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Amazon.com Announces Record Free Cash Flow Fueled by Lower Prices and Free Shipping; Introduces New Express Shipping Program -- Amazon Prime

SEATTLE--(BUSINESS WIRE)--Feb. 2, 2005--Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its fourth quarter and year ended December 31, 2004.

Operating cash flow was $567 million for 2004, compared with $392 million for 2003. Free cash flow grew 38% to $477 million for 2004, compared with $346 million for 2003. Common shares outstanding plus shares underlying stock-based awards outstanding totaled 434 million at December 31, 2004, compared with 433 million a year ago.

Net sales were $2.54 billion in the fourth quarter, compared with $1.95 billion in fourth quarter 2003, an increase of 31%. Net sales, excluding the $85 million benefit from changes in foreign exchange rates, grew 26% compared with fourth quarter 2003.

Operating income was $162 million in the fourth quarter, compared with $138 million in fourth quarter 2003. Consolidated segment operating income grew 16% to $177 million in the fourth quarter, compared with $153 million in the fourth quarter 2003. Excluding the $5 million benefit from changes in foreign exchange rates, consolidated segment operating income grew 13% compared with fourth quarter 2003.

Net income was $347 million in the fourth quarter, or $0.82 per diluted share, compared with net income of $73 million, or $0.17 per diluted share, in fourth quarter 2003. Pro forma net income in the fourth quarter was $394 million, or $0.93 per diluted share, compared with $125 million, or $0.29 per diluted share, in fourth quarter 2003. Excluding the benefit from realizing a $244 million deferred tax asset related primarily to net operating loss carryforwards attributable to continuing operations, fourth quarter pro forma net income would have been $149 million, or $0.35 per diluted share.

Today the Company also introduced "Amazon Prime," Amazon.com's first ever membership program. For a flat membership fee of $79 per year, members get unlimited, express two-day shipping for free, with no minimum purchase requirement. Members also get one-day, overnight shipping for only $3.99 per item -- order as late as 6:30PM ET.

"Amazon Prime is 'all-you-can-eat' express shipping," said Jeff Bezos, founder and CEO of Amazon.com. "Though expensive for the Company in the short-term, it's a significant benefit and more convenient for customers. With Amazon Prime, there's no minimum purchase to think about, and no consolidating orders -- two-day shipping becomes an everyday experience rather than an occasional indulgence."

Members can also share the benefits of Amazon Prime with up to four family members living in their household. Details can be found at www.amazon.com/prime.

Full Year 2004

Net sales were $6.92 billion in 2004, compared with $5.26 billion in 2003, an increase of 31%. Net sales, excluding the $276 benefit from foreign exchange rates, grew 26% compared with 2003.

Operating income was $440 million in 2004, compared with $271 million in 2003. Consolidated segment operating income grew 36% to $490 million in 2004, compared with $361 million in 2003. Excluding the $20 million benefit from foreign exchange rates, consolidated segment operating income grew 30% in 2004 compared with 2003.

Net income was $588 million in 2004, or $1.39 per diluted share, compared with net income of $35 million, or $0.08 per diluted share, in 2003. Pro forma net income for 2004 was $639 million, or $1.50 per diluted share, compared with $256 million, or $0.61 per diluted share, in 2003. Excluding the benefit from realizing a $244 million deferred tax asset related primarily to net operating loss carryforwards attributable to continuing operations, 2004 pro forma net income would have been $395 million, or $0.93 per diluted share.

Amazon.com also announced today that on March 7, 2005 it will redeem EUR 200 million ($261 million at the Euro to U.S. dollar exchange rate on January 31, 2005) in principal amount of its outstanding 6.875% Convertible Subordinated Notes due 2010, plus accrued and unpaid interest from and including February 16, 2005 to March 6, 2005, under its previously announced $500 million debt repurchase authorization. No premium payment is required to redeem these notes.

    Highlights

    --  North America segment sales, representing the Company's U.S.
        and Canadian sites, were $1.39 billion, up 22% compared with
        fourth quarter 2003. Segment operating income increased to
        $122 million from $114 million, compared with fourth quarter
        2003.

    --  North America Media growth was 18% in the fourth quarter,
        driven in part by continued price reductions, including an
        increase in the discount on books over $15 from 30% to 32%,
        and books over $25 from 32% to 34%.

    --  International segment sales, representing the Company's U.K.,
        German, French, Japanese, and Chinese sites, were $1.15
        billion, up 43% compared with fourth quarter 2003. Excluding
        the benefit from exchange rates, net sales growth was 33%.
        Segment operating income increased to $55 million from $39
        million, compared with fourth quarter 2003.

    --  International segment sales accounted for 44% of worldwide net
        sales in 2004, up from 38% in 2003. Shipments to 225 countries
        outside the U.S. accounted for 49% of worldwide shipments in
        2004, up from 43% in 2003.

    --  Electronics & Other General Merchandise sales grew 53% to
        $1.69 billion for 2004, representing 24% of worldwide net
        sales. During the Thanksgiving weekend, consumer electronics
        sales in the U.S. exceeded books sales for the first time in
        the Company's history, and in the December issue of the
        leading consumer research magazine Amazon.com was named the
        best place to shop for consumer electronics.

    --  Amazon.co.uk launched a new DVD rental service with plans that
        start from just GBP 7.99 per month. Rental members also
        receive an extra 10% discount off Amazon's already low prices
        on all of their DVD purchases from Amazon.co.uk.

    --  Customers worldwide have placed hundreds of thousands of
        preorders for the sixth installment in the Harry Potter
        series, Harry Potter and the Half Blood Prince, scheduled to
        be released on July 16, 2005.

    --  A9.com, a subsidiary of Amazon.com, launched A9.com Yellow
        Pages, a new service that helps users find and discover local
        businesses in a completely new way, including "Block
        View(TM)," a powerful technology which brings the Yellow Pages
        to life by showing a street view of millions of businesses and
        their surroundings. Block View allows users to see storefronts
        and virtually walk up and down the streets of currently more
        than 10 U.S. cities using over 20 million photographs. In
        addition, A9.com Yellow Pages uses features on Amazon.com that
        allow users to review, rate, provide more information, collect
        lists, and get recommendations on more than 14 million
        businesses across the U.S. A9.com Yellow Pages are available
        now on the A9.com homepage at www.a9.com.

    --  In the first two weeks following the South Asia tsunami on
        December 26th, Amazon.com's worldwide customers made over
        200,000 donations totaling more than $15 million to the Red
        Cross for tsunami disaster relief.

    See "Financial Measures" for additional information.

    Financial Guidance

The following forward-looking statements reflect Amazon.com's expectations as of February 2, 2005. Results 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.

    First Quarter 2005 Guidance

    --  Net sales are expected to be between $1.80 billion and $1.95
        billion, or grow between 18% and 27%, compared with first
        quarter 2004.

    --  Operating income is expected to be between $80 million and
        $110 million, or decline between (28%) and 0%, compared with
        first quarter 2004, assuming, among other things, that the
        Company adopts SFAS No. 123R on January 1, 2005, stock-based
        compensation is $25 million, and there are no further
        revisions to restructuring-related estimates.

    Full Year 2005 Expectations

    --  Net sales are expected to be between $8.05 billion and $8.65
        billion, or grow between 16% and 25%.

    --  Operating income is expected to be between $385 million and
        $510 million, or between (13%) and 16% growth, compared with
        2004, assuming, among other things, that the Company adopts
        SFAS No. 123R on January 1, 2005, stock-based compensation is
        $115 million, and there are no further revisions to
        restructuring-related estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available at least through March 31, 2005, 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, competition, management of growth, potential fluctuations in operating results, international growth and expansion, 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, risk of future losses, significant indebtedness, system interruptions, consumer trends, limited operating history, government regulation and taxation, fraud, and new business areas. 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, 2003, and all subsequent filings.

Financial Measures

The following measures are defined by the Securities and Exchange Commission as non-GAAP financial measures.

Free Cash Flow

Operating cash flow is net cash provided by (used in) operating activities, including cash outflows for interest and excluding proceeds from the exercise of stock-based employee awards. Free cash flow is operating cash flow less cash outflows for purchases of fixed assets, including internal-use software and website development. A tabular reconciliation of differences from the comparable GAAP measure -- operating cash flow -- is included in the attached "Supplemental Financial Information and Business Metrics."

Consolidated Segment Operating Income

Consolidated segment operating income is the sum of segment operating income of our individual segments and excludes the following line items on the Company's statements of operations:

    --  Stock-based compensation and

    --  Other operating expense (income).

A tabular reconciliation of differences from the comparable GAAP measure -- operating income -- is included in the attached "Pro Forma Statements of Operations."

Pro Forma Net Income

Pro forma net income excludes the following line items on the Company's statements of operations:

    --  Stock-based compensation,

    --  Other operating expense (income), and

    --  Remeasurements and other.

A tabular reconciliation of differences from the comparable GAAP measure -- net income (loss) -- is included in the attached "Pro Forma Statements of Operations."

For additional information regarding these non-GAAP financial measures, see Exhibit 99.2 to our Form 8-K filed contemporaneously with the issuance of this release.

About Amazon.com

Amazon.com (NASDAQ:AMZN), a Fortune 500 company based in Seattle, opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com 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 customers the lowest possible prices. Amazon.com and third-party sellers offer millions of unique new, refurbished, and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden.

Amazon.com and its affiliates operate seven websites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com.

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 thousands)
                              (unaudited)

                      Three Months Ended       Twelve Months Ended
                         December 31,              December 31,
                    -----------------------  ------------------------
                       2003        2004         2003         2004
                    -----------------------  ------------------------

CASH AND CASH
 EQUIVALENTS,
 BEGINNING OF
 PERIOD             $  666,418  $  745,608   $  738,254  $ 1,102,273

OPERATING
 ACTIVITIES:
Net income              73,154     346,688       35,282      588,451
Adjustments to
 reconcile net
 income to net cash
 provided by
 operating
 activities:
  Depreciation of
   fixed assets,
   including internal-
   use software
   and website
   development, and
   other amortization   18,467      20,831       75,558       75,724
  Stock-based
   compensation         15,039      19,629       87,751       57,702
  Other operating
   expense (income)        141      (4,777)       2,752       (7,964)
  Losses (gains) on
   sales of
   marketable
   securities, net        (205)        204       (9,598)        (586)
  Remeasurements and
   other                36,505      32,045      130,097          824
  Non-cash interest
   expense and other       166       1,354       12,918        4,756
Changes in
 operating assets
 and liabilities:
  Inventories          (42,785)   (107,724)     (76,786)    (168,896)
  Accounts
   receivable, net
   and other current
   assets              (16,341)      6,883        1,616       (1,745)
  Accounts payable     299,316     423,944      167,732      286,091
  Accrued expenses
   and other current
   liabilities          72,226      37,869      (27,982)     (15,110)
  Deferred income
   taxes                  (311)   (244,221)         931     (256,696)
  Additions to
   unearned revenue     22,989      25,467      101,641      109,936
  Amortization of
   previously
   unearned revenue    (26,021)    (30,732)    (111,740)    (106,886)
  Interest payable      28,623      30,107        1,850          959
                     ----------  ----------   ----------  -----------
Net cash provided
 by operating
 activities            480,963     557,567      392,022      566,560

INVESTING ACTIVITIES:
Sales and maturities
 of marketable
 securities and
 other investments     232,173     419,375      813,184    1,426,786
Purchases of
 marketable
 securities           (121,448)   (448,057)    (535,642)  (1,584,089)
Purchases of fixed
 assets, including
 internal-use
 software and
 website development   (17,236)    (36,755)     (45,963)     (89,133)
Proceeds from sale
 of subsidiary               -           -        5,072            -
Acquisition, net of
 cash acquired               -           -            -      (71,195)
                     ----------  ----------   ----------  -----------
Net cash provided
 by (used in)
 investing
 activities             93,489     (65,437)     236,651     (317,631)

FINANCING
 ACTIVITIES:
Proceeds from
 exercises of stock
 options                30,490      17,491      163,322       60,109
Repayments of long-
 term debt and
 capital lease
 obligations          (207,732)       (559)    (495,308)    (157,401)
                     ----------  ----------   ----------  -----------
Net cash provided
 by (used in)
 financing
 activities           (177,242)     16,932     (331,986)     (97,292)

Foreign-currency
 effect on cash and
 cash equivalents       38,645      47,930       67,332       48,690
                     ----------  ----------   ----------  -----------
Net increase in
 cash and cash
 equivalents           435,855     556,992      364,019      200,327
                     ----------  ----------   ----------  -----------

CASH AND CASH
 EQUIVALENTS, END
 OF PERIOD          $1,102,273  $1,302,600   $1,102,273  $ 1,302,600
                     ==========  ==========   ==========  ===========

SUPPLEMENTAL CASH
 FLOW INFORMATION:
Fixed assets
 acquired under
 capital leases
 and other
 financing
 arrangements       $       29  $      202   $    2,677  $       860
Cash paid for
 interest                3,112          39      119,947      107,604
Cash paid for
 income taxes              197       1,392        1,825        4,051

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                 Consolidated Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                        Three Months Ended      Twelve Months Ended
                           December 31,             December 31,
                      ----------------------- ------------------------
                         2003        2004        2003         2004
                      ----------------------- ------------------------

Net sales             $1,945,772  $2,540,959  $5,263,699  $ 6,921,124
Cost of sales          1,518,935   1,996,493   4,006,531    5,319,127
                       ----------  ----------  ----------  -----------
Gross profit             426,837     544,466   1,257,168    1,601,997

Operating expenses:
  Fulfillment            158,815     204,454     477,032      590,397
  Marketing               40,291      58,200     122,787      158,022
  Technology and
   content                51,811      72,821     207,809      251,195
  General and
   administrative         22,984      31,697      88,302      112,220
  Stock-based
   compensation (1)       15,039      19,629      87,751       57,702
  Other operating
   expense (income)          281      (4,777)      2,892       (7,964)
                       ----------  ----------  ----------  -----------
        Total
         operating
         expenses        289,221     382,024     986,573    1,161,572
                       ----------  ----------  ----------  -----------

Income from operations   137,616     162,442     270,595      440,425

Interest income            5,330       9,778      21,955       28,197
Interest expense         (29,299)    (27,134)   (129,979)    (107,227)
Other income
 (expense), net           (1,621)     (5,021)      6,514       (4,701)
Remeasurements and
 other                   (36,505)    (32,045)   (130,097)        (824)
                       ----------  ----------  ----------  -----------
        Total non-
         operating
         expense, net    (62,095)    (54,422)   (231,607)     (84,555)
                       ----------  ----------  ----------  -----------

Income before income
 taxes                    75,521     108,020      38,988      355,870

Provision (benefit)
 for income taxes          2,367    (238,668)      3,706     (232,581)
                       ----------  ----------  ----------  -----------

Net income            $   73,154  $  346,688  $   35,282  $   588,451
                       ==========  ==========  ==========  ===========

Basic earnings per
 share                $     0.18  $     0.85  $     0.09  $      1.45
                       ==========  ==========  ==========  ===========

Diluted earnings per
 share                $     0.17  $     0.82  $     0.08  $      1.39
                       ==========  ==========  ==========  ===========

Weighted average shares used in
 computation of earnings per
 share:
  Basic                  401,422     408,227     395,479      405,926
                       ==========  ==========  ==========  ===========
  Diluted                425,214     425,034     419,352      424,757
                       ==========  ==========  ==========  ===========

(1) Components of
 stock-based
 compensation:
  Fulfillment         $    1,739  $    3,779  $   17,960  $    10,073
  Marketing                  802       1,483       4,968        4,253
  Technology and
   content                 9,747      11,240      49,555       31,781
  General and
   administrative          2,751       3,127      15,268       11,595
                       ----------  ----------  ----------  -----------
                      $   15,039  $   19,629  $   87,751  $    57,702
                       ==========  ==========  ==========  ===========

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                  Pro Forma Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                                         Three Months Ended
                                         December 31, 2003
                                 ----------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $1,945,772  $      -   $1,945,772
Cost of sales                     1,518,935         -    1,518,935
                                  ----------  --------   ----------
Gross profit                        426,837         -      426,837

Operating expenses:
 Fulfillment                        158,815         -      158,815
 Marketing                           40,291         -       40,291
 Technology and content              51,811         -       51,811
 General and administrative          22,984         -       22,984
 Stock-based compensation            15,039   (15,039)           -
 Other operating expense (income)       281      (281)           -
                                  ----------  --------   ----------
       Total operating expenses     289,221   (15,320)     273,901
                                  ----------  --------   ----------

Income from operations              137,616    15,320      152,936 (2)

Interest income                       5,330         -        5,330
Interest expense                    (29,299)        -      (29,299)
Other expense, net                   (1,621)        -       (1,621)
Remeasurements and other            (36,505)   36,505            -
                                  ----------  --------   ----------
       Total non-operating
        expense, net                (62,095)   36,505      (25,590)
                                  ----------  --------   ----------

Income before income taxes           75,521    51,825      127,346

Provision (benefit) for income
 taxes                                2,367         -        2,367
                                  ----------  --------   ----------

Net income                       $   73,154  $ 51,825   $  124,979
                                  ==========  ========   ==========

Basic earnings per share         $     0.18  $   0.13   $     0.31
                                  ==========  ========   ==========

Diluted earnings per share       $     0.17  $   0.12   $     0.29
                                  ==========  ========   ==========

Weighted average shares used in
 computation of earnings
 per share:
  Basic                             401,422               401,422
                                  ==========            ==========
  Diluted                           425,214               425,214
                                  ==========            ==========

Net cash provided by operating
 activities                                            $  480,963
Purchases of fixed assets,
 including internal-use software
 and website development                                  (17,236)
                                                        ----------
Free cash flow                                         $  463,727
                                                        ==========

Net cash provided by (used in)
 investing activities                                  $   93,489
                                                        ==========

Net cash provided by (used in)
 financing activities                                  $ (177,242)
                                                        ==========



                                          Three Months Ended
                                           December 31, 2004
                                 ----------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $2,540,959   $      -  $2,540,959
Cost of sales                     1,996,493          -   1,996,493
                                  ----------   --------  ----------
Gross profit                        544,466          -     544,466

Operating expenses:
 Fulfillment                        204,454          -     204,454
 Marketing                           58,200          -      58,200
 Technology and content              72,821          -      72,821
 General and administrative          31,697          -      31,697
 Stock-based compensation            19,629    (19,629)          -
 Other operating expense (income)    (4,777)     4,777           -
                                  ----------   --------  ----------
       Total operating expenses     382,024    (14,852)    367,172
                                  ----------   --------  ----------

Income from operations              162,442     14,852     177,294 (2)

Interest income                       9,778          -       9,778
Interest expense                    (27,134)         -     (27,134)
Other expense, net                   (5,021)         -      (5,021)
Remeasurements and other            (32,045)    32,045           -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                (54,422)    32,045     (22,377)
                                  ----------   --------  ----------

Income before income taxes          108,020     46,897     154,917

Provision (benefit) for income
 taxes                             (238,668)         -    (238,668)
                                  ----------   --------  ----------

Net income                       $  346,688   $ 46,897  $  393,585
                                  ===========  ========  ==========

Basic earnings per share         $     0.85   $   0.11  $     0.96
                                  ==========   ========  ==========

Diluted earnings per share       $     0.82   $   0.11  $     0.93
                                  ==========   ========  ==========

Weighted average shares used in
 computation of earnings
 per share:
  Basic                              408,227               408,227
                                   ==========            ==========
  Diluted                            425,034               425,034
                                   ==========            ==========

Net cash provided by operating
 activities                                             $  557,567
Purchases of fixed assets,
 including internal-use software
 and website development                                   (36,755)
                                                         ----------
Free cash flow                                          $  520,812
                                                         ==========

Net cash provided by (used in)
 investing activities                                   $  (65,437)
                                                         ==========

Net cash provided by (used in)
 financing activities                                   $   16,932
                                                         ==========

(1) In accordance with accounting principles generally accepted in the
    United States.

(2) Consolidated segment operating income.

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                  Pro Forma Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                                        Twelve Months Ended
                                         December 31, 2003
                                 ----------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $5,263,699  $      -   $5,263,699
Cost of sales                     4,006,531         -    4,006,531
                                  ----------  --------   ----------
Gross profit                      1,257,168         -    1,257,168

Operating expenses:
 Fulfillment                        477,032         -      477,032
 Marketing                          122,787         -      122,787
 Technology and content             207,809         -      207,809
 General and administrative          88,302         -       88,302
 Stock-based compensation            87,751   (87,751)           -
 Other operating expense (income)     2,892    (2,892)           -
                                  ----------  --------   ----------
       Total operating expenses     986,573   (90,643)     895,930
                                  ----------  --------   ----------

Income from operations              270,595    90,643      361,238 (2)

Interest income                      21,955         -       21,955
Interest expense                   (129,979)        -     (129,979)
Other income (expense), net           6,514         -        6,514
Remeasurements and other           (130,097)  130,097            -
                                  ----------  --------   ----------
       Total non-operating
        expense, net               (231,607)  130,097     (101,510)
                                  ----------  --------   ----------

Income before income taxes           38,988   220,740      259,728

Provision (benefit) for income
 taxes                                3,706         -        3,706
                                  ----------  --------   ----------

Net income                       $   35,282  $220,740   $  256,022
                                  ==========  ========   ==========

Basic earnings per share         $     0.09  $   0.56   $     0.65
                                  ==========  ========   ==========

Diluted earnings per share       $     0.08  $   0.53   $     0.61
                                  ==========  ========   ==========

Weighted average shares used in
 computation of earnings
 per share:
  Basic                             395,479               395,479
                                  ==========            ==========
  Diluted                           419,352               419,352
                                  ==========            ==========

Net cash provided by operating
 activities                                            $  392,022
Purchases of fixed assets,
 including internal-use software
 and website development                                  (45,963)
                                                        ----------
Free cash flow                                         $  346,059
                                                        ==========

Net cash provided by (used in)
 investing activities                                  $  236,651
                                                        ==========

Net cash used in financing
 activities                                            $ (331,986)
                                                        ==========



                                          Twelve Months Ended
                                           December 31, 2004
                                 -------------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $6,921,124   $      -  $6,921,124
Cost of sales                     5,319,127          -   5,319,127
                                  ----------   --------  ----------
Gross profit                      1,601,997          -   1,601,997

Operating expenses:
 Fulfillment                        590,397          -     590,397
 Marketing                          158,022          -     158,022
 Technology and content             251,195          -     251,195
 General and administrative         112,220          -     112,220
 Stock-based compensation            57,702    (57,702)          -
 Other operating expense (income)    (7,964)     7,964           -
                                  ----------   --------  ----------
       Total operating expenses   1,161,572    (49,738)  1,111,834
                                  ----------   --------  ----------

Income from operations              440,425     49,738     490,163 (2)

Interest income                      28,197          -      28,197
Interest expense                   (107,227)         -    (107,227)
Other income (expense), net          (4,701)         -      (4,701)
Remeasurements and other               (824)       824           -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                (84,555)       824     (83,731)
                                  ----------   --------  ----------

Income before income taxes          355,870     50,562     406,432

Provision (benefit) for income
 taxes                             (232,581)         -    (232,581)
                                  ----------   --------  ----------

Net income                       $  588,451   $ 50,562  $  639,013
                                  ==========   ========  ==========

Basic earnings per share         $     1.45   $   0.12  $     1.57
                                  ==========   ========  ==========

Diluted earnings per share       $     1.39   $   0.11  $     1.50
                                  ==========   ========  ==========

Weighted average shares used in
 computation of earnings
 per share:
  Basic                              405,926               405,926
                                   ==========            ==========
  Diluted                            424,757               424,757
                                   ==========            ==========

Net cash provided by operating
 activities                                             $  566,560
Purchases of fixed assets,
 including internal-use software
 and website development                                   (89,133)
                                                         ----------
Free cash flow                                          $  477,427
                                                         ==========

Net cash provided by (used in)
 investing activities                                   $ (317,631)
                                                         ==========

Net cash used in financing
 activities                                             $  (97,292)
                                                         ==========

(1) In accordance with accounting principles generally accepted in the
    United States.

(2) Consolidated segment operating income.

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                          Segment Information
                            (in thousands)
                              (unaudited)

                         Three Months Ended      Twelve Months Ended
                            December 31,            December 31,
                       ----------------------- -----------------------
                          2003        2004        2003        2004
                        ----------  ----------  ----------  ----------
North America
Net sales              $1,141,907  $1,392,283  $3,258,413  $3,847,344
Cost of sales             853,253   1,037,659   2,391,749   2,823,792
                        ----------  ----------  ----------  ----------
Gross profit              288,654     354,624     866,664   1,023,552
Direct segment
 operating expenses       174,383     232,618     583,619     702,676
                        ----------  ----------  ----------  ----------
Segment operating
 income                   114,271     122,006     283,045     320,876

International
Net sales                 803,865   1,148,676   2,005,286   3,073,780
Cost of sales             665,682     958,834   1,614,782   2,495,335
                        ----------  ----------  ----------  ----------
Gross profit              138,183     189,842     390,504     578,445
Direct segment
 operating expenses        99,518     134,554     312,311     409,158
                        ----------  ----------  ----------  ----------
Segment operating
 income                    38,665      55,288      78,193     169,287

Consolidated
Net sales               1,945,772   2,540,959   5,263,699   6,921,124
Cost of sales           1,518,935   1,996,493   4,006,531   5,319,127
                        ----------  ----------  ----------  ----------
Gross profit              426,837     544,466   1,257,168   1,601,997
Direct segment
 operating expenses       273,901     367,172     895,930   1,111,834
                        ----------  ----------  ----------  ----------
Segment operating
 income                   152,936     177,294     361,238     490,163
Stock-based
 compensation              15,039      19,629      87,751      57,702
Other operating expense
 (income)                     281      (4,777)      2,892      (7,964)
                        ----------  ----------  ----------  ----------

Income from operations    137,616     162,442     270,595     440,425
Total non-operating
 expense, net              62,095      54,422     231,607      84,555
Provision (benefit) for
 income taxes               2,367    (238,668)      3,706    (232,581)
                        ----------  ----------  ----------  ----------

Net income (loss)      $   73,154  $  346,688  $   35,282  $  588,451
                        ==========  ==========  ==========  ==========

Segment Highlights:
Y/Y net sales growth:
North America                  18%         22%         18%         18%
International                  74          43          71          53
Consolidated                   36          31          34          31
Y/Y gross profit
 growth:
North America                  19%         23%         17%         18%
International                  49          37          55          48
Consolidated                   27          28          27          27
Y/Y segment operating
 income growth:
North America                  39%          7%         58%         13%
International                  96          43         N/A         116
Consolidated                   50          16         101          36
Net sales mix:
North America                  59%         55%         62%         56%
International                  41          45          38          44

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                  Supplemental Net Sales Information
                            (in thousands)
                              (unaudited)

                         Three Months Ended      Twelve Months Ended
                            December 31,            December 31,
                       ----------------------- -----------------------
                          2003        2004        2003        2004
                        ----------  ----------  ----------  ----------
North America
Media                  $  750,891  $  885,354  $2,269,472  $2,589,438
Electronics and other
 general merchandise      352,517     448,890     878,519   1,127,754
Other                      38,499      58,039     110,422     130,152
                        ----------  ----------  ----------  ----------
                        1,141,907   1,392,283   3,258,413   3,847,344

International
Media                     682,741     911,011   1,779,476   2,512,911
Electronics and other
 general merchandise      120,850     236,927     224,606     558,490
Other                         274         738       1,204       2,379
                        ----------  ----------  ----------  ----------
                          803,865   1,148,676   2,005,286   3,073,780

Consolidated
Media                   1,433,632   1,796,365   4,048,948   5,102,349
Electronics and other
 general merchandise      473,367     685,817   1,103,125   1,686,244
Other                      38,773      58,777     111,626     132,531
                        ----------  ----------  ----------  ----------
                       $1,945,772  $2,540,959  $5,263,699  $6,921,124
                        ==========  ==========  ==========  ==========

Y/Y Net Sales Growth:
North America:
Media                          16%         18%         14%         14%
Electronics and other
 general merchandise           22          27          29          28
Other                          36          51          29          18

International:
Media                          59%         33%         61%         41%
Electronics and other
 general merchandise          290          96         241         149
Other                         (24)        169         (38)         98

Consolidated:
Media                          33%         25%         31%         26%
Electronics and other
 general merchandise           48          45          48          53
Other                          35          52          28          19

Consolidated Net Sales
 Mix:
Media                          74%         71%         77%         74%
Electronics and other
 general merchandise           24          27          21          24
Other                           2           2           2           2

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
                      Consolidated Balance Sheets
                 (in thousands, except per share data)
                              (unaudited)

                                                   December 31,
                                                 2003         2004
                                              -----------  -----------
ASSETS
Current assets:
  Cash and cash equivalents                  $ 1,102,273  $ 1,302,600
  Marketable securities                          292,550      476,599
                                              -----------  -----------
     Cash, cash equivalents, and marketable
      securities                               1,394,823    1,779,199
  Inventories                                    293,917      479,709
  Current deferred tax assets                        596       81,388
  Accounts receivable, net and other current
   assets                                        131,473      199,100
                                              -----------  -----------
       Total current assets                    1,820,809    2,539,396

Fixed assets, net                                224,285      246,156
Goodwill                                          69,121      138,999
Long-term deferred tax assets                      4,142      281,757
Other assets                                      43,676       42,200
                                              -----------  -----------
       Total assets                          $ 2,162,033  $ 3,248,508
                                              ===========  ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Accounts payable                           $   819,811  $ 1,141,733
  Accrued expenses and other current
   liabilities                                   317,730      361,128
  Unearned revenue                                37,844       41,099
  Interest payable                                73,100       74,059
  Current portion of long-term debt and
   other                                           4,216        2,381
                                              -----------  -----------
       Total current liabilities               1,252,701    1,620,400

Long-term debt and other                       1,945,439    1,855,319

Commitments and contingencies

Stockholders' deficit:
  Preferred stock, $0.01 par value:
      Authorized shares -- 500,000
      Issued and outstanding shares -- none            -            -
  Common stock, $0.01 par value:
      Authorized shares -- 5,000,000
      Issued and outstanding shares --
       403,354 and 409,711                         4,034        4,097
  Additional paid-in capital                   1,899,398    2,124,598
  Deferred stock-based compensation               (2,850)      (2,038)
  Accumulated other comprehensive income          37,739       32,109
  Accumulated deficit                         (2,974,428)  (2,385,977)
                                              -----------  -----------
       Total stockholders' deficit            (1,036,107)    (227,211)
                                              -----------  -----------
           Total liabilities and
            stockholders' deficit            $ 2,162,033  $ 3,248,508
                                              ===========  ===========

Note: The attached "Financial and Operational Summary" is an integral
part of the press release financial statements.



                           AMAZON.COM, INC.
        Supplemental Financial Information and Business Metrics
                 (in millions, except per share data)
                              (unaudited)

----------------------------------------------------------------------
                                                                Y/Y %
                       Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Change
                       ------- ------- ------- ------- ------- -------
Cash Flows and Shares

Operating cash flow --
 trailing twelve
 months (TTM)          $  392  $  393  $  410  $  490  $  567      45%

Purchase of fixed
 assets (incl.
 internal-use software
 & website
 development) -- TTM   $   46  $   49  $   56  $   70  $   89      94%

Free cash flow
 (operating cash flow
 less purchases of
 fixed assets) -- TTM  $  346  $  344  $  354  $  420  $  477      38%

Common shares and
 stock-based awards                                            less
 outstanding              433     432     434     434     434  than 1%
Common shares
 outstanding              403     405     407     407     410       2%
Stock-based awards
 outstanding               29      27      27      27      25    (16%)
Stock-based awards
 outstanding -- % of
 common shares
 outstanding              7.3%    6.8%    6.7%    6.6%    6.0%    N/A

Results of Operations

Worldwide (WW) net
 sales                 $1,946  $1,530  $1,387  $1,462  $2,541      31%
WW net sales -- Y/Y
 growth, excluding the
 effect of foreign
 exchange rates          29.4%   33.2%   21.9%   23.9%   26.2%    N/A
WW net sales --  TTM   $5,264  $5,710  $5,998  $6,326  $6,921      31%

Gross profit           $  427  $  361  $  341  $  356  $  544      28%
Gross margin -- % of
 WW net sales            21.9%   23.6%   24.6%   24.3%   21.4%    N/A
Gross profit -- TTM    $1,257  $1,347  $1,415  $1,484  $1,602      27%
Gross margin -- TTM %
 of WW net sales         23.9%   23.6%   23.6%   23.5%   23.1%    N/A

Fulfillment costs -- %
 of WW net sales          8.2%    8.3%    8.8%    9.3%    8.0%    N/A
Fulfillment costs --
 TTM % of WW net sales    9.1%    8.8%    8.6%    8.6%    8.5%    N/A

Consolidated direct
 segment operating
 expenses              $  274  $  244  $  240  $  261  $  367      34%
Consolidated direct
 segment operating
 expenses -- TTM       $  896  $  937  $  970  $1,019  $1,112      24%

Consolidated segment
 operating income      $  153  $  117  $  101  $   95  $  177      16%
Consolidated segment
 operating margin -- %
 of WW net sales          7.9%    7.6%    7.3%    6.5%    7.0%    N/A
Consolidated segment
 operating income --
 TTM                   $  361  $  411  $  444  $  466  $  490      36%
Consolidated segment
 operating margin --
 TTM % of WW net sales    6.9%    7.2%    7.4%    7.4%    7.1%    N/A

GAAP operating income  $  138  $  110  $   86  $   81  $  162      18%
GAAP operating margin
 -- % of WW net sales     7.1%    7.2%    6.2%    5.6%    6.4%    N/A
GAAP operating income
 -- TTM                $  271  $  342  $  386  $  416  $  440      63%
GAAP operating margin
 -- TTM % of WW net
 sales                    5.1%    6.0%    6.4%    6.6%    6.4%    N/A

Pro forma net
 income (1)            $  125  $   97  $   75  $   73  $  394     215%
Pro forma net income
 per diluted share (1) $ 0.29  $ 0.23  $ 0.18  $ 0.17  $ 0.93     215%
Pro forma net income
 -- TTM (1)            $  256  $  313  $  345  $  370  $  639     150%
Pro forma net income
 per diluted share --
 TTM (1)               $ 0.61  $ 0.74  $ 0.81  $ 0.87  $ 1.50     146%

GAAP net income        $   73  $  111  $   76  $   54  $  347     374%
GAAP net income per
 diluted share         $ 0.17  $ 0.26  $ 0.18  $ 0.13  $ 0.82     374%
GAAP net income
 -- TTM                $   35  $  157  $  276  $  315  $  588     N/A
GAAP net income per
 diluted share -- TTM  $ 0.08  $ 0.37  $ 0.65  $ 0.74  $ 1.39     N/A

North America segment:
  Net sales            $1,142  $  847  $  792  $  816  $1,392      22%
  Net sales -- TTM     $3,258  $3,401  $3,490  $3,597  $3,847      18%
  Gross profit         $  289  $  226  $  220  $  223  $  355      23%
  Gross margin -- % of
   North American net
   sales                 25.3%   26.7%   27.7%   27.4%   25.5%    N/A
  Gross profit -- TTM  $  867  $  906  $  935  $  958  $1,024      18%
  Gross margin -- TTM
   % of North America
   net sales             26.6%   26.6%   26.8%   26.6%   26.6%    N/A
  Operating income     $  114  $   76  $   66  $   57  $  122       7%
  Operating margin --
   % of North America
   net sales             10.0%    8.9%    8.3%    7.0%    8.8%    N/A
  Operating income --
   TTM                 $  283  $  307  $  318  $  313  $  321      13%
  Operating margin --
   TTM % of North
   America net sales      8.7%    9.0%    9.1%    8.7%    8.3%    N/A
----------------------  ------  ------  ------  ------  ------ -------

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

(1) Excluding the benefit from realizing a $244 million deferred tax
    asset related primarily to net operating loss carryforwards
    attributable to continuing operations, pro forma net income
    would have been $149 million, or $0.35 per diluted share, for Q4,
    and $395 million, or $0.93 per diluted share, for 2004.



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


                                                                Y/Y %
                        Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Change
                        ------- ------- ------- ------- ------- ------
International segment:
  Net sales             $  804  $  684  $  595  $  646  $1,149     43%
  Net sales -- Y/Y
   growth, excluding
   the effect of
   foreign exchange
   rates                  53.6%   57.9%   38.1%   38.9%   32.5%   N/A
  Net sales -- TTM      $2,005  $2,310  $2,508  $2,729  $3,074     53%
  Gross profit          $  138  $  135  $  121  $  132  $  190     37%
  Gross margin -- % of
   International net
   sales                  17.2%   19.8%   20.4%   20.5%   16.5%   N/A
  Gross profit -- TTM   $  391  $  442  $  479  $  527  $  578     48%
  Gross margin -- TTM %
   of International net
   sales                  19.5%   19.1%   19.1%   19.3%   18.8%   N/A
  Operating income      $   39  $   41  $   35  $   38  $   55     43%
  Operating margin -- %
   of International net
   sales                   4.8%    6.1%    5.9%    5.8%    4.8%   N/A
  Operating income --
   TTM                  $   78  $  104  $  126  $  153  $  169    116%
  Operating margin --
   TTM % of
   International net
   sales                   3.9%    4.5%    5.0%    5.6%    5.5%   N/A

International segment
 -- TTM % of net sales    38.1%   40.5%   41.8%   43.1%   44.4%   N/A
Worldwide net sales
 shipped outside the
 U.S. -- TTM % of net
 sales                    43.4%   45.6%   46.9%   48.2%   49.2%   N/A

Supplemental Worldwide
 Net Sales:
  Media                 $1,434  $1,175  $1,037  $1,094  $1,796     25%
  Media -- TTM          $4,049  $4,351  $4,523  $4,740  $5,102     26%
  Electronics and other
   general merchandise  $  473  $  331  $  325  $  344  $  686     45%
  Electronics and other
   general merchandise
   -- TTM               $1,103  $1,244  $1,360  $1,474  $1,686     53%
  Other                 $   39  $   24  $   25  $   24  $   59     52%
  Other -- TTM          $  112  $  116  $  115  $  113  $  133     19%

Supplemental North
 America Segment Net
 Sales:
  Media                 $  751  $  599  $  542  $  564  $  885     18%
  Media -- TTM          $2,269  $2,351  $2,394  $2,455  $2,589     14%
  Electronics and other
   general merchandise  $  353  $  224  $  226  $  229  $  449     27%
  Electronics and other
   general merchandise
   -- TTM               $  879  $  935  $  983  $1,031  $1,128     28%
  Other                 $   38  $   24  $   25  $   24  $   58     51%
  Other -- TTM          $  110  $  115  $  113  $  111  $  130     18%

Supplemental
 International Segment
 Net Sales:
  Media                 $  683  $  576  $  496  $  530  $  911     33%
  Media -- TTM          $1,779  $2,000  $2,129  $2,285  $2,513     41%
  Electronics and other
   general merchandise  $  121  $  107  $   99  $  116  $  237     96%
  Electronics and other
   general merchandise
   -- TTM               $  225  $  309  $  377  $  442  $  558    149%
  Other                 $    0  $    0  $    1  $    0  $    1    169%
  Other -- TTM          $    1  $    1  $    2  $    2  $    2     98%


Balance Sheet

Cash and marketable
 securities             $1,395  $  998  $1,151  $1,185  $1,779     28%

Inventory, net --
 ending                 $  294  $  282  $  284  $  357  $  480     63%
Inventory -- average
 inventory % of TTM net
 sales                     4.1%    4.1%    4.3%    4.6%    4.9%   N/A
Inventory turnover,
 average -- TTM           18.4    18.7    17.9    16.6    15.7   (15%)

Fixed assets, net       $  224  $  217  $  216  $  227  $  246     10%

Accounts payable days
 -- ending                  50      44      51      57      53      6%

Other

Employees (full-time
 and part-time;
 excludes contractors &
 temporary personnel)    7,800   8,100   8,200   8,800   9,000     15%
-----------------------  ------  ------  ------  ------  ------ ------

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

    --  Shipping revenue, which excludes amounts earned from
        third-party sellers where Amazon does not provide fulfillment
        services, was $156 million, up 14% from $137 million.

    Cost of Sales

    --  Cost of sales consists of the purchase price of consumer
        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, such as Toysrus.com and
        Target.com.

    --  Outbound shipping-related costs totaled $234 million, up from
        $193 million. Net shipping loss was $78 million, up from a net
        loss of $56 million, resulting primarily from our
        free-shipping offers.

    Direct Segment Operating Expenses

    --  Fourth quarter direct segment operating expenses as a
        percentage of net sales were as follows:
                                         2003     2004
                                         ----     ----
            Fulfillment                  8.2%     8.0%
            Marketing                    2.1%     2.3%
            Technology and content       2.7%     2.9%
            General and administrative   1.2%     1.2%
    --  Depreciation was $21 million in fourth quarter 2004 and $75
        million over the trailing twelve months.

    Fulfillment

    --  Fulfillment costs include those costs incurred in operating
        and staffing our fulfillment and customer service centers,
        including costs attributable to buying, receiving, inspecting
        and warehousing inventories; credit card fees, and bad debt
        costs, including costs associated with our guarantee for
        certain third-party seller transactions. Fulfillment costs
        also include amounts paid to third parties, who assist us in
        fulfillment and customer service operations.

    --  Credit card fees associated with third-party seller
        transactions are based on the gross purchase price of
        underlying transactions, and therefore represent a larger
        percentage of our recorded revenue than credit card fees on
        our retail sales. Bad debt costs, including costs associated
        with our guarantee program, are also higher as a percentage of
        recorded revenue versus our retail sales. Accordingly, this
        negatively affects fulfillment costs as a percentage of net
        sales.

    --  Fulfillment costs decreased as a percentage of sales from the
        prior year, but increased in absolute dollars due to variable
        costs corresponding with sales volume, our mix of product
        sales, credit card fees, and bad debt costs, including costs
        associated with our guarantee for certain third-party seller
        transactions. We expect absolute amounts spent in fulfillment
        to increase over time.

    Marketing

    --  Marketing efforts include targeted online marketing channels,
        such as our Associates and Syndicated Stores programs,
        sponsored search, portal advertising, e-mail campaigns and
        other initiatives. Since our marketing expenses are largely
        variable, we expect absolute amounts spent in marketing to
        increase over time. 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. While
        costs associated with free shipping are not included in
        marketing expense, we view our free-shipping offers as an
        effective worldwide marketing tool and intend to continue
        offering them indefinitely.

    Technology and Content

    --  Technology and content expenses consist principally of payroll
        and related expenses for employees involved in development of
        our websites, including editorial content, merchandising
        selection, systems and telecommunications support; costs
        associated with the systems and telecommunications
        infrastructure; and costs of acquired content.

    --  Our spending in technology and content has increased as we are
        adding computer scientists and software engineers to enhance
        the customer experience on our websites and those websites
        powered by us, and improve our process efficiency.
        Additionally, we continue to invest in several areas of
        technology, including seller platform, A9.com, web services,
        additional development centers and digital initiatives. We
        intend to continue investing in these and other initiatives
        and expect absolute dollars spent in technology and content to
        increase over time as we continue to add computer scientists
        and software engineers to our staff.

    --  A significant majority of these costs are incurred in the U.S.
        and most of them are allocated to our North America segment.

    --  We expense costs related to the development of internal-use
        software and website development other than those incurred
        during the application development stage. Costs incurred
        during the application development stage are capitalized and
        amortized over the two-year estimated useful life of the
        software. For the three months ended December 31, 2004 and
        2003, we capitalized $16 million and $9 million of
        internal-use software costs, which was offset by amortization
        of previously capitalized amounts of $8 million and $7
        million.

    General and Administrative

    --  General and Administrative costs increased primarily due to
        increases in professional and litigation costs. We expect
        absolute dollars spent in general and administrative to
        increase over time.

    Stock-Based Compensation

    --  Since October 2002, we have awarded restricted stock units as
        our primary form of stock-based compensation. Restricted stock
        units, under fixed accounting, are generally measured at fair
        value on the date of grant based on the number of shares
        granted and the quoted price of our common stock. Such value
        is recognized as an expense on an accelerated basis over the
        corresponding service period. To the extent that restricted
        stock units are forfeited prior to vesting, the corresponding
        previously recognized expense is reversed as an offset to
        stock-based compensation.

    --  Stock-based awards generally fully vest over service periods
        of between three and six years.

    --  Stock-based compensation was $20 million for the fourth
        quarter, consisting of $4 million in expense for stock awards
        under variable accounting, and $16 million for stock awards
        under fixed accounting plus matching stock contributions under
        our 401(k) program.

    --  Payroll tax expense resulting from exercises of stock-based
        awards is a cash expense and is not classified in "Stock-based
        compensation," but is allocated to the corresponding operating
        expense categories on the statement of operations.

    --  We granted 0.8 million stock awards, primarily restricted
        stock units, during the fourth quarter at a per-share weighted
        average fair value of $40. Year-to-date we have granted 3.5
        million stock awards, primarily restricted stock units, at a
        per-share average fair value of $44.

    --  At December 31, 2004, there were 25 million stock awards
        outstanding, consisting of 18 million stock options with a $13
        weighted average exercise price, 6 million restricted stock
        units, and 0.5 million shares of restricted stock (included in
        common stock outstanding).

    --  1 million outstanding stock awards, primarily stock options,
        were subject to variable accounting. Variable accounting
        treatment results in expense or contra-expense recognition
        using the cumulative expense method, calculated based on the
        quoted price of our common stock and vesting schedules of
        underlying awards. For example, since the closing price of our
        common stock on December 31, 2004, $44.29, was higher than the
        closing price on September 30, 2004, $40.86, we recorded an
        expense associated with variable accounting treatment for the
        fourth quarter of 2004.

    --  SFAS 123R requires us to measure compensation cost for all
        share-based awards at fair value. The adoption of this
        standard will result in the recognition of stock-based
        compensation in future periods for remaining unvested stock
        options under fixed accounting and will not affect our
        accounting for restricted stock units, as we already account
        for those using fair value. We will be early-adopting the
        provisions of SFAS 123R with an implementation date of January
        1, 2005, two quarters prior to the required adoption date of
        July 1, 2005.

    Other Operating Expense (Income)

    --  Included in "Other operating expense (income)" are
        restructuring-related expenses or credits and amortization of
        other intangibles. Amortization of other intangibles was $0.5
        million and $0.1 million for fourth quarter 2004 and 2003.

    --  Our first quarter 2001 operational restructuring plan is
        complete; however, we may periodically adjust our
        restructuring-related estimates, such as lease obligations, in
        the future if necessary.

    --  Cash payments resulting from our 2001 operational
        restructuring were $3 million in fourth quarter 2004 and 2003.

    --  During the fourth quarter we determined that some of the
        office space previously vacated as part of our 2001
        restructuring, which we had been unable to sublease due to
        poor real estate market conditions, was necessary for our
        future needs. This resulted in a gain of $5 million for the
        fourth quarter. Future lease payments for this office space
        will be expensed over the lease period and classified to the
        corresponding operating expense categories on the consolidated
        statements of operations.

    --  We estimate, based on currently available information, the
        remaining net cash outflows associated with
        restructuring-related leases and other commitments will be $5
        million in 2005, and $8 million thereafter. Amounts due within
        twelve months are included within "Accrued expenses and other
        current liabilities" and the remaining amounts within
        "Long-term debt and other" on our balance sheet. These amounts
        are net of anticipated sublease income of $20 million (we have
        signed sublease agreements for $13 million).

    Other Income (Expense), Net

    --  Other expense of $5 million was primarily foreign-currency
        losses on interest payable for our 6.875% PEACS.

    Remeasurements and Other

    --  Remeasurements includes foreign-currency losses on
        remeasurement of the principal amount of our 6.875% PEACS from
        Euros to U.S. Dollars of $77 million, compared with a loss of
        $65 million.

    --  Other includes a $44 million gain from the remeasurement of
        foreign-currency intercompany balances, which are to be repaid
        amongst subsidiaries.

    Provision (Benefit) for Income Taxes and Deferred Tax Asset

    --  We have recorded a tax benefit for current and deferred U.S.
        federal, state, and foreign income taxes, classified as
        "Provision (benefit) for income taxes" on the consolidated
        statements of operations.

    --  We periodically evaluate the likelihood of future realization
        of deferred tax assets, and reduce the carrying amount of
        these deferred tax assets by a valuation allowance to derive a
        net deferred tax asset we believe is more likely than not to
        be realized. We consider many factors when assessing the
        likelihood of future realization of our deferred tax assets,
        including our recent cumulative earnings experience by taxing
        jurisdiction, expectations of future taxable income, the carry
        forward periods available to us for tax reporting purposes,
        and other relevant factors.

    --  In the fourth quarter we determined that $363 million of our
        deferred tax asset is realizable through future operations,
        and recorded a current tax benefit of $244 million to
        "Provision (benefit) for income taxes" in our results of
        operations, and a $106 million credit to "Stockholders'
        Equity" on our consolidated balance sheet as of December 31,
        2004.

    --  Our net deferred tax assets are $363 million at December 31,
        2004, comprised of approximately $270 million related to our
        net operating loss carryforwards (NOLs) and the remainder
        related to temporary timing differences between tax and
        financial reporting.

    --  Classification of deferred tax assets between current and
        long-term asset categories is based on the expected timing of
        realization, and the valuation allowance is allocated ratably.

    --  At December 31, 2004, our gross deferred tax assets related to
        our NOLs were approximately $800 million (associated with
        approximately $2.6 billion of NOLs, the majority of which
        expire between 2017 and 2024), offset by a valuation allowance
        on approximately $530 million due to uncertainty about their
        future realization. Substantially all of the remaining $530
        million, if realized, would be credited to "Stockholders'
        equity" rather than results of operations for financial
        reporting purposes since they primarily relate to
        tax-deductible stock-based compensation in excess of amounts
        recognized for financial reporting purposes.

    --  Significant judgment is required in making the assessment of
        deferred tax asset realization, and it is very difficult to
        predict when, if ever, our assessment may conclude that the
        remaining portion of our deferred tax assets is realizable.

    --  We expect net income for 2005 to decline because we expect a
        tax provision in 2005, rather than the large tax benefit we
        received in 2004.

    --  We expect our cash taxes paid in 2005 to be approximately $25
        million, compared with $4 million in 2004.

    Net Income

    --  We believe that our reported net income for the fourth quarter
        2004 should not be viewed, on its own, as a material positive
        event, and the year-over-year increase in net income of $274
        million is not necessarily predictive of our future results
        for a variety of reasons. For example, in the fourth quarter
        we had a benefit from realizing a $244 million deferred tax
        asset related primarily to net operating loss carryforwards
        attributable to continuing operations. Additionally, the
        remeasurement of our 6.875% PEACS and intercompany balances
        resulted in significant gains and charges associated with the
        effect of movements in currency exchange rates. Accordingly,
        we encourage readers of our financial statements to evaluate
        the effect on our operating trends of these items since future
        income taxes and changes in currency exchange rates may create
        significant variability in our future operating results.

    Foreign Exchange

    --  As our financial reporting currency is the U.S. Dollar, our
        total sales, profit, and operating and free cash flow have
        benefited significantly the past ten quarters from weakness in
        the U.S. Dollar in comparison to the currencies of our
        international websites. We believe it is important to evaluate
        our growth rates after the effect of currency changes.
The effect of changes in exchange rates in the fourth quarter is as
 follows (in millions):

     Effect of exchange
      rate on:                 2003               2004
                               ----               ----
     Net sales               $  98             $   85
     Gross profit               17                 14

     Operating expenses        (11)                (9)
                               ----               ----
     Operating income            6                  5

     Net interest expense
      and other                 (6)                (5)

     Remeasurements and
      other (1)                (30)               (33)
                               ----               ----
     Net income (loss)         (29)               (32)

     Diluted earnings (loss)
      per diluted share     $(0.07)            $(0.08)
                            =======            =======

(1) Includes foreign-currency gains (losses) on remeasurement of
    6.875% PEACS and intercompany balances.

    These amounts represent the impact on reported results that is due
    to year-over-year changes in exchange rates. Absent
    year-over-year changes in exchange rates, reported amounts
    would have been lower (higher) by these amounts.

    Cash Flows and Balance Sheet

    --  Operating cash flows and free cash flows can be volatile and
        are sensitive to many factors, including changes in working
        capital. Working capital at any specific point in time is
        subject to many variables, including world events,
        seasonality, the timing of expense payments, discounts offered
        by vendors, vendor payment terms, and fluctuations in foreign
        exchange rates.

    --  Our cash, cash equivalents, and marketable securities of $1.78
        billion, at fair value, primarily consist of cash, commercial
        paper and short-term securities, U.S. Treasury notes and
        bonds, asset-backed, and agency securities and certificates of
        deposit. Included are amounts held in foreign currencies of
        $970 million, primarily in Euros, British Pounds, and Yen.

    --  We have pledged $74 million of our marketable securities as
        collateral for property leases and other contractual
        obligations, compared with $87 million as of December 31,
        2003.

    --  "Other assets" includes, among other things, deferred issuance
        costs on long-term debt, other equity investments, and
        intangibles.

    --  "Unearned revenue" is recorded when payments are received from
        third parties in advance of our providing the associated
        service.

    --  "Accrued expenses and other current liabilities" includes,
        among other things, liabilities for gift certificates,
        marketing activities, and workforce costs, including accrued
        payroll, vacation, and other benefits.

    --  "Long-term debt and other" primarily includes the following
        (in millions):

                                Principal    Interest     Principal
                               at Maturity     Rate        Due Date
                              ------------- ----------  --------------

Convertible Subordinated Notes   $900 (1)(2)    4.750%   February 2009
PEACS (3).....................    935 (4)(5)    6.875%   February 2010
                              --------------
                                  $1,835 (6)
                              ==============

(1) Convertible at the holders' option into our common stock at
    $78.0275 per share. We have the right to redeem the Convertible
    Subordinated Notes, in whole or in part, at a redemption price of
    101.900% of the principal, which decreases every February 1 by
    47.5 basis points until maturity, plus any accrued and unpaid
    interest.

(2) During the previous twelve-month period we redeemed an aggregate
    principal amount of $150 million.

(3) PrEmium Adjustable Convertible Securities.

(4) EUR 690 million principal amount, convertible at the holders'
    option into our common stock at EUR 84.883 per share ($115.03 per
    share based on the U.S. Dollars per Euro exchange rate of $1.3552
    as of December 31, 2004). We have the right to redeem the PEACS,
    in whole or in part, by paying the principal amount, plus any
    accrued and unpaid interest. We do not hedge any portion of the
    PEACS. The U.S. Dollar equivalent principal, interest, and
    conversion price fluctuates based on the Euro/U.S. Dollar exchange
    ratio. Due to fluctuations in this exchange ratio, our principal
    debt obligation since issuance in February 2000 has increased by
    $255 million as of December 31, 2004.

(5) Under our previously announced $500 million debt repurchase
    authorization, on March 7, 2005 we will be redeeming EUR 200 -- or
    $261MM at the Euro to U.S. dollar exchange rate on January 31,
    2005 -- in principal amount of our PEACS at par, plus accrued and
    unpaid interest from and including February 16, 2005 to March 6,
    2005. We expect to record a charge of approximately $2 million in
    unamortized deferred debt issuance costs which will be classified
    in "Remeasurements and other" in the first quarter 2005.

(6) The "if converted" number of shares associated with our
    convertible debt instruments (approximately 20 million total
    shares) are excluded from diluted shares as their effect is anti
    dilutive.


    Certain Definitions and Other

    --  We present segment information along two lines: 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 expenses (income), 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.

    --  The North America segment consists of amounts earned from
        retail sales of consumer products (including from third-party
        sellers) through www.amazon.com and www.amazon.ca; from North
        America focused Syndicated Stores, such as www.cdnow.com; from
        our mail-order tool catalog; and from non-retail activities
        such as North America-focused Merchant.com, 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 third-party
        sellers) through www.amazon.co.uk , www.amazon.de,
        www.amazon.co.jp, www.amazon.fr, and, since September, 2004,
        www.joyo.com; from internationally focused Syndicated Stores;
        from our DVD rental service in the U.K.; and from non-retail
        activities such as internationally-focused 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 DVD rental and retail sales from all sellers of books,
        music, DVD/video, magazine subscriptions, software, video
        games, and video game consoles. Electronics and other general
        merchandise consists of amounts earned from retail sales from
        all sellers of items not included in Media, such as
        electronics and office, toys and baby, tools, home and garden,
        apparel, sports and outdoors, gourmet food, jewelry, health
        and personal care, beauty, and musical instruments. The Other
        category consists of non-retail activities, such as the
        Merchant.com program and miscellaneous marketing and
        promotional activities.

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

    --  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
        certain third-party sellers on our websites. Customer accounts
        include customers of Amazon Marketplace, Auctions and zShops,
        and our Merchants@, Syndicated Stores programs, but exclude
        DVD rental customers, Joyo.com customers, Merchant.com program
        customers, Amazon.com Payments customers, our catalog
        customers, and the customers of select companies with whom we
        have a technology alliance or marketing and promotional
        relationship. A customer is considered active when they have
        placed an order during the preceding twelve-month period.

    --  References to sellers or merchants mean active seller
        accounts, which are established when a seller receives an
        order from a customer account. Seller accounts include sellers
        in Amazon Marketplace, Auctions, zShops, and Merchants@
        platforms, but exclude Merchant.com sellers. A seller is
        considered active when they have received an order during the
        preceding twelve-month period.

    --  References to units mean units sold (net of returns and
        cancellations) by us and third-party 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, and
        www.amazon.ca -- and at Syndicated Stores domains, as well as
        Amazon.com-owned items sold through catalogs and at
        non-Amazon.com domains, such as books, music, and DVD/video
        items ordered from Amazon.com's store at www.target.com. Units
        do not include Joyo.com units sold, Amazon.com gift
        certificates or DVD rentals.



    CONTACT: Amazon.com
             Tim Stone, 206-266-2171 (Investor Relations)
             ir@amazon.com
             www.amazon.com/ir
              or
             Patty Smith, 206-266-7180 (Public Relations)

    SOURCE: Amazon.com, Inc.

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