(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, . 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 000-22513
, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1646860
(State or other jurisdiction of
incorporation or organization)
410 Terry Avenue North
Seattle, Washington 98109-5210
(206) 266-1000
(. Employer
Identification No.)
(Address and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share AMZN Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2019 $ 786,284,080,955
Number of shares of common stock outstanding as of January 22, 2020 497,810,444
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant’s definitive proxy statement relating to the
Annual Meeting of Shareholders to be held in 2020, 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.
1
, INC.
FORM 10-K
For the Fiscal Year EndedDecember 31, 2019
INDEX
PART I
Page
Item 1. Business 3
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Mine Safety Disclosures 16
PART II
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities 17
Item 6. Selected Consolidated Financial Data 18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 71
Item 9A. Controls and Procedures 71
Item 9B. Other Information 73
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 73
Item 11. Executive Compensation 73
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 73
Item 13. Certain Relationships and Related Transactions, and Director Independence 73
Item 14. Principal Accountant Fees and Services 73
PART IV
Item 15. Exhibits, Financial Statement Schedules 74
Item 16. Form 10-K Summary 74
Signatures 76
2
, INC.
PART I
Item 1. Business
This Annual Report on Form 10-K and the documents incorporated herein by reference contain forward-looking statements based on expectations,
estimates, and projections as of the date of this filing. Actual results may differ materially from those expressed in forward-looking statements. See Item 1A of Part
I — “Risk Factors.”
, Inc. was incorporated in 1994 in the state of Washington and reincorporated in 1996 in the state of Delaware. Our principal corporate offices
are located in Seattle, Washington. We completed our initial public offering in May 1997 and our common stock is listed on the Nasdaq Global Select Market
under the symbol “AMZN.”
As used herein, “,” “we,” “our,” and similar terms include , Inc. and its subsidiaries, unless the context indicates otherwise.
General
We seek to be Earth’s most customer-centric company. We are guided by four principles: customer obsession rather than competitor focus, passion for
invention, commitment to operational excellence, and long-term thinking. In each of our segments, we serve our primary customer sets, consisting of consumers,
sellers, developers, enterprises, and content creators. In addition, we provide services, such as advertising to sellers, vendors, publishers, and authors, through
programs such as sponsored ads, display, and video advertising.
We have organized our operations into three segments: North America, International, and Amazon Web Services (“AWS”). These segments reflect the way
the Company evaluates its business performance and manages its operations. Information on our net sales is contained in Item 8 of Part II, “Financial Statements
and Supplementary Data — Note 10 — Segment Information.” The financial results of Whole Foods Market, Inc. (“Whole Foods Market”) have been included in
our consolidated financial statements from the date of acquisition on August 28, 2017.
Consumers
We serve consumers through our online and physical stores and focus on selection, price, and convenience. We design our stores to enable hundreds of
millions of unique products to be sold by us and by third parties across dozens of product categories. Customers access our offerings through our websites, mobile
apps, Alexa, devices, streaming, and physically visiting our stores. We also manufacture and sell electronic devices, including Kindle, Fire tablet, Fire TV, Echo,
Ring, and other devices, and we develop and produce media content. We seek to offer our customers low prices, fast and free delivery, easy-to-use functionality,
and timely customer service. In addition, we offer Amazon Prime, a membership program that includes unlimited free shipping on over 100 million items, access
to unlimited streaming of tens of thousands of movies and TV episodes, including Amazon Original content, and other benefits.
We fulfill customer orders in a number of ways, including through: North America and International fulfillment and delivery networks that we operate; co-
sourced and outsourced arrangements in certain countries; digital delivery; and through our physical stores. We operate customer service centers globally, which
are supplemented by co-sourced arrangements. See Item 2 of Part I, “Properties.”
Sellers
We offer programs that enable sellers to grow their businesses, sell their products in our stores, and fulfill orders through us. We are not the seller of record
in these transactions. We earn fixed fees, a percentage of sales, per-unit activity fees, interest, or some combination thereof, for our seller programs.
Developers and Enterprises
We serve developers and enterprises of all sizes, including start-ups, government agencies, and academic institutions, through our AWS segment, which
offers a broad set of global compute, storage, database, and other service offerings.
3
Content Creators
We serve authors and independent publishers with Kindle Direct Publishing, an online service that lets independent authors and publishers choose a royalty
option and make their books available in the Kindle Store, along with Amazon’s own publishing arm, Amazon Publishing. We also offer programs that allow
authors, musicians, filmmakers, skill and app developers, and others to publish and sell content.
Competition
Our businesses encompass a large variety of product types, service offerings, and delivery channels. The worldwide marketplace in which we compete is
evolving rapidly and intensely competitive, and we face a broad array of competitors from many different industry sectors around the world. Our current and
potential competitors include: (1) physical, e-commerce, and omnichannel retailers, publishers, vendors, distributors, manufacturers, and producers of the products
we offer and sell to consumers and businesses; (2) publishers, producers, and distributors of physical, digital, and interactive media of all types and all distribution
channels; (3) web search engines, comparison shopping websites, social networks, web portals, and other online and app-based means of discovering, using, or
acquiring goods and services, either directly or in collaboration with other retailers; (4) companies that provide e-commerce services, including website
development and hosting, omnichannel sales, inventory, and supply chain management, advertising, fulfillment, customer service, and payment processing;
(5) companies that provide fulfillment and logistics services for themselves or for third parties, whether online or offline; (6) companies that provide information
technology services or products, including on-premises or cloud-based infrastructure and other services; (7) companies that design, manufacture, market, or sell
consumer electronics, telecommunication, and electronic devices; and (8) companies that sell grocery products online and in physical stores. 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, as well as customers’ ability and willingness to
change business practices. Some of our current and potential competitors have greater resources, longer histories, more customers, greater brand recognition, and
greater control over inputs critical to our various businesses. They may secure better terms from suppliers, adopt more aggressive pricing, pursue restrictive
distribution agreements that restrict our access to supply, direct consumers to their own offerings instead of ours, lock-in potential customers with restrictive terms,
and devote more resources to technology, infrastructure, fulfillment, and marketing. The Internet facilitates competitive entry and comparison shopping, which
enhances the ability of new, smaller, or lesser-known businesses to compete against us. Each of our businesses is also subject to rapid change and the development
of new business models and the entry of new and well-funded competitors. Other companies also may enter into business combinations or alliances that strengthen
their competitive positions.
Intellectual Property
We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technologies, and similar intellectual
property as critical to our success, and we rely on trademark, copyright, and patent law, trade-secret protection, and confidentiality and/or license agreements with
our employees, customers, partners, and others to protect our proprietary rights. We have registered, or applied for the registration of, a number of . and
international domain names, trademarks, service marks, and copyrights. Additionally, we have filed . and international patent applications covering certain of
our proprietary technology. We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights to third parties.
Seasonality
Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter, which ends December 31. We
recognized 34%, 31%, and 31% of our annual revenue during the fourth quarter of 2017, 2018, and 2019. Fourth quarter 2017 results include revenue attributable
to Whole Foods Market, which we acquired on August 28, 2017.
Employees
We employed approximately 798,000 full-time and part-time employees as of December 31, 2019. However, employment levels fluctuate due to seasonal
factors affecting our business. Additionally, we utilize independent contractors and temporary personnel to supplement our workforce. We have works councils,
statutory employee representation obligations, and union agreements in certain countries outside the United States and at certain of our studio operations within the
United States. We consider our employee relations to be good. Competition for qualified personnel has historically been intense, particularly for software
engineers, computer scientists, and other technical staff.
4
Available Information
Our investor relations website is and we encourage investors to use it as a way of easily finding information about us. We promptly make
available on this website, free of charge, the reports that we file or furnish with the Securities and Exchange Commission (“SEC”), corporate governance
information (including our Code of Business Conduct and Ethics), and select press releases.
Executive Officers and Directors
The following tables set forth certain information regarding our Executive Officers and Directors as ofJanuary 22, 2020:
Information About Our Executive Officers
Name Age Position
Jeffrey P. Bezos 56 President, Chief Executive Officer, and Chairman of the Board
Jeffrey M. Blackburn 50 Senior Vice President, Business Development
Andrew R. Jassy 52 CEO Amazon Web Services
Brian T. Olsavsky 56 Senior Vice President and Chief Financial Officer
Shelley L. Reynolds 55 Vice President, Worldwide Controller, and Principal Accounting Officer
Jeffrey A. Wilke 53 CEO Worldwide Consumer
David A. Zapolsky 56 Senior Vice President, General Counsel, and Secretary
Jeffrey P. Bezos. Mr. Bezos has been Chairman of the Board of since founding it in 1994 and Chief Executive Officer since May 1996.
Mr. Bezos served as President of the Company from founding until June 1999 and again from October 2000 to the present.
Jeffrey M. Blackburn. Mr. Blackburn has served as Senior Vice President, Business Development, since April 2006.
Andrew R. Jassy. Mr. Jassy has served as CEO Amazon Web Services since April 2016, and Senior Vice President, Amazon Web Services, from April
2006 until April 2016.
Brian T. Olsavsky. Mr. Olsavsky has served as Senior Vice President and Chief Financial Officer since June 2015, Vice President, Finance for the Global
Consumer Business from December 2011 to June 2015, and numerous financial leadership roles across Amazon with global responsibility since April 2002.
Shelley L. Reynolds. Ms. Reynolds has served as Vice President, Worldwide Controller, and Principal Accounting Officer since April 2007.
Jeffrey A. Wilke. Mr. Wilke has served as CEO Worldwide Consumer since April 2016, Senior Vice President, Consumer Business, from February 2012
until April 2016, and as Senior Vice President, North America Retail, from January 2007 until February 2012.
David A. Zapolsky. Mr. Zapolsky has served as Senior Vice President, General Counsel, and Secretary since May 2014, Vice President, General Counsel,
and Secretary from September 2012 to May 2014, and as Vice President and Associate General Counsel for Litigation and Regulatory matters from April 2002
until September 2012.
Board of Directors
Name Age Position
Jeffrey P. Bezos 56 President, Chief Executive Officer, and Chairman of the Board
Rosalind G. Brewer 57 Group President, Americas and Chief Operating Officer, Starbucks Corporation
Jamie S. Gorelick 69 Partner, Wilmer Cutler Pickering Hale and Dorr LLP
Daniel P. Huttenlocher 61 Dean, MIT Schwarzman College of Computing
Judith A. McGrath 67 Senior Advisor, Astronauts Wanted * No experience necessary
Indra K. Nooyi 64 Former Chief Executive Officer, PepsiCo, Inc.
Jonathan J. Rubinstein 63 Former co-CEO, Bridgewater Associates, LP
Thomas O. Ryder 75 Retired, Former Chairman, Reader’s Digest Association, Inc.
Patricia Q. Stonesifer 63 Former President and Chief Executive Officer, Martha’s Table
Wendell P. Weeks 60 Chief Executive Officer, Corning Incorporated
5
Item 1A. Risk Factors
Please carefully consider the following discussion of significant factors, events, and uncertainties that make an investment in our securities risky. The events
and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or control, have a material
adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), cash flows,
liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are
not presently known to us or that we currently do not consider to present significant risks to our operations. In addition, the global economic climate amplifies
many of these risks.
We Face Intense Competition
Our businesses are rapidly evolving and intensely competitive, and we have many competitors across geographies, including cross-border competition, and
in different industries, including physical, e-commerce, and omnichannel retail, e-commerce services, web and infrastructure computing services, electronic
devices, digital content, advertising, grocery, and transportation and logistics services. Some of our current and potential competitors have greater resources, longer
histories, more customers, and/or greater brand recognition, particularly with our newly-launched products and services and in our newer geographic regions. They
may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing.
Competition continues to intensify, including with the development of new business models and the entry of new and well-funded competitors, and as our
competitors enter into business combinations or alliances and established companies in other market segments expand to become competitive with our business. In
addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and electronic devices continue to increase
our competition. The Internet facilitates competitive entry and comparison shopping, which enhances the ability of new, smaller, or lesser known businesses to
compete against us. As a result of competition, our product and service offerings may not be successful, we may fail to gain or may lose business, and we may be
required to increase our spending or lower prices, any of which could materially reduce our sales and profits.
Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources
We are continuing to rapidly and significantly expand our global operations, including increasing our product and service offerings and scaling our
infrastructure to support our retail and services businesses. The complexity of the current scale of our business can place significant strain on our management,
personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions, and our expansion increases
these factors. Failure to manage growth effectively could damage our reputation, limit our growth, and negatively affect our operating results.
Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Risks
We may have limited or no experience in our newer market segments, and our customers may not adopt our product or service offerings. These offerings,
which can present new and difficult technology challenges, may subject us to claims if customers of these offerings experience service disruptions or failures or
other quality issues. In addition, profitability, if any, in our newer activities may not meet our expectations, and we may not be successful enough in these newer
activities to recoup our investments in them. Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value
of those investments being written down or written off.
We Experience Significant Fluctuations in Our Operating Results and Growth Rate
We are not always able to accurately forecast our growth rate. We base our expense levels and investment plans on sales estimates. A significant portion of
our expenses and investments is fixed, and we are not always able to adjust our spending quickly enough if our sales are less than expected.
Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating profit growth depends on the
continued growth of demand for the products and services offered by us or our sellers, and our business is affected by general economic and business conditions
worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the . or global economies, may result in decreased
revenue or growth.
Our sales and operating results will also fluctuate for many other reasons, including due to factors described elsewhere in this section and the following:
• our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’
demands;
6
• 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 stores, websites, products, services, price decreases, or
improvements;
• changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the
.;
• timing, effectiveness, and costs of expansion and upgrades of our systems and
infrastructure;
• the success of our geographic, service, and product line
expansions;
• the extent to which we finance, and the terms of any such financing for, our current operations and future
growth;
• the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief and could have a material adverse
impact on our operating results;
• 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 fast and free delivery, continue to reduce prices worldwide, and provide additional benefits to our
customers;
• factors affecting our reputation or brand
image;
• 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
and hardware products;
• the extent to which operators of the networks between our customers and our stores 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
• disruptions from natural or man-made disasters, extreme weather, geopolitical events and security issues (including terrorist attacks and armed
hostilities), labor or trade disputes, and similar events.
Our International Operations Expose Us to a Number of Risks
Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market segments,
we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and
maintain international operations and stores, and promote our brand internationally. Our international operations may not become profitable on a sustained basis.
In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including:
• local economic and political conditions;
• government regulation (such as regulation of our product and service offerings and of competition); restrictive governmental actions (such as trade
protection measures, including export duties and quotas and custom duties and tariffs); nationalization; and restrictions on foreign ownership;
• 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, advertising, and restrictions on pricing or
discounts;
7
• lower levels of use of the
Internet;
• lower levels of consumer spending and fewer opportunities for growth compared to the
.;
• 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;
• different employee/employer relationships and the existence of works councils and labor
unions;
• compliance with the . Foreign Corrupt Practices Act and other applicable . and foreign laws prohibiting corrupt payments to government officials
and other third parties;
• laws and policies of the . and other jurisdictions affecting trade, foreign investment, loans, and taxes;
and
• geopolitical events, including war and
terrorism.
As international physical, e-commerce, and omnichannel retail and other services grow, competition will intensify, including through adoption of evolving
business models. 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. The inability to hire, train, retain, and manage sufficient required personnel may limit our international growth.
The People’s Republic of China (“PRC”) and India regulate Amazon’s and its affiliates’ businesses and operations in country through regulations and license
requirements that may restrict (i) foreign investment in and operation of the Internet, IT infrastructure, data centers, retail, delivery, and other sectors, (ii) Internet
content, and (iii) the sale of media and other products and services. For example, in order to meet local ownership, regulatory licensing, and cybersecurity
requirements, we provide certain technology services in China through contractual relationships with third parties that hold PRC licenses to provide services. In
India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities. For
, we provide certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers, and we hold
indirect minority interests in entities that are third-party sellers on the marketplace. Although we believe these structures and activities comply
with existing laws, they involve unique risks, and the PRC and India may from time to time consider and implement additional changes in their regulatory,
licensing, or other requirements that could impact these structures and activities. There are substantial uncertainties regarding the interpretation of PRC and Indian
laws and regulations, and it is possible that these governments will ultimately take a view contrary to ours. In addition, our Chinese and Indian businesses and
operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or, in China, enforce contractual relationships we or
our affiliates have in place. Violation of any existing or future PRC, Indian, or other laws or regulations or changes in the interpretations of those laws and
regulations could result in our businesses in those countries being subject to fines and other financial penalties, having licenses revoked, or being forced to
restructure our operations or shut down entirely.
We Face Risks Related to Successfully Optimizing and Operating Our Fulfillment Network and Data Centers
Failures to adequately predict customer demand or otherwise optimize and operate our fulfillment network and data centers successfully from time to time
result in excess or insufficient fulfillment or data center capacity, increased costs, and impairment charges, any of which could materially harm our business. As we
continue to add fulfillment and data center capability or add new businesses with different requirements, our fulfillment and data center networks become
increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.
In addition, failure to optimize inventory in our fulfillment network increases our net shipping cost by requiring long-zone or partial shipments. We and our
co-sourcers may be unable to adequately staff our fulfillment network and customer service centers. Under some of our commercial agreements, we maintain the
inventory of other companies, thereby increasing the complexity of tracking inventory and operating our fulfillment network. Our failure to properly handle such
inventory or the inability of the other businesses on whose behalf we perform inventory fulfillment services to accurately forecast product demand may result in us
being unable to secure sufficient storage space or to optimize our fulfillment network or cause other unexpected costs and other harm to our business and
reputation.
We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. The inability to negotiate acceptable
terms with these companies or performance problems or other difficulties experienced by these companies or by our own transportation systems could negatively
impact our operating results and customer experience. In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also
may be negatively affected by natural or man-made disasters, extreme weather, geopolitical events and security issues, labor or trade disputes, and similar events.
8
The Seasonality of Our Retail Business Places Increased Strain on Our Operations
We expect a disproportionate amount of our retail sales to occur during our fourth quarter. Our failure to stock or restock popular products in sufficient
amounts such that we fail to meet customer demand could significantly affect our revenue and our future growth. When we overstock products, we may be
required to take significant inventory markdowns or write-offs and incur commitment costs, which could materially reduce profitability. We regularly experience
increases in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the
holiday season. If too many customers access our websites within a short period of time due to increased demand, we may experience system interruptions that
make our websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we offer or sell and the attractiveness of our
products and services. In addition, we may be unable to adequately staff our fulfillment network and customer service centers during these peak periods and
delivery and other fulfillment companies and customer service co-sourcers may be unable to meet the seasonal demand. Risks described elsewhere in this Item 1A
relating to fulfillment network optimization and inventory are magnified during periods of high demand.
We generally have payment terms with our retail vendors that extend beyond the amount of time necessary to collect proceeds from our consumer
customers. As a result of holiday sales, as 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 as 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.
Our Commercial Agreements, Strategic Alliances, and Other Business Relationships Expose Us to Risks
We provide physical, e-commerce, and omnichannel retail and other services to businesses through 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 stores. These arrangements are complex and require substantial infrastructure capacity, personnel, and other resource
commitments, which may limit the amount of business we can service. We may not be able 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, hardware,
content, and third-party software, and engaging third parties to perform services. The amount of compensation we receive under certain of our commercial
agreements is partially dependent on the volume of the other company’s sales. Therefore, when the other company’s offerings are 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 or alternative 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.
As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We may in the future enter into
amendments on less favorable terms or encounter parties that have difficulty meeting their contractual obligations to us, which could adversely affect our operating
results.
Our present and future e-commerce services agreements, other commercial agreements, and strategic alliances create additional risks such as:
• 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.
Our Business Suffers When We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments
We have acquired and invested in a number of companies, and we may in the future acquire or invest in or enter into joint ventures with additional
companies. These transactions create risks such as:
• 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 and intangible assets and goodwill, including as a result of
acquisitions;
9
• 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 completing such transactions and achieving anticipated benefits within expected timeframes, or at
all;
• the difficulty of incorporating acquired operations, 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 successfully implemented;
• losses we may incur as a result of declines in the value of an investment or as a result of incorporating an investee’s financial performance into our
financial results;
• for investments in which an investee’s financial performance is incorporated into our financial results, either in full or in part, the dependence on the
investee’s accounting, financial reporting, and similar systems, controls, and processes;
• the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger public
company;
• the risks associated with businesses we acquire or invest in, which may differ from or be more significant than the risks our other businesses
face;
• 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.
As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or
amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business or only be available on unfavorable terms, if
at all. In addition, valuations supporting our acquisitions and strategic investments could change rapidly. We could determine that such valuations have
experienced impairments or other-than-temporary declines in fair value which could adversely impact our financial results.
We Have Foreign Exchange Risk
The results of operations of, and certain of our intercompany balances associated with, our international stores and product and service offerings are exposed
to foreign exchange rate fluctuations. Due to these fluctuations, operating results may differ materially from expectations, and we may record significant gains or
losses on the remeasurement of intercompany balances. As we have expanded our international operations, our exposure to exchange rate fluctuations has
increased. We also hold cash equivalents and/or marketable securities in foreign currencies including British Pounds, Euros, and Japanese Yen. When the
. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when translated, may be materially less than expected
and vice versa.
The Loss of Key Senior Management Personnel or the Failure to Hire and Retain Highly Skilled and Other Key Personnel Could Negatively Affect Our
Business
We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and Chairman. We do not have “key
person” life insurance policies. We also rely on other highly skilled personnel. Competition for qualified personnel in the technology industry has historically been
intense, particularly for software engineers, computer scientists, and other technical staff. The loss of any of our executive officers or other key employees or the
inability to hire, train, retain, and manage qualified personnel, could harm our business.
We Could Be Harmed by Data Loss or Other Security Breaches
Because we collect, process, store, and transmit large amounts of data, including confidential, sensitive, proprietary, and business and personal information,
failure to prevent or mitigate data loss, theft, misuse, or other security breaches or vulnerabilities affecting our or our vendors’ or customers’ technology, products,
and systems, could expose us or our customers to a risk of loss, disclosure, or misuse of such information, adversely affect our operating results, result in litigation,
regulatory action (including under privacy or data protection laws), and potential liability for us, deter customers or sellers from using our stores and services, and
otherwise harm our business and reputation. We use third-party technology and systems for a variety of reasons, including, without limitation, encryption and
authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some of our systems have experienced past
security breaches, and,
10
although they did not have a material adverse effect on our operating results, there can be no assurance of a similar result in the future. Although we have
developed systems and processes that are designed to protect customer information and prevent such incidents, including systems and processes designed to reduce
the impact of a security breach at a third-party vendor or customer, such measures cannot provide absolute security and may fail to operate as intended or be
circumvented.
We Face Risks Related to System Interruption and Lack of Redundancy
We experience occasional system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us from
efficiently accepting or fulfilling orders or providing services to third parties, which may reduce our net sales and the attractiveness of our products and services.
Steps we take to add software and hardware, upgrade our systems and network infrastructure, and improve the stability and efficiency of our systems may not be
sufficient to avoid system interruptions or delays that could adversely affect our operating results.
Our computer and communications systems and operations in the past have been, or in the future could be, damaged or interrupted due to events such as
natural or man-made disasters, extreme weather, geopolitical events and security issues (including terrorist attacks and armed hostilities), computer viruses,
physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and could
prevent us from accepting and fulfilling customer orders and providing services, which could make our product and service offerings less attractive and subject us
to liability. Our systems are not fully redundant and our disaster recovery planning may not be sufficient. In addition, our insurance may not provide sufficient
coverage to compensate for related losses. Any of these events could damage our reputation and be expensive to remedy.
We Face Significant Inventory Risk
In addition to risks described elsewhere in this Item 1A relating to fulfillment network and inventory optimization by us and third parties, we are exposed to
significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid changes in product cycles and
pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products, spoilage,
and other factors. We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell. Demand for
products, however, can change significantly between the time inventory or components are ordered and the date of sale. In addition, when we begin selling or
manufacturing a new product, it may be difficult to establish vendor relationships, determine appropriate product or component selection, and accurately forecast
demand. The acquisition of certain types of inventory or components requires significant lead-time and prepayment and they may not be returnable. We carry a
broad selection and significant inventory levels of certain products, such as consumer electronics, and at times we are unable to sell products in sufficient quantities
or to meet demand during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.
We Face Risks Related to Adequately Protecting Our Intellectual Property Rights and Being Accused of Infringing Intellectual Property Rights of Third
Parties
We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar intellectual property as critical to
our success, and we rely on trademark, copyright, and patent law, trade secret protection, and confidentiality and/or license agreements with our employees,
customers, and others to protect our proprietary rights. Effective intellectual property protection is not available in every country in which our products and
services are made available. We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business. Furthermore,
regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.
We are not always able to discover or determine the extent of any unauthorized use of our proprietary rights. Actions taken by third parties that license our
proprietary rights may materially diminish the value of our proprietary rights or reputation. The protection of our intellectual property requires the expenditure of
significant financial and managerial resources. Moreover, the steps we take to protect our intellectual property do not always adequately protect our rights or
prevent third parties from infringing or misappropriating our proprietary rights. We also cannot be certain that others will not independently develop or otherwise
acquire equivalent or superior technology or other intellectual property rights.
We have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual
property rights of third parties. Such claims, whether or not meritorious, have in the past, and may in the future, result in the expenditure of significant financial
and managerial resources, injunctions against us, or significant payments for damages, including to satisfy indemnification obligations or to obtain licenses from
third parties who allege that we have infringed their rights. Such licenses may not be available on terms acceptable to us or at all. These risks have been amplified
by the increase in third parties whose sole or primary business is to assert such claims.
11
Our digital content offerings depend in part on effective digital rights management technology to control access to digital content. Breach or malfunctioning
of the digital rights management technology that we use could subject us to claims, and content providers may be unwilling to include their content in our service.
We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile
We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly in response to, among other risks, the risks
described elsewhere in this Item 1A, as well as:
• changes in interest rates;
• conditions or trends in the Internet and the industry segments we operate
in;
• 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 decisions to increase or decrease future spending or investment
levels;
• changes in financial estimates and recommendations by securities
analysts;
• changes in our capital structure, including issuance of additional debt or equity to the
public;
• changes in the valuation methodology of, or performance by, other e-commerce or technology companies;
and
• transactions in our common stock by major investors and certain analyst reports, news, and
speculation.
Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our cash compensation to employees or
grant larger stock awards than we have historically, which could hurt our operating results or reduce the percentage ownership of our existing stockholders, or
both.
Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business
We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, physical, e-commerce, and
omnichannel retail, digital content, web services, electronic devices, artificial intelligence technologies and services, and other products and services that we offer
or sell. These regulations and laws cover taxation, privacy, data protection, pricing, content, copyrights, distribution, transportation, mobile communications,
electronic device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications, competition,
consumer protection, employment, trade and protectionist measures, web services, the provision of online payment services, registration, licensing, and
information reporting requirements, unencumbered Internet access to our services or access to our facilities, the design and operation of websites, health, safety,
and sanitation standards, the characteristics, legality, and quality of products and services, product labeling, the commercial operation of unmanned aircraft
systems, and other matters. It is not clear how existing laws governing issues such as property ownership, libel, data protection, and personal privacy apply to
aspects of our operations such as the Internet, e-commerce, digital content, web services, electronic devices, and artificial intelligence technologies and services. A
large number of jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scope of our
businesses expand. We are regularly subject to formal and informal reviews and investigations by governments and regulatory authorities under existing laws,
regulations, or interpretations or pursuing new and novel approaches to regulate our operations. For example, the European Commission announced that it has
opened an investigation to assess whether aspects of our operations with marketplace sellers violate EU competition rules. Unfavorable regulations, laws,
decisions, or interpretations by government or regulatory authorities applying those laws and regulations, or inquiries, investigations, or enforcement actions
threatened or initiated by them, could cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties (including substantial
monetary fines), diminish the demand for, or availability of, our products and services, increase our cost of doing business, require us to change our business
practices in a manner materially adverse to our business, damage our reputation, impede our growth, or otherwise have a material effect on our operations.
Claims, Litigation, Government Investigations, and Other Proceedings May Adversely Affect Our Business and Results of Operations
As an innovative company offering a wide range of consumer and business products and services around the world, we are regularly subject to actual and
threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings by governments and regulatory authorities, involving a wide
range of issues, including patent and other intellectual property matters, taxes, labor and employment, competition and antitrust, privacy and data protection,
consumer protection, commercial disputes, goods and services offered by us and by third parties, and other matters. The number and scale of these proceedings
have increased over time as our businesses have expanded in scope and geographic reach and our products, services, and operations have become more complex
and available to, and used by, more people. Any of these types of
12
proceedings can have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity, and other
factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. Determining legal reserves or possible losses from such
matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be
exposed to losses in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have
been incorrect, it could have a material effect on our business, consolidated financial position, results of operations, or cash flows. In addition, it is possible that a
resolution of one or more such proceedings, including as a result of a settlement, could involve licenses, sanctions, consent decrees, or orders requiring us to make
substantial future payments, preventing us from offering certain products or services, requiring us to change our business practices in a manner materially adverse
to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material
effect on our operations.
We Face Additional Tax Liabilities and Collection Obligations
We are subject to a variety of taxes and tax collection obligations in the . (federal and state) and numerous foreign jurisdictions. We may recognize
additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations,
administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting
rules in various jurisdictions. Such changes could come about as a result of economic, political, and other conditions. An increasing number of jurisdictions are
considering or have adopted laws or administrative practices that impose new tax measures, including revenue-based taxes, targeting online commerce and the
remote selling of goods and services. These include new obligations to collect sales, consumption, value added, or other taxes on online marketplaces and remote
sellers, or other requirements that may result in liability for third party obligations. For example, the European Union, certain member states, and other countries
have proposed or enacted taxes on online advertising and marketplace service revenues. Our results of operations and cash flows could be adversely effected by
additional taxes of this nature imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection
obligations or failure to provide information about our customers, suppliers, and other third parties for tax reporting purposes to various government agencies. In
some cases we also may not have sufficient notice to enable us to build systems and adopt processes to properly comply with new reporting or collection
obligations by the effective date.
Our tax expense and liabilities are also affected by other factors, such as changes in our business operations, acquisitions, investments, entry into new
businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to
realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, and changes in our
deferred tax assets and liabilities and their valuation. Significant judgment is required in evaluating and estimating our tax expense and liabilities. In the ordinary
course of our business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, the legislation known as
the . Tax Cuts and Jobs Act of 2017 (the “. Tax Act”) requires complex computations to be performed that were not previously required by . tax law,
significant judgments to be made in interpretation of the provisions of the . Tax Act, significant estimates in calculations, and the preparation and analysis of
information not previously relevant or regularly produced. The . Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or
issue guidance on how provisions of the . Tax Act will be applied or otherwise administered. As future guidance is issued, we may make adjustments to
amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.
We are also subject to tax controversies in various jurisdictions that can result in tax assessments against us. Developments in an audit, investigation, or other
tax controversy can 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. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals.
Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different
from our historical tax accruals.
Our Supplier Relationships Subject Us to a Number of Risks
We have significant suppliers, including content and technology licensors, and in some cases, limited or single-sources of supply, that are important to our
sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not have long-term arrangements with most of our
suppliers to guarantee availability of merchandise, content, components, or services, particular payment terms, or the extension of credit limits. Decisions by our
current suppliers to stop selling or licensing merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one
or more supplier bankruptcies due to poor economic conditions, as a result of natural disasters, or for other reasons, may result in our being unable to procure
alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all. In addition, violations by our suppliers or other vendors of
applicable laws, regulations, contractual
13
terms, intellectual property rights of others, or our Supply Chain Standards, as well as products or practices regarded as unethical, unsafe, or hazardous, could
expose us to claims, damage our reputation, limit our growth, and negatively affect our operating results.
We Are Subject to Risks Related to Government Contracts and Related Procurement Regulations
Our contracts with ., as well as state, local, and foreign, government entities are subject to various procurement regulations and other requirements
relating to their formation, administration, and performance. We are subject to audits and investigations relating to our government contracts, and any violations
could result in various civil and criminal penalties and administrative sanctions, including termination of contract, refunding or suspending of payments, forfeiture
of profits, payment of fines, and suspension or debarment from future government business. In addition, some of these contracts provide for termination by the
government at any time, without cause.
We Are Subject to Product Liability Claims When People or Property Are Harmed by the Products We Sell or Manufacture
Some of the products we sell or manufacture expose us to product liability or food safety claims relating to personal injury or illness, death, or environmental
or property damage, and can require product recalls or other actions. Third parties who sell products using our services and stores increase our exposure to product
liability claims, such as when these sellers do not have sufficient protection from such claims. Although we maintain liability insurance, we cannot be certain that
our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.
Although we impose contractual terms on sellers that are intended to prohibit sales of certain type of products, we may not be able to detect, enforce, or collect
sufficient damages for breaches of such agreements. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, direct debit
from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options we offer to our
customers, we currently are subject to, and may become subject to additional, regulations and compliance requirements (including obligations to implement
enhanced authentication processes that could result in significant costs and reduce the ease of use of our payments products), as well as 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 certain Amazon-branded payment methods and payment processing services, including the processing of credit cards, debit
cards, electronic checks, and promotional financing. In each case, it could disrupt our business if these companies become unwilling or unable to provide these
services to us. We also offer co-branded credit card programs, which could adversely affect our operating results if renewed on less favorable terms or terminated.
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. Failure to comply with these rules or requirements, as well as
any breach, compromise, or failure to otherwise detect or prevent fraudulent activity involving our data security systems, could result in our being liable for card
issuing banks’ costs, subject to fines and higher transaction fees, and loss of 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.
In addition, we provide regulated services 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. Jurisdictions subject us to requirements for licensing, regulatory
inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, maintaining or processing data, and
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 providing certain services.
We Are Impacted by Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of online service providers is currently unsettled. In addition, governmental agencies have in the past and could in the future
require changes in the way this business is conducted. Under our seller programs, we maintain policies and processes designed to prevent sellers from collecting
payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’
descriptions, and to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling
14
goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies. When these policies and processes are
circumvented or fail to operate sufficiently, it can harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities
by our sellers. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these situations, and as our third-party seller sales grow, the
cost of this program will increase and could negatively affect our operating results.
Item 1B. Unresolved Staff Comments
None.
15
Item 2. Properties
As of December 31, 2019, we operated the following facilities (in thousands):
Description of Use
Leased Square
Footage (1) Owned Square Footage Location
Office space 18,051 4,961 North America
Office space 15,863 1,831 International
Physical stores (2) 20,072 662 North America
Physical stores (2) 169 — International
Fulfillment, data centers, and other 187,148 5,591 North America
Fulfillment, data centers, and other 76,868 2,570 International
Total 318,171 15,615
(1) For leased properties, represents the total leased space excluding sub-leased
space.
(2) This includes 564 North America and 7 International stores as of December 31,
2019.
Segment
Leased Square
Footage (1)
Owned Square Footage
(1)
North America 199,473 1,983
International 74,231 958
AWS 10,553 5,882
Total 284,257 8,823
(1) Segment amounts exclude corporate facilities. Shared facilities are allocated among the segments based on usage and primarily relate to facilities that hold our
technology infrastructure. See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 10 — Segment Information.”
We own and lease our corporate headquarters in Seattle, Washington and Arlington, Virginia.
Item 3. Legal Proceedings
See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies — Legal Proceedings.”
Item 4. Mine Safety Disclosures
Not applicable.
16
PART II
Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “AMZN.”
Holders
As of January 22, 2020, there were 3,169 shareholders of record of our common stock, although there is a much larger number of beneficial owners.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
17
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of
Part II, “Financial Statements and Supplementary Data,” and the information contained in Item 7 of Part II, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” Historical results are not necessarily indicative of future results.
Year Ended December 31,
2015 2016 2017 (1) 2018 2019
(in millions, except per share data)
Statements of Operations:
Net sales $ 107,006 $ 135,987 $ 177,866 $ 232,887 $ 280,522
Operating income $ 2,233 $ 4,186 $ 4,106 $ 12,421 $ 14,541
Net income (loss) $ 596 $ 2,371 $ 3,033 $ 10,073 $ 11,588
Basic earnings per share (2) $ $ $ $ $
Diluted earnings per share (2) $ $ $ $ $
Weighted-average shares used in computation of earnings per share:
Basic 467 474 480 487 494
Diluted 477 484 493 500 504
Statements of Cash Flows:
Net cash provided by (used in) operating activities (3) $ 11,909 $ 17,203 $ 18,365 $ 30,723 $ 38,514
December 31,
2015 2016 2017 2018 2019 (4)
(in millions)
Balance Sheets:
Total assets $ 64,747 $ 83,402 $ 131,310 $ 162,648 $ 225,248
Total long-term obligations $ 17,477 $ 20,301 $ 45,718 $ 50,708 $ 75,376
(1) We acquired Whole Foods Market on August 28, 2017. The results of Whole Foods Market have been included in our results of operation from the date of
acquisition.
(2) 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.”
(3) As a result of the adoption of new accounting guidance, we retrospectively adjusted our consolidated statements of cash flows to add restricted cash to cash
and cash equivalents, which restated cash provided by operating activities by $(130) million, $(69) million, and $(69) million in 2015, 2016, and 2017. See
Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies” for additional information.
(4) As a result of the adoption of new accounting guidance on January 1, 2019, we recognized lease assets and liabilities for operating leases with terms of more
than twelve months. Prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting policies. See Item 8 of Part
II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies” for additional information.
18
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position,
made in this Annual Report on Form 10-K are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to
identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could
differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer
spending, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that invests in new business
opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with
services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth
and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization,
risks of inventory management, seasonality, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed
acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, the global economic climate amplifies
many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from
management’s expectations, are described in greater detail in Item 1A of Part I, “Risk Factors.”
Overview
Our primary source of revenue is the sale of a wide range of products and services to customers. The products offered through our stores include
merchandise and content we have purchased for resale and products offered by third-party sellers, and we also manufacture and sell electronic devices and produce
media content. 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 third-party sellers as service sales. We seek to increase unit sales across our stores, through increased product selection, across numerous product categories.
We also offer other services such as compute, storage, and database offerings, fulfillment, advertising, publishing, and digital content subscriptions.
Our financial focus is on long-term, sustainable growth in free cash flows1. Free cash flows are driven primarily by increasing operating income and efficiently
managing working capital2 and cash capital expenditures, including our decision to purchase or lease property and equipment. Increases in operating income
primarily result from increases in sales of products and services and efficiently managing our operating costs, partially offset by investments we make in longer-
term strategic initiatives, including capital expenditures focused on improving the customer experience. To increase sales of products and services, we focus on
improving all aspects of the customer experience, including lowering prices, improving availability, offering faster delivery and performance times, increasing
selection, producing original content, increasing product categories and service offerings, expanding product information, improving ease of use, improving
reliability, and earning customer trust.
We seek to reduce our variable costs per unit and work to leverage our fixed 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 build and run our technology infrastructure; to build, enhance, and add features to our
online stores, web services, electronic devices, and digital offerings; and to build and optimize our fulfillment and delivery networks and related facilities. Variable
costs generally change directly with sales volume, while fixed costs generally are dependent 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 from suppliers, and reduce defects in our processes. To minimize unnecessary growth in fixed costs, we seek to improve process efficiencies and
maintain a lean culture.
(1) See “Results of Operations — Non-GAAP Financial Measures” below for additional information on our non-GAAP free cash flows financial
measures.
(2) Working capital consists of accounts receivable, inventory, and accounts
payable.
19
Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle3. On average, our high inventory velocity means
we generally collect from consumers before our payments to suppliers come due. We expect variability in inventory turnover over time since it is affected by
numerous factors, including our product mix, the mix of sales by us and by third-party 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 third-party fulfillment providers. We also
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 third-
party sellers, the mix of suppliers, seasonality, and changes in payment terms over time, including the effect of balancing pricing and timing of payment terms with
suppliers.
We expect spending in technology and content will increase over time as we add computer scientists, designers, software and hardware engineers, and
merchandising employees. Our technology and content investment and capital spending projects often support a variety of product and service offerings due to
geographic expansion and the cross-functionality of our systems and operations. We seek to invest efficiently in several areas of technology and content, including
AWS, and expansion of new and existing product categories and service offerings, as well as in technology infrastructure to enhance the customer experience and
improve our process efficiencies. We believe that advances in technology, specifically the speed and reduced cost of processing power, the advances of wireless
connectivity, and the practical applications of artificial intelligence and machine learning, 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 offers a broad set of global compute, storage, database, and other
service offerings to developers and enterprises of all sizes.
We seek to efficiently manage shareholder dilution while maintaining the flexibility to issue shares for strategic purposes, such as financings, acquisitions,
and aligning employee compensation with shareholders’ interests. We utilize restricted stock units as our primary vehicle for equity compensation because we
believe this compensation model aligns the long-term interests of our shareholders and employees. In measuring shareholder dilution, we include all vested and
unvested stock awards outstanding, without regard to estimated forfeitures. Total shares outstanding plus outstanding stock awards were 507 million and 512
million as of December 31, 2018 and 2019.
Our financial reporting currency is the . Dollar and changes in foreign exchange rates significantly affect our reported results and consolidated trends.
For example, if the . Dollar weakens year-over-year relative to currencies in our international locations, our consolidated net sales and operating expenses will
be higher than if currencies had remained constant. Likewise, if the . Dollar strengthens year-over-year relative to currencies in our international locations, our
consolidated net sales and operating expenses will be lower than if currencies had remained constant. We believe that our increasing diversification beyond the
. economy through our growing international businesses benefits our shareholders over the long-term. We also believe it is useful to evaluate our operating
results and growth rates before and after the effect of currency changes.
In addition, the remeasurement of our intercompany balances can result in significant gains and losses associated with the effect of movements in foreign
currency exchange rates. Currency volatilities may continue, which may significantly impact (either positively or negatively) our reported results and consolidated
trends and comparisons.
For additional information about each line item addressed above, refer to Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 —
Description of Business and Accounting Policies.”
Our Annual Report on Form 10-K for the year endedDecember 31, 2018 includes a discussion and analysis of our financial condition and results of
operations for the year ended December 31, 2017 in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(3) 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.
20
Critical Accounting Judgments
The preparation of financial statements in conformity with generally accepted accounting principles of the United States (“GAAP”) requires estimates and
assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated
financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of
the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of
the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments
addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding
our results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting
Policies.” Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results
may differ significantly from these estimates under different assumptions, judgments, or conditions.
Inventories
Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out method, and are valued at the lower of cost and
net realizable 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 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 as of December 31, 2019, we would have recorded an additional cost
of sales of approximately $230 million.
In addition, we enter into supplier commitments for certain electronic device components and certain products. These commitments are based on forecasted
customer demand. If we reduce these commitments, we may incur additional costs.
Income Taxes
We are subject to income taxes in the . (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, principles,
and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and
significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary
course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be affected by numerous factors, such as changes in our
business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings,
including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have
higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in
foreign currency exchange rates, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations,
administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting
rules in various jurisdictions. In addition, a number of countries are actively pursuing changes to their tax laws applicable to corporate multinationals, such as the
. tax reform legislation commonly known as the . Tax Cuts and Jobs Act of 2017 (the “. Tax Act”). Finally, foreign governments may enact tax laws in
response to the . Tax Act that could result in further changes to global taxation and materially affect our financial position and results of operations.
The . Tax Act significantly changed how the . taxes corporations. The . Tax Act requires complex computations to be performed that were not
previously required by . tax law, significant judgments to be made in interpretation of the provisions of the . Tax Act, significant estimates in calculations,
and the preparation and analysis of information not previously relevant or regularly produced. The . Treasury Department, the IRS, and other standard-setting
bodies will continue to interpret or issue guidance on how provisions of the . Tax Act will be applied or otherwise administered. As future guidance is issued,
we may make adjustments to amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the
adjustments are made.
We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us.
Developments in an audit, investigation, or other tax controversy 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. We regularly assess the likelihood of an adverse outcome resulting from these
proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and
any other tax controversies could be materially different from our historical income tax provisions and accruals.
21
Recent Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies.”
Liquidity and Capital Resources
Cash flow information, which reflects retrospective adjustments to our consolidated statements of cash flows as described in Item 8 of Part II, “Financial
Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies,” is as follows (in millions):
Year Ended December 31,
2018 2019
Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair
value, were $ billion and $ billion as of December 31, 2018 and 2019. Amounts held in foreign currencies were$ billion and $ billion as of
December 31, 2018 and 2019, and were primarily Euros, British Pounds, and Japanese Yen.
Cash provided by (used in) operating activities was $ billion and $ billion in 2018 and 2019. Our operating cash flows result primarily from cash
received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and
services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash
received from our 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. The increase in operating cash flow in 2019, compared to the prior year, is primarily due to the increase in net income,
excluding non-cash charges such as depreciation, amortization, and stock-based compensation. Cash provided by (used in) operating activities is also subject to
changes in working capital. 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.
Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from
property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and
purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was $() billion and $() billion in 2018 and 2019,
with the variability caused primarily by our decision to purchase or lease property and equipment and purchases, maturities, and sales of marketable securities.
Cash capital expenditures were $ billion, and $ billion in 2018 and 2019, which primarily reflect additional capacity to support our fulfillment operations
and additional investments in support of continued business growth in technology infrastructure (the majority of which is to support AWS). We made cash
payments, net of acquired cash, related to acquisition and other investment activity of $ billion and $ billion in 2018 and 2019.
Cash provided by (used in) financing activities was $() billion and $() billion in 2018 and 2019. Cash outflows from financing activities result from
principal repayments of finance leases and financing obligations and repayments of long-term debt and other, and were $ billion and $ billion in 2018 and
2019. Property and equipment acquired under finance leases was $ billion and $ billion in 2018 and 2019, with the increase reflecting investments in
support of continued business growth primarily due to investments in technology infrastructure for AWS, which investments we expect to continue over time.
We had no borrowings outstanding under the commercial paper program (the “Commercial Paper Program”) or unsecured revolving credit facility (the
“Credit Agreement”) and $740 million of borrowings outstanding under our $740 million secured revolving credit facility (the “Credit Facility”) as of
December 31, 2019. See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” for additional information.
In 2018 and 2019, we recorded net tax provisions of$ billion and $ billion. Certain foreign subsidiary earnings are subject to . taxation under the
. Tax Act, which also repeals . taxation on the subsequent repatriation of those earnings. We intend to invest substantially all of our foreign subsidiary
earnings, as well as our capital in our foreign
22
Cash provided by (used in):
Operating activities $ 30,723 $ 38,514
Investing activities (12,369) (24,281)
Financing activities (7,686) (10,066)
subsidiaries, indefinitely outside of the . in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts. As of
December 31, 2019, cash, cash equivalents, and marketable securities held by foreign subsidiaries was$ billion.
Tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions are reducing our . taxable income. The .
Tax Act enhanced and extended accelerated depreciation deductions by allowing full expensing of qualified property, primarily equipment, through 2022. Cash
taxes paid (net of refunds) were $ billion and $881 million for 2018 and 2019. As of December 31, 2019, we had approximately $ billion of federal tax
credits potentially available to offset future tax liabilities. Our federal tax credits are primarily related to the . federal research and development credit. As we
utilize our federal tax credits we expect cash paid for taxes to increase. We endeavor to manage our global taxes on a cash basis, rather than on a financial reporting
basis. In connection with the European Commission’s October 2017 decision against us on state aid, Luxembourg tax authorities computed an initial recovery
amount, consistent with the European Commission’s decision, of approximately €250 million, that we deposited into escrow in March 2018, subject to adjustment
pending conclusion of all appeals.
Our liquidity is also affected by restricted cash balances that are pledged as collateral for real estate leases, amounts due to third-party sellers in certain
jurisdictions, debt, and standby and trade letters of credit. To the extent we process payments for third-party sellers or offer certain types of stored value to our
customers, some jurisdictions may restrict our use of those funds. These restrictions would result in the reclassification of a portion of our cash and cash
equivalents from “Cash and cash equivalents” to restricted cash, which is classified within “Accounts receivable, net and other” and “Other assets” on our
consolidated balance sheets. As of December 31, 2018 and 2019, restricted cash, cash equivalents, and marketable securities were$426 million and $321 million.
See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies” for additional discussion of our principal
contractual commitments, as well as our pledged assets. Additionally, purchase obligations and open purchase orders, consisting of inventory and significant non-
inventory commitments, were $ billion as of December 31, 2019. These purchase obligations and open purchase orders are generally cancellable in full or in
part through the contractual provisions.
We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing
arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve 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, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or
repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further 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, capital infrastructure, and technologies, which might affect our liquidity
requirements or cause us to secure additional financing, or issue additional equity or debt securities. There can be no assurance that additional credit lines or
financing instruments will be available in amounts or on terms acceptable to us, if at all.
23
Results of Operations
We have organized our operations into three segments: North America, International, and AWS. These segments reflect the way the Company evaluates its
business performance and manages its operations. See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 10 — Segment Information.”
Net Sales
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping fees and digital media content
where we record revenue gross. Service sales primarily represent third-party seller fees, which includes commissions and any related fulfillment and shipping fees,
AWS sales, Amazon Prime membership fees, advertising services, and certain digital content subscriptions. Net sales information is as follows (in millions):
Year Ended December 31,
2018 2019
Sales increased 20% in 2019, compared to the prior year. Changes in foreign currency exchange rates impacted net sales by$ billion and $() billion for
2018 and 2019. For a discussion of the effect on sales growth of foreign exchange rates, see “Effect of Foreign Exchange Rates” below.
North America sales increased 21% in 2019, compared to the prior year. The sales growth primarily reflects increased unit sales, including sales by third-
party sellers. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, increased in-
stock inventory availability, and increased selection.
International sales increased 13% in 2019, compared to the prior year. The sales growth primarily reflects increased unit sales, including sales by third-party
sellers. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, increased in-stock
inventory availability, and increased selection. Changes in foreign currency exchange rates impacted International net sales by $ billion and $() billion in
2018 and 2019.
AWS sales increased 37% in 2019, compared to the prior year. The sales growth primarily reflects increased customer usage, partially offset by pricing
changes. Pricing changes were driven largely by our continued efforts to reduce prices for our customers.
24
Net Sales:
North America $ 141,366 $ 170,773
International 65,866 74,723
AWS 25,655 35,026
Consolidated $ 232,887 $ 280,522
Year-over-year Percentage Growth:
North America 33% 21%
International 21 13
AWS 47 37
Consolidated 31 20
Year-over-year Percentage Growth, exclud
