Key questions from the third quarter earnings call conducted by Amazon.com, Inc. on October 25, 2005.

Doug Anmuth (Lehman Brothers): Earlier in the year, you changed your guidance significantly for Amazon Prime. Can you give a better sense of how it is doing so far?

Tom Szkutak: In terms of Amazon Prime, it is expensive in the short term, but we think it is the right thing to do. What we are finding is customers like it. They are buying more. They are also doing more cross-shopping, and it is especially heavy in certain categories.

Jeff Bezos: It is expensive but it has a lot of benefits for customers and, long term, for Amazon and Amazon shareholders. Customers, when they start using Amazon Prime, it not only saves them money on shipping but because, for free, as members they get expedited fast shipping, it changes the way they think about and use Amazon. We have seen significant lift in Amazon Prime members. We did say short-term investment; it is expensive in the short term. We think it is one of the most important things that we are doing over the long-term.

Doug Anmuth (Lehman Brothers): Regarding the $12 million credit reimbursement during the quarter, can you tell us during which quarter that came into the P&L originally?

Tom Szkutak: In terms of the $12 million credit, we had previously expensed that over several quarters. We have not disclosed the exact amounts per quarter, but it was over several quarters.

Jeetil Patel (Deutsche Bank): Have you gotten enough data and analytics behind Prime to look at this on a global scale?

Tom Szkutak: We do like to operate consistently globally. We will be trying to do that over time, but you just have to stay tuned for that.

Jeetil Patel (Deutsche Bank): On International you were affected by the currency effects. Can you talk about markets like Germany, where a VAT was implemented and growth slowed down broadly in the e-commerce world out ther?

Tom Szkutak: We are not breaking out any of the individual countries within international. We did get hurt by currency. International revenue was 26% on a dollar basis, 28% on a local currency basis. Unit growth was faster than that.

Jeetil Patel (Deutsche Bank): Is there any way to leverage the 1 million sellers that you have that have grown 30% a year or two?

Jeff Bezos: Those are the things that we think a lot about. It is our practice not to talk specifically about what we might do in the future, but we do think about those kinds of things.

Brian Pitz (Morgan Stanley): Can you talk about your add-on sales for Harry Potter more than your expectations and provide more detail on the geographic breakout of sales for the book?

Tom Szkutak:We have not broken that out; the only thing that we said was that the total impact on revenue, including attachments were 260 basis points. By geography, directionally, you can assume that it is approximately the same as the magnitude of the segments themselves.

We noticed advertisements in your Gold Box items recently. Can you talk about the impact of these ads on your margins, and any thoughts regarding advertisements in other areas of your site?

Tom Szkutak: The impact is small.

Anthony Noto (Goldman Sachs): Your trailing 12-month free cash flow is growing slower than your trailing 12-month revenue growth. Could you comment on that?

Tom Szkutak: On our free cash flow, it is not before CapEx. Our operating cash flows is up 35% year-over-year on a trailing 12-month basis, and that includes the $40 million settlement. If you back that out, it is operating cash flows are growing on a trailing 12-month basis up 43%. Free cash flow, excluding the $40 million payment, is growing 22%. What you are seeing is we are spending more this year than last year on capital expenditures, and it is in a few different places. As we add more computer science and software engineers and we are capitalizing parts of that development, you are seeing that included in our CapEx. We will continue to support our growth; we are adding capacity. We added three fulfillment centers in third quarter. That is reflected in the CapEx that you saw over the past 12 months and in third quarter. We also are adding two new ones in the fourth quarter, one in Japan and one in the US. Some of the CapEx has been spent so far in third quarter and prior as well on those.

Anthony Noto (Goldman Sachs): You did about $109 million of pro forma operating income ex the $12 million onetime benefit item, which implies your operating margin of about 4.9%. You have upside relative to your expectations in revenue in guidance, but you did not have upside in operating income. Is that margin and that lack of leverage due to an opportunity that you saw in the quarter that caused you to spend more money, or is that because something was more expensive than you had anticipated?

Tom Szkutak: Instead of our revenue growth of 27%, our CSOI growth was 28%. If you back out the 12, it is 15. What you mare seeing is, if you look at the operating expense, the most significant increase is technology and content, and that is an opportunity. We have been successful in hiring, over the last several quarters, software engineers and computer scientists. We are going to continue to add more computer scientists and software engineers. Those computer scientists and software development engineers are continuing to innovate on behalf of customers. They continue to work on the seller platform, making it easier for sellers to sell. We are continuing to work on Search, on Digital and A9, and these are opportunities that we are spending those dollars on for the future growth of our business.