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Amazon.com Announces Third Quarter Sales up 31% to $4.26 Billion; Sales Growth Fueled by Lower Prices, Expanded Selection and Free Shipping

SEATTLE--(BUSINESS WIRE)--

Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its third quarter ended September 30, 2008.

Operating cash flow was $1.27 billion for the trailing twelve months, compared with $1.0 billion for the trailing twelve months ended September 30, 2007. Free cash flow increased 21% to $0.97 billion for the trailing twelve months, compared with $0.80 billion for the trailing twelve months ended September 30, 2007.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 448 million on September 30, 2008, compared with 435 million a year ago.

Net sales increased 31% to $4.26 billion in the third quarter, compared with $3.26 billion in third quarter 2007. Excluding the $80 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 28% compared with third quarter 2007.

Operating income increased 26% to $154 million in the third quarter, compared with $123 million in third quarter 2007. Excluding the $5 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, operating income grew 22% compared with third quarter 2007.

Net income increased 48% to $118 million in the third quarter, or $0.27 per diluted share, compared with net income of $80 million, or $0.19 per diluted share, in third quarter 2007. Net income includes a benefit of $15 million related to net foreign currency remeasurements.

"We remain relentlessly focused on delivering value to customers through lower prices, improved selection and our free shipping offers, including Amazon Prime," said Jeff Bezos, founder and CEO of Amazon.com. "Customers saved more than $700 million with our global free-shipping programs over the past twelve months, and we expect more customers than ever will take advantage of the benefits of Amazon Prime this holiday season."

    Highlights

    --  Kindle selection continues to grow, with available book titles
        more than doubling since launch to over 185,000, including 105
        out of 112 of the New York Times bestsellers, all priced at
        $9.99 or less. Additionally, newspaper, magazine and blog
        selection have each more than doubled since launch. The Kindle
        Store has added periodicals such as the Chicago Tribune,
        Financial Times, Los Angeles Times, MIT Technology Review, and
        U.S. News & World Report to a list that already included the
        New York Times, Wall Street Journal, Washington Post, Forbes,
        Fortune, Newsweek and Time.

    --  Kindle titles already account for more than 10% of unit sales
        for books that are available in both digital and print
        formats.

    --  Worldwide Media sales grew 19% to $2.49 billion, compared with
        $2.09 billion in third quarter 2007.

    --  Worldwide Electronics & Other General Merchandise sales grew
        52% to $1.64 billion, compared with $1.08 billion in third
        quarter 2007, and increased to 38% of worldwide net sales
        compared with 33%.

    --  North America segment sales, representing the Company's U.S.
        and Canadian sites, were $2.30 billion, up 29% from third
        quarter 2007.

    --  International segment sales, representing the Company's U.K.,
        German, Japanese, French and Chinese sites, were $1.96
        billion, up 33% from third quarter 2007, and increased to 46%
        of worldwide net sales compared with 45%. Excluding the
        favorable impact from year-over-year changes in foreign
        exchange rates throughout the quarter, International sales
        grew 28%.

    --  Amazon.com shipped over 1 million units in third quarter 2008
        on behalf of sellers who utilized Fulfillment by Amazon.

    --  Amazon.fr launched Amazon Premium, the local version of Amazon
        Prime, on October 1, 2008. Members pay an annual fee of EUR 49
        for unlimited express delivery throughout France.

    --  Amazon.co.uk lowered its free shipping threshold from GBP 15
        to GBP 5.

    --  Amazon Europe launched Automotive and Apparel stores on its
        amazon.de website and a Health and Personal Care store on its
        amazon.co.uk website, offering customers tens of thousands of
        new items from hundreds of top brands.

    --  Amazon Payments launched two new products, Checkout by Amazon
        and Amazon Simple Pay, enabling merchants to allow their
        customers to use their Amazon account to complete a
        transaction.

    --  Amazon Web Services (AWS) launched the Amazon Elastic Block
        Store (Amazon EBS), a new persistent storage feature for the
        Amazon Elastic Compute Cloud (Amazon EC2). With Amazon EBS,
        storage volumes can be programmatically created, attached to
        Amazon EC2 instances, and if more durability is desired, can
        be backed up with a snapshot to the Amazon Simple Storage
        Service (Amazon S3).

    --  Oracle announced that they will be supporting Oracle Database
        11g on Amazon EC2, as well as supporting other services such
        as Amazon S3.

    Financial Guidance

The following forward-looking statements reflect Amazon.com's expectations as of October 22, 2008. While guidance takes into account recent growth rates, our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce and the various factors detailed below.

    Fourth Quarter 2008 Guidance

    --  Net sales are expected to be between $6.0 billion and $7.0
        billion, or to grow between 6% and 23% compared with fourth
        quarter 2007.

    --  Operating income is expected to be between $145 million and
        $305 million, or between 46% decline and 13% growth compared
        with fourth quarter 2007. This guidance includes approximately
        $85 million for stock-based compensation and amortization of
        intangible assets, and it assumes, among other things, that no
        additional business acquisitions or investments are concluded
        and that there are no further revisions to stock-based
        compensation estimates.

    Full Year 2008 Expectations

    --  Net sales are expected to be between $18.46 billion and $19.46
        billion, or to grow between 24% and 31% compared with 2007.

    --  Operating income is expected to be between $716 million and
        $876 million, or to grow between 9% and 34% compared with
        2007. This guidance includes approximately $300 million for
        stock-based compensation and amortization of intangible assets
        and includes the impact of the $53 million non-cash gain
        recognized in the second quarter 2008 on the sale of the
        Company's European DVD rental assets. It assumes, among other
        things, that no additional business acquisitions or
        investments are concluded and that there are no further
        revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, indebtedness, government regulation and taxation, payments and fraud. In addition, the recent disruptions in the global financial markets amplify many of these risks. More information about factors that potentially could affect Amazon.com's financial results is included in Amazon.com's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent filings.

About Amazon.com

Amazon.com, Inc. (NASDAQ: AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com, Inc. seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as books, movies, music & games, digital downloads, electronics & computers, home & garden, toys, kids & baby, grocery, apparel, shoes & jewelry, health & beauty, sports & outdoors, tools, and auto & industrial.

Amazon Web Services provides Amazon's developer customers with access to in-the-cloud infrastructure services based on Amazon's own back-end technology platform, which developers can use to enable virtually any type of business. Examples of the services offered by Amazon Web Services are Amazon Elastic Compute Cloud (Amazon EC2), Amazon Simple Storage Service (Amazon S3), Amazon SimpleDB, Amazon Simple Queue Service (Amazon SQS), Amazon Flexible Payments Service (Amazon FPS) and Amazon Mechanical Turk.

Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and the Joyo Amazon websites at www.joyo.cn and www.amazon.cn.

As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.

                           AMAZON.COM, INC.
                Consolidated Statements of Cash Flows
                            (in millions)
                             (unaudited)

                     Three Months     Nine Months     Twelve Months
                         Ended            Ended            Ended
                     September 30,   September 30,     September 30,
                    --------------- ---------------- -----------------
                     2008    2007     2008    2007     2008     2007
                    ------- ------- -------- ------- -------- --------
CASH AND CASH
 EQUIVALENTS,
 BEGINNING OF
 PERIOD             $1,548  $1,004  $ 2,539  $1,022  $ 1,366  $   693

OPERATING
 ACTIVITIES:
Net income             118      80      420     269      627      367
Adjustments to
 reconcile net
 income to net cash
 from operating
 activities:
  Depreciation of
   fixed assets,
   including
   internal-use
   software and
   website
   development, and
   other
   amortization         76      61      210     183      273      242
  Stock-based
   compensation         70      51      197     130      251      161
  Other operating
   expense
   (income), net         7       3      (32)      6      (29)       8
  Losses (gains) on
   sales of
   marketable
   securities, net       1       -       (2)      1       (2)       1
  Other expense
   (income), net       (24)      3      (17)     12      (18)      12
  Deferred income
   taxes               (17)     (2)     (47)     (1)    (144)       6
  Excess tax
   benefits from
   stock-based
   compensation        (53)    (34)    (160)    (93)    (323)    (157)
Changes in
 operating assets
 and liabilities:
  Inventories         (243)   (223)    (130)    (72)    (361)    (199)
  Accounts
   receivable, net
   and other            (9)    (73)     106     (17)    (131)    (134)
  Accounts payable     362     304     (524)   (216)     620      372
  Accrued expenses
   and other           101      58       39      29      437      276
  Additions to
   unearned revenue    121      56      286     165      366      240
  Amortization of
   previously
   unearned revenue    (86)    (47)    (220)   (139)    (291)    (194)
                    ------- ------- -------- ------- -------- --------
    Net cash
     provided by
     operating
     activities        424     237      126     257    1,275    1,001

INVESTING
 ACTIVITIES:
Purchases of fixed
 assets, including
 internal-use
 software and
 website
 development          (102)    (69)    (231)   (151)    (305)    (201)
Acquisitions, net
 of cash acquired,
 and other              (8)    (24)    (408)    (47)    (436)     (48)
Sales and
 maturities of
 marketable
 securities and
 other investments     582     210    1,033   1,156    1,149    2,025
Purchases of
 marketable
 securities and
 other investments    (478)    (83)  (1,229)   (777)  (1,382)  (2,118)
                    ------- ------- -------- ------- -------- --------
    Net cash
     provided by
     (used in)
     investing
     activities         (6)     34     (835)    181     (974)    (342)

FINANCING
 ACTIVITIES:
Proceeds from
 exercises of stock
 options                 2      35       10      79       23       97
Excess tax benefits
 from stock-based
 compensation           53      34      160      93      323      157
Common stock
 repurchased             -       -        -    (248)       -     (248)
Proceeds from long-
 term debt and
 other                   -      33       52      21       68       31
Repayments of long-
 term debt and
 capital lease
 obligations          (295)    (29)    (355)    (63)    (380)     (63)
                    ------- ------- -------- ------- -------- --------
   Net cash
    provided by
    (used in)
    financing
    activities        (240)     73     (133)   (118)      34      (26)

Foreign-currency
 effect on cash and
 cash equivalents      (76)     18      (47)     24      (51)      40
                    ------- ------- -------- ------- -------- --------
   Net increase
    (decrease) in
    cash and cash
    equivalents        102     362     (889)    344      284      673
                    ------- ------- -------- ------- -------- --------
CASH AND CASH
 EQUIVALENTS, END
 OF PERIOD          $1,650  $1,366  $ 1,650  $1,366  $ 1,650  $ 1,366
                    ======= ======= ======== ======= ======== ========

SUPPLEMENTAL CASH
 FLOW INFORMATION:
Cash paid for
 interest           $   14  $   22  $    61  $   67  $    62  $    67
Cash paid for
 income taxes            5       4       28      14       38       15
Fixed assets
 acquired under
 capital leases and
 other financing
 arrangements           37      22      104      43      136       50
Fixed assets
 acquired under
 build-to-suit
 leases                 19       -       35       -       50        -
Conversion of debt     132       1      605       1      605        1
                           AMAZON.COM, INC.
                Consolidated Statements of Operations
                 (in millions, except per share data)
                             (unaudited)

                                       Three Months     Nine Months
                                           Ended            Ended
                                       September 30,   September 30,
                                      --------------- ----------------
                                       2008    2007     2008    2007
                                      ------- ------- -------- -------
Net sales                             $4,264  $3,262  $12,463  $9,163
Cost of sales                          3,265   2,500    9,541   6,980
                                      ------- ------- -------- -------
Gross profit                             999     762    2,922   2,183

Operating expenses(1):
  Fulfillment                            393     296    1,109     815
  Marketing                              108      74      313     211
  Technology and content                 264     209      755     596
  General and administrative              73      57      208     171
  Other operating expense (income),
   net(2)                                  7       3      (32)      6
                                      ------- ------- -------- -------
    Total operating expenses             845     639    2,353   1,799
                                      ------- ------- -------- -------

Income from operations                   154     123      569     384

Interest income                           21      23       67      62
Interest expense                         (17)    (19)     (60)    (57)
Other income (expense), net               24      (3)      22     (10)
                                      ------- ------- -------- -------
    Total non-operating income
     (expense)                            28       1       29      (5)
                                      ------- ------- -------- -------

Income before income taxes               182     124      598     379

Provision for income taxes                59      44      167     110
Equity-method investment activity,
 net of tax                                5       -       11       -
                                      ------- ------- -------- -------
Net income                            $  118  $   80  $   420  $  269
                                      ======= ======= ======== =======

Basic earnings per share              $ 0.28  $ 0.19  $  1.00  $ 0.65
                                      ======= ======= ======== =======

Diluted earnings per share            $ 0.27  $ 0.19  $  0.97  $ 0.64
                                      ======= ======= ======== =======

Weighted average shares used in
 computation of earnings per share:
  Basic                                  427     414      421     412
                                      ======= ======= ======== =======
  Diluted                                436     425      431     423
                                      ======= ======= ======== =======
__________________________
(1) Includes stock-based compensation
 as follows:
  Fulfillment                         $   15  $   11  $    42  $   27
  Marketing                                4       2       10       6
  Technology and content                  38      28      109      72
  General and administrative              13      10       36      25

(2) Q2 2008 includes a $53 million non-cash gain associated with the
 sale of our European DVD rental assets.
                           AMAZON.COM, INC.
                         Segment Information
                            (in millions)
                             (unaudited)

                                  Three Months Ended Nine Months Ended
                                    September 30,      September 30,
                                  ------------------ -----------------
                                      2008    2007      2008    2007
                                  ---------- ------- --------- -------
North America
  Net sales                          $2,302  $1,788   $ 6,597  $5,012
  Cost of sales                       1,716   1,328     4,883   3,679
                                  ---------- ------- --------- -------
  Gross profit                          586     460     1,714   1,333
  Direct segment operating
   expenses(1)                          498     381     1,400   1,087
                                  ---------- ------- --------- -------
  Segment operating income           $   88  $   79   $   314  $  246
                                  ========== ======= ========= =======

International
  Net sales                          $1,962  $1,474   $ 5,866  $4,151
  Cost of sales                       1,549   1,172     4,658   3,301
                                  ---------- ------- --------- -------
  Gross profit                          413     302     1,208     850
  Direct segment operating
   expenses(1)                          270     204       788     576
                                  ---------- ------- --------- -------
  Segment operating income           $  143  $   98   $   420  $  274
                                  ========== ======= ========= =======

Consolidated
  Net sales                          $4,264  $3,262   $12,463  $9,163
  Cost of sales                       3,265   2,500     9,541   6,980
                                  ---------- ------- --------- -------
  Gross profit                          999     762     2,922   2,183
  Direct segment operating
   expenses                             768     585     2,188   1,663
                                  ---------- ------- --------- -------
  Segment operating income              231     177       734     520
  Stock-based compensation              (70)    (51)     (197)   (130)
  Other operating income
   (expense), net(2)                     (7)     (3)       32      (6)
                                  ---------- ------- --------- -------
  Income from operations                154     123       569     384
  Total non-operating income
   (expense), net                        28       1        29      (5)
  Provision for income taxes            (59)    (44)     (167)   (110)
  Equity-method investment
   activity, net of tax                  (5)      -       (11)      -
                                  ---------- ------- --------- -------
  Net income                         $  118  $   80   $   420  $  269
                                  ========== ======= ========= =======

Segment Highlights:
  Y/Y net sales growth:
    North America                        29%     42%       32%     37%
    International                        33      40        41      35
    Consolidated                         31      41        36      36
  Y/Y gross profit growth:
    North America                        28%     34%       29%     34%
    International                        37      47        42      39
    Consolidated                         31      39        34      36
  Y/Y segment operating income
   growth:
    North America                        12%    263%       27%    128%
    International                        46      94        53      67
    Consolidated                         31     145        41      91
  Net sales mix:
    North America                        54%     55%       53%     55%
    International                        46      45        47      45
__________________________
(1) A significant majority of our costs for "Technology and content"
 are incurred in the United States and most of these costs are
 allocated to our North America segment.

(2) Q2 2008 includes a $53 million non-cash gain associated with the
 sale of our European DVD rental assets.
                           AMAZON.COM, INC.
                  Supplemental Net Sales Information
                            (in millions)
                             (unaudited)

                                  Three Months Ended Nine Months Ended
                                    September 30,      September 30,
                                  ------------------ -----------------
                                      2008    2007      2008    2007
                                  ---------- ------- --------- -------
North America
  Media                              $1,245  $1,081   $ 3,599  $2,995
  Electronics and other general
   merchandise                          950     631     2,697   1,801
  Other                                 107      76       301     216
                                  ---------- ------- --------- -------
    Total North America               2,302   1,788     6,597   5,012

International
  Media                               1,249   1,010     3,845   2,919
  Electronics and other general
   merchandise                          690     448     1,955   1,195
  Other                                  23      16        66      37
                                  ---------- ------- --------- -------
    Total International               1,962   1,474     5,866   4,151

Consolidated
  Media                               2,494   2,091     7,444   5,914
  Electronics and other general
   merchandise                        1,640   1,079     4,652   2,996
  Other                                 130      92       367     253
                                  ---------- ------- --------- -------
    Total Consolidated               $4,264  $3,262   $12,463  $9,163
                                  ========== ======= ========= =======

Y/Y Net Sales Growth:
North America:
  Media                                  15%     38%       20%     28%
  Electronics and other general
   merchandise                           51      54        50      57
  Other                                  41      22        40      18
    Total North America                  29      42        32      37

International:
  Media                                  24%     33%       32%     30%
  Electronics and other general
   merchandise                           54      54        64      47
  Other                                  49     410        78     216
    Total International                  33      40        41      35

Consolidated:
  Media                                  19%     36%       26%     29%
  Electronics and other general
   merchandise                           52      54        55      53
  Other                                  42      41        45      30
    Total Consolidated                   31      41        36      36

Y/Y Net Sales Growth Excluding Effect of
 Exchange Rates:
International:
  Media                                  18%     27%       22%     25%
  Electronics and other general
   merchandise                           48      45        52      38
  Other                                  52     379        71     194
    Total International                  28      33        31      29

Consolidated:
  Media                                  17%     32%       21%     27%
  Electronics and other general
   merchandise                           49      51        51      49
  Other                                  43      39        44      29
    Total Consolidated                   28      38        31      33

Consolidated Net Sales Mix:
  Media                                  59%     64%       60%     64%
  Electronics and other general
   merchandise                           38      33        37      33
  Other                                   3       3         3       3
                           AMAZON.COM, INC.
                     Consolidated Balance Sheets
                 (in millions, except per share data)

                              September 30, December 31, September 30,
                                  2008          2007         2007
                              ------------- ------------ -------------
ASSETS                         (unaudited)                (unaudited)
Current assets:
  Cash and cash equivalents   $      1,650  $     2,539  $      1,366
  Marketable securities                674          573           543
  Inventories                        1,315        1,200           970
  Accounts receivable, net
   and other                           597          705           474
  Deferred tax assets                  194          147            71
                              ------------- ------------ -------------
    Total current assets             4,430        5,164         3,424
Fixed assets, net                      731          543           491
Deferred tax assets                    278          260           231
Goodwill                               405          222           218
Other assets                           722          296           254
                              ------------- ------------ -------------
    Total assets              $      6,566  $     6,485  $      4,618
                              ============= ============ =============

LIABILITIES AND STOCKHOLDERS'
 EQUITY
Current liabilities:
  Accounts payable            $      2,242  $     2,795  $      1,674
  Accrued expenses and other           860          902           645
  Current portion of long-
   term debt                            42           17             -
                              ------------- ------------ -------------
    Total current liabilities        3,144        3,714         2,319
Long-term debt                         393        1,282         1,273
Other long-term liabilities            502          292           265

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $0.01 par
   value:
    Authorized shares -- 500
    Issued and outstanding
     shares -- none                      -            -             -
  Common stock, $0.01 par
   value:
    Authorized shares --
     5,000
    Issued shares -- 443,
     431, and 429
    Outstanding shares --
     429, 416, and 415                   4            4             4
  Treasury stock, at cost             (500)        (500)         (500)
  Additional paid-in capital         4,051        3,063         2,827
  Accumulated other
   comprehensive income (loss)         (73)           5            11
  Accumulated deficit                 (955)      (1,375)       (1,581)
                              ------------- ------------ -------------
    Total stockholders'
     equity                          2,527        1,197           761
                              ------------- ------------ -------------
    Total liabilities and
     stockholders' equity     $      6,566  $     6,485  $      4,618
                              ============= ============ =============
                           AMAZON.COM, INC.
       Supplemental Financial Information and Business Metrics
                 (in millions, except per share data)
                             (unaudited)

                                                                Y/Y %
                   Q3 2007  Q4 2007  Q1 2008  Q2 2008  Q3 2008  Change
                   ---------------------------------------------------
Cash Flows and
 Shares

Operating cash
 flow -- trailing
 twelve months
 (TTM)             $ 1,001  $ 1,405  $ 1,039  $ 1,088  $ 1,275    27%

Purchases of fixed
 assets (incl.
 internal-use
 software &
 website
 development) --
 TTM               $   201  $   224  $   251  $   272  $   305    52%

Free cash flow
 (operating cash
 flow less
 purchases of
 fixed assets) --
 TTM               $   800  $ 1,181  $   788  $   816  $   970    21%
Free cash flow --
 TTM Y/Y growth        118%     143%      51%      16%      21%  N/A

Common shares and
 stock-based
 awards
 outstanding           435      435      435      446      448     3%
Common shares
 outstanding           415      416      417      426      429     3%
Stock-based awards
 outstanding            20       18       18       20       19    (5%)
Stock-based awards
 outstanding -- %
 of common shares
 outstanding           4.9%     4.4%     4.3%     4.6%     4.5%  N/A

Results of
 Operations

Worldwide (WW) net
 sales             $ 3,262  $ 5,673  $ 4,135  $ 4,063  $ 4,264    31%
WW net sales --
 Y/Y growth,
 excluding F/X          38%      37%      31%      35%      28%  N/A
WW net sales --
 TTM               $13,149  $14,835  $15,955  $17,133  $18,135    38%
WW net sales --
 TTM Y/Y growth,
 excluding F/X          32%      35%      35%      35%      33%  N/A

Gross profit       $   762  $ 1,170  $   956  $   967  $   999    31%
Gross profit --
 Y/Y growth,
 excluding F/X          36%      33%      28%      32%      29%  N/A
Gross margin -- %
 of WW net sales      23.4%    20.6%    23.1%    23.8%    23.4%  N/A
Gross profit --
 TTM               $ 3,032  $ 3,353  $ 3,589  $ 3,855  $ 4,092    35%
Gross profit --
 TTM Y/Y growth,
 excluding F/X          31%      33%      33%      32%      31%  N/A
Gross margin --
 TTM % of WW net
 sales                23.1%    22.6%    22.5%    22.5%    22.6%  N/A

Operating income
 (1)               $   123  $   271  $   198  $   217  $   154    26%
Operating margin
 -- % of WW net
 sales                 3.8%     4.8%     4.8%     5.3%     3.6%  N/A
Operating income
 -- TTM (1)        $   581  $   655  $   708  $   808  $   840    45%
Operating income
 -- TTM Y/Y
 growth, excluding
 F/X                    56%      61%      57%      52%      36%  N/A
Operating margin
 -- TTM % of WW
 net sales             4.4%     4.4%     4.4%     4.7%     4.6%  N/A

Net income(1)      $    80  $   207  $   143  $   158  $   118    48%
Net income per
 diluted share     $  0.19  $  0.48  $  0.34  $  0.37  $  0.27    44%
Net income --
 TTM(1)            $   367  $   476  $   508  $   588  $   627    71%
Net income per
 diluted share --
 TTM               $  0.87  $  1.12  $  1.20  $  1.38  $  1.46    68%

Segments

North America
 Segment:
  Net sales        $ 1,788  $ 3,084  $ 2,126  $ 2,168  $ 2,302    29%
  Net sales -- Y/Y
   growth,
   excluding F/X        42%      39%      31%      35%      29%  N/A
  Net sales -- TTM $ 7,219  $ 8,095  $ 8,598  $ 9,166  $ 9,680    34%
  Gross profit     $   460  $   698  $   569  $   559  $   586    28%
  Gross margin --
   % of North
   America net
   sales              25.7%    22.6%    26.7%    25.8%    25.5%  N/A
  Gross profit --
   TTM             $ 1,864  $ 2,031  $ 2,160  $ 2,286  $ 2,412    29%
  Gross margin --
   TTM % of North
   America net
   sales              25.8%    25.1%    25.1%    24.9%    24.9%  N/A
  Operating income $    79  $   153  $   130  $    96  $    88    12%
  Operating margin
   -- % of North
   America net
   sales               4.4%     5.0%     6.1%     4.4%     3.8%  N/A
  Operating income
   -- TTM          $   369  $   400  $   445  $   458  $   468    27%
  Operating income
   -- TTM Y/Y
   growth,
   excluding F/X        84%      73%      74%      46%      26%  N/A
  Operating margin
   -- TTM % of
   North America
   net sales           5.1%     4.9%     5.2%     5.0%     4.8%  N/A

International
 Segment:
  Net sales        $ 1,474  $ 2,589  $ 2,009  $ 1,895  $ 1,962    33%
  Net sales -- Y/Y
   growth,
   excluding F/X        33%      35%      31%      34%      28%  N/A
  Net sales -- TTM $ 5,930  $ 6,740  $ 7,357  $ 7,967  $ 8,455    43%
  Net sales -- TTM
   % of WW net
   sales                45%      45%      46%      47%      47%  N/A
  Gross profit     $   302  $   472  $   387  $   408  $   413    37%
  Gross margin --
   % of
   International
   net sales          20.5%    18.2%    19.3%    21.5%    21.1%  N/A
  Gross profit --
   TTM             $ 1,168  $ 1,322  $ 1,430  $ 1,569  $ 1,680    44%
  Gross margin --
   TTM % of
   International
   net sales          19.7%    19.6%    19.4%    19.7%    19.9%  N/A
  Operating income $    98  $   175  $   128  $   149  $   143    46%
  Operating margin
   -- % of
   International
   net sales           6.6%     6.8%     6.4%     7.9%     7.3%  N/A
  Operating income
   -- TTM          $   380  $   449  $   483  $   550  $   594    56%
  Operating income
   -- TTM Y/Y
   growth,
   excluding F/X        37%      53%      44%      47%      41%  N/A
  Operating margin
   -- TTM % of
   International
   net sales           6.4%     6.7%     6.6%     6.9%     7.0%  N/A

                           AMAZON.COM, INC.
       Supplemental Financial Information and Business Metrics
 (in millions, except inventory turnover, accounts payable days and
                            employee data)
                             (unaudited)

                                                                Y/Y %
                   Q3 2007   Q4 2007  Q1 2008  Q2 2008  Q3 2008 Change
                   ---------------------------------------------------
Segments
 (continued)

Consolidated
 Segments:
  Operating
   expenses        $   585  $   842  $   698  $   722  $   768    31%
  Operating
   expenses -- TTM $ 2,283  $ 2,504  $ 2,661  $ 2,847  $ 3,030    33%
  Operating income $   177  $   328  $   258  $   245  $   231    31%
  Operating margin
   -- % of
   consolidated
   sales               5.4%     5.8%     6.2%     6.0%     5.4%  N/A
  Operating income
   -- TTM          $   749  $   849  $   928  $ 1,008  $ 1,062    42%
  Operating income
   -- TTM Y/Y
   growth,
   excluding F/X        59%      64%      59%      49%      35%  N/A
  Operating margin
   -- TTM % of
   consolidated
   net sales           5.7%     5.7%     5.8%     5.9%     5.9%  N/A

Supplemental North
 America Segment
 Net Sales:
  Media            $ 1,081  $ 1,637  $ 1,205  $ 1,148  $ 1,245    15%
  Media -- Y/Y
   growth,
   excluding F/X        37%      30%      21%      24%      15%  N/A
  Media -- TTM     $ 4,245  $ 4,630  $ 4,845  $ 5,071  $ 5,235    23%
  Electronics and
   other general
   merchandise     $   631  $ 1,336  $   826  $   920  $   950    51%
  Electronics and
   other general
   merchandise --
   Y/Y growth,
   excluding F/X        54%      53%      46%      52%      51%  N/A
  Electronics and
   other general
   merchandise --
   TTM             $ 2,678  $ 3,139  $ 3,400  $ 3,714  $ 4,033    51%
  Electronics and
   other general
   merchandise --
   TTM % of North
   America net
   sales                37%      39%      40%      41%      42%  N/A
  Other            $    76  $   111  $    95  $   100  $   107    41%
  Other -- TTM     $   296  $   326  $   353  $   381  $   412    39%

Supplemental
 International
 Segment Net
 Sales:
  Media            $ 1,010  $ 1,692  $ 1,338  $ 1,258  $ 1,249    24%
  Media -- Y/Y
   growth,
   excluding F/X        27%      26%      22%      25%      18%  N/A
  Media -- TTM     $ 4,167  $ 4,612  $ 4,950  $ 5,299  $ 5,537    33%
  Electronics and
   other general
   merchandise     $   448  $   877  $   655  $   611  $   690    54%
  Electronics and
   other general
   merchandise --
   Y/Y growth,
   excluding F/X        45%      55%      56%      52%      48%  N/A
  Electronics and
   other general
   merchandise --
   TTM             $ 1,717  $ 2,071  $ 2,344  $ 2,590  $ 2,832    65%
  Electronics and
   other general
   merchandise --
   TTM % of
   International
   net sales            29%      31%      32%      33%      33%  N/A
  Other            $    16  $    20  $    16  $    26  $    23    49%
  Other -- TTM     $    46  $    57  $    63  $    78  $    86    90%

Supplemental
 Worldwide Net
 Sales:
  Media            $ 2,091  $ 3,329  $ 2,543  $ 2,406  $ 2,494    19%
  Media -- Y/Y
   growth,
   excluding F/X        32%      28%      21%      25%      17%  N/A
  Media -- TTM     $ 8,412  $ 9,242  $ 9,795  $10,370  $10,772    28%
  Electronics and
   other general
   merchandise     $ 1,079  $ 2,213  $ 1,481  $ 1,531  $ 1,640    52%
  Electronics and
   other general
   merchandise --
   Y/Y growth,
   excluding F/X        51%      54%      50%      52%      49%  N/A
  Electronics and
   other general
   merchandise --
   TTM             $ 4,395  $ 5,210  $ 5,744  $ 6,304  $ 6,865    56%
  Electronics and
   other general
   merchandise --
   TTM % of WW net
   sales                33%      35%      36%      37%      38%  N/A
  Other            $    92  $   131  $   111  $   126  $   130    42%
  Other -- TTM     $   342  $   383  $   416  $   459  $   498    46%

Balance Sheet

Cash and
 marketable
 securities(2)     $ 2,087  $ 3,309  $ 2,395  $ 2,625  $ 2,572    23%

Inventory, net --
 ending            $   970  $ 1,200  $ 1,077  $ 1,107  $ 1,315    36%
Inventory --
 average inventory
 % of TTM net
 sales                 6.2%     6.1%     5.9%     5.9%     6.3%  N/A
Inventory
 turnover, average
 -- TTM               12.4     12.7     13.1     13.0     12.4     0%

Fixed assets, net  $   491  $   543  $   594  $   651  $   731    49%

Accounts payable
 days -- ending         62       57       53       58       63     3%

Other

Employees (full-
 time and part-
 time; excludes
 contractors &
 temporary
 personnel)         15,800   17,000   17,800   18,400   20,500    30%

Note: The attached "Financial and Operational Summary" is an integral
 part of this Supplemental Financial Information and Business Metrics.

(1) Q2 2008 includes a $53 million non-cash gain associated with the
 sale of our European DVD rental assets.

(2) Includes restricted cash, classified within "Other Assets" on our
 consolidated balance sheet, of: $179 million Q3 2007, $197 million Q4
 2007, $245 million Q1 2008, $245 million Q2 2008 and $248 million Q3
 2008.
    Amazon.com, Inc.

    Financial and Operational Summary

    (unaudited)

Quarterly Results of Operations (comparisons are with the equivalent period of the prior year, unless otherwise stated)

    Net Sales

    --  Revenue is generally recorded gross for sales of our own
        inventory and net for sales by other sellers. Amounts paid in
        advance for subscription services, including amounts received
        for Amazon Prime and other membership programs, are deferred
        and recognized as revenue over the subscription term. For our
        products with multiple elements, where a standalone value for
        each element cannot be established, we recognize the revenue
        and related cost over the estimated economic life of the
        product.

    --  Shipping revenue, which includes amounts earned from our
        Amazon Prime membership and Fulfillment by Amazon programs,
        was $191 million, up 12% from $171 million.

    Cost of Sales

    --  Cost of sales consists of the purchase price of products sold
        by us, inbound and outbound shipping charges, packaging
        supplies, and costs incurred in operating and staffing our
        fulfillment and customer service centers on behalf of other
        businesses.

    --  Payment processing and related transaction costs, including
        those associated with seller transactions, are classified in
        "Fulfillment" on our consolidated statements of operations.

    --  Shipping charges to receive products from our suppliers are
        included in our inventory and recognized as "Cost of sales"
        upon sale of products to our customers.

    --  Outbound shipping costs totaled $323 million, up 24% from $260
        million. Net shipping cost was $132 million, or 3.1% of net
        sales, up 48% from $89 million, or 2.7% of net sales. One way
        we offer lower prices is through free-shipping offers that
        result in a net cost to us in delivery of products.

    Operating Expenses

    --  Depreciation expense for fixed assets, including amortization
        of internal-use software and website development, was $80
        million, up from $65 million. Depreciation is recorded on a
        straight-line basis over the estimated useful lives of the
        assets (generally two years or less for assets such as
        internal-use software, two or three years for our technology
        infrastructure, five years for furniture and fixtures, and ten
        years for heavy equipment).

    --  Stock-based compensation was $70 million, compared with $51
        million. The increase in stock-based compensation is primarily
        attributable to an increase in total stock compensation value
        granted to our employees. We utilize the accelerated, rather
        than a straight-line, method for recognizing stock-based
        compensation. Under this method, over 50% of the compensation
        cost would be expensed in the first year of a typical
        four-year vesting term. Operating expenses with and without
        stock-based compensation are as follows:
                   Three Months Ended          Three Months Ended
                    September 30, 2008          September 30, 2007
                -------------------------- ---------------------------
                   As    Stock-Based          As    Stock-Based
                Reported Compensation Net  Reported Compensation  Net
                -------------------------- ---------------------------
                                    (in millions)
Operating
 Expenses:
 Fulfillment      $  393     $   (15) $378 $    296     $   (11) $285
 Marketing           108          (4)  104       74          (2)   72
 Technology and
  content            264         (38)  226      209         (28)  181
 General and
  administrative      73         (13)   60       57         (10)   47
 Other operating
  expense
  (income) net         7           -     7        3           -     3
                -------- ------------ ---- -------- ------------ -----
   Total
    operating
    expenses      $  845     $   (70) $775 $    639     $   (51) $588
                -------- ------------ ---- -------- ------------ -----

Year-over-year
 Percentage
 Growth:
 Fulfillment          33%               33%      37%               37%
 Marketing            46                45       16                15
 Technology and
  content             26                25       22                16
 General and
  administrative      29                28        4                (4)

Percent of Net
 Sales:
 Fulfillment         9.2%              8.9%     9.1%              8.7%
 Marketing           2.5               2.5      2.3               2.2
 Technology and
  content            6.2               5.3      6.4               5.6
 General and
  administrative     1.7               1.4      1.7               1.4
    Fulfillment

    --  Certain of our fulfillment-related costs that are incurred on
        behalf of other businesses are classified as cost of sales
        rather than fulfillment.

    --  The increase in fulfillment costs in absolute dollars relates
        to variable costs corresponding with sales volume and
        inventory levels; our mix of product sales; payment processing
        and related transaction costs, including mix of payment
        methods and costs from our guarantee for certain seller
        transactions; and costs from expanding fulfillment capacity.

    --  Additionally, because payment processing costs associated with
        seller transactions are based on the gross purchase price of
        underlying transactions, and payment processing and related
        transaction costs are higher as a percentage of revenue versus
        our retail sales, sales by our sellers have higher fulfillment
        costs as a percent of net sales.

    --  We expanded our fulfillment capacity during the first nine
        months of 2008 and throughout 2007 through gains in
        efficiencies and increases in leased warehouse space. This
        expansion is designed to accommodate greater selection and
        in-stock inventory levels and meet anticipated shipment
        volumes from sales of our own products as well as sales by
        third parties for whom we provide the fulfillment services.

    Marketing

    --  We direct customers to our websites primarily through a number
        of targeted online marketing channels, such as our Associates
        program, sponsored search, portal advertising, e-mail
        campaigns, and other initiatives. Our marketing expenses are
        largely variable, based on growth in sales and changes in
        rates. To the extent there is increased or decreased
        competition for these traffic sources, or to the extent our
        mix of these channels shifts, we would expect to see a
        corresponding change in our marketing expense or its effect.

    --  Marketing costs increased in absolute dollars in Q3 2008 due
        to increased spending in variable online marketing channels,
        such as our Associates program and sponsored search programs.

    Technology and Content

    --  Technology and content expenses consist principally of payroll
        and related expenses for employees involved in application
        development, category expansion, editorial content, buying,
        merchandising selection, and systems support, as well as costs
        associated with the compute, storage and telecommunications
        infrastructure.

    --  We seek to efficiently invest in several areas of technology
        and content including seller platforms, web services, digital
        initiatives and the expansion of new and existing product
        categories, as well as in technology infrastructure to enhance
        the customer experience, improve our process efficiencies and
        support our infrastructure web services.

    --  Certain costs relating to development of internal-use software
        and website development, including development of software to
        upgrade and enhance our websites and processes supporting our
        business, are capitalized and amortized over two years.

    --  During Q3 2008 and Q3 2007, we capitalized $41 million
        (including $7 million of stock-based compensation) and $35
        million (including $6 million of stock-based compensation) of
        costs associated with internal-use software and website
        development. Amortization of previously capitalized amounts
        was $37 million and $30 million for Q3 2008 and Q3 2007.

    Stockholders' Equity and Stock-Based Awards

    --  As of September 30, 2008, outstanding common shares plus
        shares underlying outstanding stock-based awards were 448
        million, up from 435 million as of September 30, 2007. This
        total includes all stock-based awards outstanding, without
        regard for estimated forfeitures, consisting of vested and
        unvested awards and in-the-money and out-of-the-money stock
        options.

    --  In Q3 2008 we called for redemption principal amounts of $399
        million of our outstanding 4.75% Convertible Subordinated
        Notes. Holders elected to convert a total of $132 million in
        principal amount of the 4.75% Convertible Subordinated Notes,
        and we issued 1.7 million shares of our common stock as a
        result; we redeemed the remaining $266 million of the called
        principal amount for cash.

    --  As of September 30, 2008, stock-based awards outstanding were
        19.2 million, or 4.5% of shares outstanding, down from 20.2
        million, or 4.9% of outstanding shares. Outstanding stock
        awards consist of 17.9 million restricted stock units and 1.3
        million stock options with a $25.06 weighted-average exercise
        price.

    --  We granted restricted stock units representing 0.9 million and
        0.4 million shares of common stock during Q3 2008 and Q3 2007.

    Other Operating Expense (Income), Net

    --  Other operating expense (income), net, was $7 million and $3
        million during Q3 2008 and Q3 2007.

    Other Income (Expense), Net

    --  Other income (expense), net, was $24 million and ($3) million
        during Q3 2008 and Q3 2007. The amount consists primarily of
        gains and losses related to foreign currency remeasurement.

    --  The remeasurement of our 6.875% PEACS and intercompany
        balances can result in significant gains and losses associated
        with the effect of movements in currency exchange rates.

    Income Taxes

    --  Our tax provision for interim periods is determined using an
        estimate of our annual effective tax rate adjusted for
        discrete items, if any, that are taken into account in the
        relevant period. Each quarter we update our estimate of the
        annual effective tax rate, and if our estimated tax rate
        changes we make a cumulative adjustment. The 2008 annual
        effective tax rate is estimated to be lower than the 35% U.S.
        federal statutory rate primarily due to anticipated earnings
        of our subsidiaries outside of the U.S. in jurisdictions where
        our effective tax rate is lower than in the U.S.

    --  A majority of our tax provision is non-cash. We have current
        tax benefits and net operating losses relating to excess
        stock-based compensation that are being utilized to reduce our
        taxable income. As such, cash paid for income taxes in Q3 2008
        was $5 million compared with $4 million in Q3 2007.

    --  We estimate our 2008 effective tax rate will be approximately
        28% and cash taxes paid will be less than $75 million.
        However, there is a potential for significant volatility of
        our 2008 effective tax rate due to several factors including
        variability in accurately predicting the taxable income, the
        taxable jurisdiction to which it relates, and business
        acquisitions and investments. We endeavor to optimize our
        global taxes on a cash basis, rather than on a financial
        reporting basis.

    --  We are under examination, or may be subject to examination, by
        the Internal Revenue Service ("IRS") for calendar years 2004
        through 2007. Additionally, any net operating losses that were
        generated in prior years and utilized in these years may also
        be subject to examination by the IRS. We are under
        examination, or may be subject to examination, in the
        following major jurisdictions for the years specified:
        Kentucky for 2003 through 2007, France for 2005 through 2007,
        Germany for 2003 through 2007, Luxembourg for 2003 through
        2007, and the United Kingdom for 2003 through 2007. In
        addition, in 2007, Japanese tax authorities assessed income
        tax, including penalties and interest, of approximately $101
        million against one of our U.S. subsidiaries for the years
        2003 through 2005. We believe that these claims are without
        merit and are disputing the assessment. Further proceedings on
        the assessment will be stayed during negotiations between U.S.
        and Japanese authorities over the double taxation issues the
        assessment raises, and we have provided bank guarantees to
        suspend enforcement of the assessment. We also may be subject
        to income tax examination by Japanese tax authorities for 2006
        and 2007.

    Foreign Exchange

    --  The effect on our consolidated statements of operations from
        year-over-year changes in exchange rates versus the U.S.
        dollar throughout the period is as follows:
                             Three Months Ended September 30,
                    --------------------------------------------------
                              2008                     2007
                    ------------------------ -------------------------
                     At                        At
                     Prior Exchange           Prior  Exchange
                     Year    Rate             Year     Rate
                    Rates  Effect      As    Rates   Effect      As
                      (1)     (2)   Reported   (1)      (2)   Reported
                    ------ -------- -------- ------- -------- --------
                                      (in millions)
Net sales           $4,184    $  80   $4,264 $3,187    $  75   $3,262
Gross profit           984       15      999    747       15      762
Operating expenses     835       10      845    628       11      639
Income from
 operations            149        5      154    118        5      123
Net interest income
 (expense) and
 other(3)                3       25       28     (4)      (1)      (5)
Net income              98       20      118     78        2       80
Diluted earnings
 per share          $ 0.22    $0.05   $ 0.27 $ 0.18    $0.01   $ 0.19

(1) Represents the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results, and if we did not incur the variability associated with remeasurements for our 6.875% PEACS and intercompany balances.

(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period for operating results, and if we did not incur the variability associated with remeasurements for our 6.875% PEACS and intercompany balances.

(3) Includes foreign-currency gains and losses on cross-currency investments, remeasurement of 6.875% PEACS, and intercompany balances.


    Net Income

    --  Net income includes the impact of foreign currency
        remeasurements included in "Other income (expense), net" which
        fluctuate with changes in exchange rates. For Q3 2008, these
        remeasurements resulted in an after tax benefit of $15
        million.

    Cash Flows and Balance Sheet

    --  SFAS 123(R) requires the reporting of tax benefits relating to
        excess stock-based compensation as financing cash flows.
        Excess tax benefits from stock-based compensation were $53
        million in Q3 2008 and $323 million for the trailing twelve
        months, compared with $34 million in Q3 2007 and $157 million
        for the trailing twelve months ended September 30, 2007.

    --  Our cash, cash equivalents and marketable securities of $2.32
        billion, at fair value, primarily consist of cash, government
        and government agency securities, AAA-rated money market funds
        and other investment grade securities. Included are amounts
        held in foreign currencies of $1.2 billion, primarily in
        Euros, British Pounds and Japanese Yen.

    --  Other assets include, among other things, $248 million of
        marketable securities restricted for longer than one year,
        $247 million of certain equity investments, $143 million of
        intangibles, net, and $44 million of intellectual property
        rights. Marketable securities restricted for longer than one
        year relate primarily to collateralization of bank guarantees
        and debt for our international operations.

    --  Accrued expenses and other current liabilities include, among
        other things, liabilities for gift certificates of $216
        million, professional fees, marketing activities, workforce
        costs - including accrued payroll, vacation and other benefits
        - and current unearned revenue of $158 million, which is
        recorded when payments are received in advance of performing
        our service obligations and is recognized over the service
        period.

    --  Long-term debt primarily includes the following:

                                           September 30,  December 31,
                                               2008           2007
                                           ------------   ------------
                                                  (in millions)
6.875% PEACS due February 2010 (1)         $       338    $       350
4.75% Convertible Subordinated Notes                 -            899
Other long-term debt                                97             50
                                           ------------   ------------
                                                   435          1,299
Less current portion of long-term debt             (42)           (17)
                                           ------------   ------------
                                           $       393    $     1,282
                                           ============   ============

Fair value of long-term debt (2)           $       431    $     1,466
                                           ============   ============

(1) The 6.875% Premium Adjustable Convertible Securities ("6.875% PEACS") are convertible into our common stock at the holders' option at a conversion price of EUR 84.883 per share ($119.62 per share, based on the exchange rate as of September 30, 2008). Total common stock issuable upon conversion of our outstanding 6.875% PEACS is 2.8 million shares, which is excluded from our calculation of earnings per share as its effect is currently anti-dilutive. The U.S. Dollar equivalent principal, interest, and conversion price fluctuate based on the Euro/U.S. Dollar exchange ratio. We have the right to redeem the 6.875% PEACS, in whole or in part, by paying the principal plus any accrued and unpaid interest.

(2) The fair value of our 6.875% PEACS was $334 million and $358 million at September 30, 2008 and December 31, 2007. The fair value of our 4.75% Convertible Subordinated Notes was $1.1 billion at December 31, 2007. Such amounts are determined based on quoted prices in active markets for similar instruments (Level 2 as defined under SFAS No. 157).

    --  Other long-term liabilities include tax contingencies,
        long-term capital lease obligations, deferred tax liabilities,
        non-current unearned revenue and other long-term obligations.

    --  In December 2007, we entered into a series of leases and other
        agreements for the lease of corporate office space to be
        developed in Seattle, Washington with initial terms of up to
        16 years commencing on completion of development in 2010 and
        2011. Under these agreements we committed to occupy
        approximately 1,360,000 square feet of corporate office space.
        In Q3 2008, we elected to occupy an additional approximately
        330,000 square feet subject to a termination fee estimated to
        be up to approximately $10 million. We also have options to
        lease up to an additional approximately 500,000 square feet at
        rates based on fair market values at the time the options are
        exercised, subject to certain conditions. The amount of space
        available and our financial and other obligations under the
        lease agreements are affected by various factors, including
        government approvals and permits, interest rates, development
        costs and other expenses and our exercise of certain rights
        under the lease agreements.

    Certain Definitions and Other

    --  We present segment information for North America and
        International. We measure operating results of our segments
        using an internal performance measure of direct segment
        operating expenses that excludes stock-based compensation and
        other operating expense, each of which is not allocated to
        segment results. Other centrally incurred operating costs are
        fully allocated to segment results. Our operating results,
        particularly for the International segment, are affected by
        movements in foreign exchange rates. A significant majority of
        our technology costs are incurred in the U.S. and most of them
        are allocated to our North America segment.

    --  The North America segment consists of amounts earned from
        retail sales of products (including from sellers) and
        subscriptions through North America-focused websites such as
        www.amazon.com, www.audible.com, www.shopbop.com,
        www.endless.com and www.amazon.ca; from our Amazon Prime
        membership program; and from non-retail activities such as our
        North America-focused Amazon Enterprise Solutions program,
        Amazon Web Services, and marketing and promotional agreements.
        This segment includes export sales from www.amazon.com and
        www.amazon.ca.

    --  The International segment consists of amounts earned from
        retail sales of consumer products (including from sellers) and
        subscriptions through internationally focused websites such as
        www.amazon.co.uk, www.amazon.de, www.amazon.co.jp,
        www.amazon.fr, and our Joyo Amazon websites at www.joyo.cn and
        www.amazon.cn; from our Amazon Prime membership program; and
        from non-retail activities such as internationally-focused
        Amazon Enterprise Solutions program, marketing and promotional
        agreements. This segment includes export sales from these
        internationally based sites (including export sales from these
        sites to customers in the U.S. and Canada), but excludes
        export sales from www.amazon.com and www.amazon.ca.

    --  We provide supplemental sales information within each segment
        for three categories: Media, Electronics and Other General
        Merchandise, and Other. Media consists of amounts earned from
        retail sales from all sellers in categories such as books,
        movies, music, digital downloads, software and video games
        (including game consoles). Electronics and Other General
        Merchandise consists of amounts earned from retail sales from
        all sellers of items in categories not included in Media, such
        as electronics and computers, devices, home and garden, toys,
        kids and baby, grocery, apparel, shoes and jewelry, health and
        beauty, sports and outdoors, tools, and auto and industrial.
        Other consists of non-retail activities, such as the Amazon
        Enterprise Solutions program, Amazon Web Services, and
        miscellaneous marketing and promotional activities, such as
        our co-branded credit card programs.

    --  Operating cash flow is net cash provided by (used in)
        operating activities, including cash outflows for interest and
        excluding excess tax benefits from stock-based compensation.
        Free cash flow is operating cash flow less cash outflows for
        purchases of fixed assets, including internal-use software and
        website development.

    --  Operating cycle is number of days of sales in inventory plus
        number of days of sales in trade accounts receivable minus
        accounts payable days. Accounts payable days are calculated as
        the quotient of ending accounts payable to cost of sales,
        multiplied by the number of days in the period. Inventory
        turns are calculated as the quotient of trailing-twelve-month
        cost of sales to average inventory over five quarter ends.

    --  Return on invested capital is trailing-twelve-month free cash
        flow divided by average total assets less current liabilities
        (excluding current portion of our long-term debt) over five
        quarter ends.

    --  References to customers mean customer accounts, which are
        unique e-mail addresses, established either when a customer's
        initial order is shipped or when a customer orders from other
        sellers on our websites. Customer accounts exclude certain
        customers, including customers associated with certain of our
        acquisitions (including Joyo.com customers), Amazon Enterprise
        Solutions program customers, Amazon.com Payments customers,
        Amazon Web Services customers, and the customers of select
        companies with whom we have a technology alliance or marketing
        and promotional relationship. Customers are considered active
        when they have placed an order during the preceding
        twelve-month period.

    --  References to sellers means seller accounts, which are
        established when a seller receives an order from a customer
        account. Seller accounts exclude Amazon Enterprise Solutions
        sellers. Sellers are considered active when they have received
        an order from a customer during the preceding twelve-month
        period.

    --  References to registered developers mean cumulative registered
        developer accounts, which are established when potential
        developers enroll with Amazon Web Services and receive a
        developer access key.

    --  References to units mean physical and digital units sold (net
        of returns and cancellations) by us and sellers at Amazon.com
        domains worldwide - such as www.amazon.com, www.amazon.co.uk,
        www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca
        and the Joyo Amazon websites at www.joyo.cn and www.amazon.cn,
        as well as Amazon.com-owned items sold through non-Amazon.com
        domains, such as books, music and movie items ordered from
        Amazon.com's store at www.target.com. Units sold do not
        include units associated with certain of our acquisitions or
        Amazon.com gift certificates.

    Source: Amazon.com, Inc.

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