Amazon.com (AMZN)

AMAZON.COM ANNOUNCES FREE CASH FLOW SURPASSED $500 MILLION FOR THE FIRST TIME; CUSTOMERS JOINED AMAZON PRIME AT AN ACCELERATED RATE

SEATTLE—(BUSINESS WIRE)—Feb. 2, 2006—Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter and year ended December 31, 2005.

Operating cash flow grew 29% to $733 million in 2005, compared with $566 million in 2004. Free cash flow grew 11% to $529 million in 2005, compared with $477 million in 2004. Operating and free cash flow includes a one-time payment of $40 million in connection with a patent lawsuit settlement in third quarter 2005.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 438 million on December 31, 2005, compared with 434 million a year ago.

Net sales increased 17% to $2.98 billion in the fourth quarter, compared with $2.54 billion in fourth quarter 2004. Excluding the $121 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 22% compared with fourth quarter 2004.

Operating income increased 1% to $165 million in the fourth quarter, compared with $162 million in fourth quarter 2004. Excluding the $12 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, operating income grew 9% compared with fourth quarter 2004.

Net income was $199 million in the fourth quarter, or $0.47 per diluted share, compared with net income of $347 million, or $0.82 per diluted share in fourth quarter 2004, which includes a $38 million income tax benefit in the fourth quarter, compared with a $239 million income tax benefit in fourth quarter 2004, primarily related to determining certain deferred tax assets are realizable.

“Subscriptions to Amazon Prime more than doubled from November to December,” said Jeff Bezos, founder and CEO of Amazon.com. “Amazon Prime members get ‘all-you-can-eat’ two-day shipping for free.”

Amazon Prime, Amazon.com’s first-ever membership program, was introduced in February 2005. For a flat membership fee of $79 per year, Amazon Prime members get unlimited, express two-day shipping for free, with no minimum purchase requirement, on over a million eligible items sold by Amazon.com. Members can order as late as 6:30 p.m. ET and still get their order the next day for only $3.99 per item, and they can share the benefits of Amazon Prime with up to four family members living in their household. Sign up for Amazon Prime at www.amazon.com/prime.

Full Year 2005

Net sales grew 23% to $8.49 billion in 2005, compared with $6.92 billion in 2004. Excluding the $73 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales grew 24% compared with 2004.

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Operating income was $432 million in 2005, compared with $440 million in 2004. Operating income for 2005 includes the $40 million negative impact of the legal settlement and an $8 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the year.

Net income was $359 million in 2005, or $0.84 per diluted share, compared with net income of $588 million, or $1.39 per diluted share, in 2004. Net income for 2005 includes a $95 million income tax expense, compared with a $233 million income tax benefit in 2004.

Amazon.com also announced today that on March 7, 2006 it will redeem €250 million ($304 million at the Euro to U.S. dollar exchange rate on January 31, 2006) in principal amount of its outstanding 6.875% Convertible Subordinated Notes due 2010, plus accrued and unpaid interest from and including February 16, 2006 to March 6, 2006, under its previously announced $500 million debt repurchase authorization. No premium payment is required to redeem these notes.