424 ) (341 ) (154 ) (106 ) (102 ) 862 1,406 1,129 72 91 32 (291 ) (352 ) (253 ) (12 ) 7 (6 ) $ 631 $ 1,152 $ 902 Year Ended December 31, 2013 2012 2011 North America Net sales $ 44,517 $ 34,813 $ 26,705 Segment operating expenses (1) 42,631 33,221 25,772 Segment operating income $ 1,886 $ 1,592 $ 933 International Net sales $ 29,935 $ 26,280 $ 21,372 Segment operating expenses (1) 29,828 26,204 20,732 Segment operating income $ 107 $ 76 $ 640 Consolidated Net sales $ 74,452 $ 61,093 $ 48,077 Segment operating expenses (1) 72,459 59,425 46,504 Segment operating income 1,993 1,668 1,573 Stock-based compensation (1,134 ) (833 ) (557 ) Other operating income (expense), net (114 ) (159 ) (154 ) Income from operations 745 676 862 Total non-operating income (expense) (239 ) (132 ) 72 Provision for income taxes (161 ) (428 ) (291 ) Equity-method investment activity, net of tax (71 ) (155 ) (12 ) Net income (loss) $ 274 $ (39 ) $ 631 (1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments. follows: Year Ended December 31, 2011 2010 2009 (in millions) $ 17,779 $ 14,888 $ 12,774 28,712 18,363 11,082 1,586 953 653 $ 48,077 $ 34,204 $ 24,509 Year Ended December 31, 2013 2012 2011 Net Sales: Media $ 21,716 $ 19,942 $ 17,779 Electronics and other general merchandise 48,802 38,628 28,712 Other (1) 3,934 2,523 1,586 $ 74,452 $ 61,093 $ 48,077 (1) Includes sales from non-retail activities, such as AWS, miscellaneous marketing and promotional activities, other seller sites,advertising services, and our co-branded credit card agreements.earnedgenerated from retail sales of consumer products (including from sellers) and subscriptions outside ofthese internationally-focused websites are denominated in local functional currencies. Revenues are translated at average rates prevailing throughout the U.S. represented between 45% to 49% of net sales for 2011, 2010, and 2009.period. Net sales earned in Germany, Japan, and United Kingdom each represented 11%attributed to 15% of net sales in 2011 and 2010, and 13% to 17% of net sales in 2009. Year Ended December 31, 2013 2012 2011 Germany $ 10,535 $ 8,732 $ 7,230 Japan 7,639 7,800 6,576 United Kingdom 7,291 6,478 5,348 fixed assets,property and equipment, net, and total fixed assetproperty and equipment additions, by segment,geography, reconciled to consolidated amounts wereare (in millions): Year Ended December 31, 2011 2010 $ 16,461 $ 12,460 3,413 1,958 2,259 1,365 $ 8,817 $ 6,337 1,004 456 785 321 $ 25,278 $ 18,797 4,417 2,414 3,044 1,686 Fixed assets, December 31, 2013 2012 North America Total assets $ 26,108 $ 20,703 Property and equipment, net 8,447 5,481 Total property and equipment additions 4,837 3,348 International Total assets $ 14,051 $ 11,852 Property and equipment, net 2,502 1,579 Total property and equipment additions 1,536 969 Consolidated Total assets $ 40,159 $ 32,555 Property and equipment, net 10,949 7,060 Total property and equipment additions 6,373 4,317 located outside of the U.S. representedin any single country was less than 10% of consolidated fixed assets, net, for any individual country. Year Ended December 31, 2011 2010 2009 $ 795 $ 455 $ 327 239 97 57 $ 1,034 $ 552 $ 384 Year Ended December 31, 2013 2012 2011 North America $ 1,863 $ 1,229 $ 795 International 597 424 239 Consolidated $ 2,460 $ 1,653 $ 1,034 12—13—QUARTERLY RESULTS (UNAUDITED)20112013 and 2010.2012. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter. Unaudited quarterly results are as follows (in millions, except per share data): Year Ended December 31, 2011 (1) Fourth
Quarter Third
Quarter Second
Quarter First
Quarter $ 17,431 $ 10,876 $ 9,913 $ 9,857 273 130 225 307 86 67 49 89 177 63 191 201 $ 0.39 $ 0.14 $ 0.42 $ 0.44 $ 0.38 $ 0.14 $ 0.41 $ 0.44 455 454 453 451 462 461 460 459 Year Ended December 31, 2010 (1) Fourth
Quarter Third
Quarter Second
Quarter First
Quarter $ 12,948 $ 7,560 $ 6,566 $ 7,131 506 292 297 401 84 79 88 100 416 231 207 299 $ 0.93 $ 0.51 $ 0.46 $ 0.67 $ 0.91 $ 0.51 $ 0.45 $ 0.66 450 448 447 445 458 456 455 454 Year Ended December 31, 2013 (1) Net sales $ 25,587 $ 17,092 $ 15,704 $ 16,070 Income (loss) from operations $ 510 $ (25 ) $ 79 $ 181 Income (loss) before income taxes $ 451 $ (43 ) $ 17 $ 81 Provision (benefit) for income taxes $ 179 $ (12 ) $ 13 $ (18 ) Net income (loss) $ 239 $ (41 ) $ (7 ) $ 82 Basic earnings per share $ 0.52 $ (0.09 ) $ (0.02 ) $ 0.18 Diluted earnings per share $ 0.51 $ (0.09 ) $ (0.02 ) $ 0.18 Shares used in computation of earnings per share: Basic 458 457 456 455 Diluted 467 457 456 463 Year Ended December 31, 2012 (1) Net sales $ 21,268 $ 13,806 $ 12,834 $ 13,185 Income (loss) from operations $ 405 $ (28 ) $ 107 $ 192 Income (loss) before income taxes $ 337 $ (22 ) $ 146 $ 84 Provision for income taxes $ 194 $ 83 $ 109 $ 43 Net income (loss) $ 97 $ (274 ) $ 7 $ 130 Basic earnings per share $ 0.21 $ (0.60 ) $ 0.02 $ 0.29 Diluted earnings per share $ 0.21 $ (0.60 ) $ 0.01 $ 0.28 Shares used in computation of earnings per share: Basic 454 452 451 453 Diluted 461 452 458 460 (1) The sum of quarterly amounts, including per share amounts, may not equal amounts reported for year-to-date periods. This is due to the effects of rounding and changes in the number of weighted-average shares outstanding for each period. Act,(the “1934 Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act, as of December 31, 2011.2013. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2011,2013, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.20112013 based on criteria established in Internal Control—IntegratedControl-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of December 31, 2011,2013, 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 & Young has independently assessed the effectiveness of our internal control over financial reporting and its report is included below.20112013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.2011,2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Amazon.com, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.2011,2013, based on the COSO criteria.20112013 and 2010,2012, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 20112013 of Amazon.com, Inc. and our report dated January 31, 201230, 2014 expressed an unqualified opinion thereon.31, 2012Item 9B. Other Information Item 10. Directors, Executive Officers, and Corporate Governance 20122014 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 16(a) of the 1934 Act is set forth in our Proxy Statement relating to our 20122014 Annual Meeting of Shareholders and is incorporated herein by reference. To the extent permissible under Nasdaq rules, we intend to disclose amendments to our Code of Business Conduct and Ethics, as well as waivers of the provisions thereof, on our investor relations website under the heading “Corporate Governance” at www.amazon.com/ir.Item 11. Executive Compensation 20122014 Annual Meeting of Shareholders and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 20122014 Annual Meeting of Shareholders and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions 20122014 Annual Meeting of Shareholders and is incorporated herein by reference.Item 14. Principal Accountant Fees and Services 20122014 Annual Meeting of Shareholders and is incorporated herein by reference.Item 15. Exhibits, Financial Statement Schedules 2011201120112013 and 20102011Schedule II – Valuation and Qualifying Accounts other schedules have been omitted because the required information is included in the consolidated financial statements or the notes thereto, or because it is not required.31, 2012.30, 2014.AMAZON.COM, INC. By: /S/ JEFFREY P. BEZOS By: /s/ Jeffrey P. Bezos 31, 2012.30, 2014. S/ JEFFREY P. BEZOS Jeffrey P. Bezos Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) S/ THOMAS J. SZKUTAK Thomas J. Szkutak Senior Vice President and Chief Financial Officer (Principal Financial Officer) /S/ SHELLEY REYNOLDS Shelley Reynolds /s/ Shelley Reynolds Shelley Reynolds Vice President, Worldwide Controller (Principal Accounting Officer) S/ TOM A. ALBERG DirectorTom A. Alberg Director / S/ JOHN SEELY BROWN DirectorJohn Seely Brown Director / S/ WILLIAM B. GORDON Director/S/ BLAKE G. KRIKORIAN Blake G. Krikorian /S/ ALAIN MONIÉ Alain Monié Director/s/ Jamie S. Gorelick Director / Ss/ Alain MoniéAlain Monié Director / JONATHAN J. RUBINSTEIN DirectorJonathan J. Rubinstein Director / S/ THOMAS O. RYDER DirectorThomas O. Ryder Director / S/ PATRICIA Q. STONESIFER Patricia Q. Stonesifer Director AMAZON.COM, INC.SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS Balance at
Beginning of
Period Charged to
Costs and
Expense Amounts
Written
Off Balance at
End of
Period (in millions) $ 77 $ 87 $ (82 ) $ 82 66 75 (64 ) 77 76 55 (65 ) 66 $ 103 $ (490 ) $ 542 $ 155 76 (396 ) 423 103 36 (154 ) 194 76 2.1 Form of Purchase and Sale Agreement dated as of October 1, 2012, between Acorn Development LLC, a wholly owned subsidiary of the Company, and Lake Union III LLC, Lake Union IV LLC, City Place V LLC, City Place II LLC, City Place III LLC, City Place IV LLC, and City Place V LLC, respectively (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2012). 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000). 3.2 Restated Bylaws of the Company (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 18, 2009). 4.1 Indenture, dated as of November 29, 2012, between Amazon.com, Inc. and Wells Fargo Bank, National Association, as trustee, and Form of 0.650% Note due 2015, Form of 1.200% Note due 2017, and Form of 2.500% Note due 2022 (incorporated by reference to the Company’s Current Report on Form 8-K, filed November 29, 2012). 10.1† 1997 Stock Incentive Plan (amended and restated) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2010)2013). 10.2† 1999 Non-OfficerNonofficer Employee Stock Option Plan (amended and restated) (incorporated by reference to the Company’s Registration StatementQuarterly Report on Form S-8 (Registration No. 333-74419) filed10-Q for the Quarter ended March 15, 1999)31, 2013). 10.3† Offer Letter of Employment to Diego Piacentini, dated January 17, 2000 (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2000). 10.4† Offer Letter of Employment to H. Brian Valentine, dated June 23, 2006 (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2007). 10.5† Form of Indemnification Agreement between the Company and each of its Directors (incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 333-23795) filed March 24, 1997). 10.6†10.5† Form of Restricted Stock Unit Agreement for Officers and Employees (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2002). 10.7†10.6† Form of Restricted Stock Unit Agreement for Directors (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2002). 10.8†10.7† Form of Restricted Stock Agreement (incorporated by reference to the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2001). 12.1 Computation of Ratio of Earnings to Fixed Charges. 21.1 List of Significant Subsidiaries. 23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. 31.1 Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 31.2 Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. 32.1 Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350. 101 The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2011,2013, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, (iv)(v) Consolidated Statements of Stockholders’ Equity, and (v)(vi) Notes to Consolidated Financial Statements, tagged as blocks of text.text and including detailed tags.† Executive Compensation Plan or Agreement 78