Amazon CEO Jeff Bezos tells shareholders the Seattle company is investing "heartily" in new product categories, tools for third-party sellers, Amazon Web Services and China.

Seattle-based says sales of its Kindle electronic reading device have been better than expected.

“Kindle sales have exceeded our most optimistic expectations,” Chief Executive Officer Jeff Bezos wrote shareholders in a letter filed with regulators today.

Although Amazon does not release Kindle sales figures, a couple of analysts have estimated that the device and book downloads could generate between $1.2 billion and $1.4 billion by 2010.

The Kindle sells for $359 and can handle 1,500 books, many costing about $10. A thinner, faster version, called Kindle 2, was released in February.

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Additionally, Bezos said the company is investing “heartily” in new product categories, tools for third-party sellers, Amazon Web Services and China.

Discussing the company’s cost structure, Bezos referred to a week that he spent in March fulfilling orders at a warehouse in Lexington, Ky.

“At a fulfillment center recently, one of our Kaizen experts asked me, ‘I’m in favor of a clean fulfillment center, but why are you cleaning? Why don’t you eliminate the source of the dirt?’ I felt like the Karate Kid,” Bezos wrote.

Kaizen, which means “continuous improvement,” is a business strategy developed by Toyota in the 1980s and has been used by Amazon to eliminate unnecessary costs, said spokeswoman Patty Smith.

In other Amazon news, the company said it will hold its annual shareholders meeting May 28 at 9 a.m. at the Seattle Art Museum.

Myrtle Potter, one of Amazon’s nine board members, told the company that she will not stand for re-election at the meeting. No replacement has been nominated. Potter, who is a health-care consultant and chief executive of a privately held real-estate company, joined Amazon’s board in 2004.

Also, Amazon disclosed the 2008 compensation packages for top executives. Bezos, 45, who owns about 23 percent of the company’s common stock, had an annual base salary of $81,840, the same since 1999, as well as $1.2 million in personal security costs.

Chief Financial Officer Thomas Szkutak received a salary of $157,500, plus stock awards valued at nearly $7.5 million.

Amy Martinez: 206-464-2923 or