AMZN Q1, 2003
AMAZON.COM ANNOUNCES 28% SALES GROWTH FUELED BY
LOWER PRICES AND FREE SHIPPING
Meaningful Innovation Leads, Launches, Inspires Relentless
Amazon Visitor Improvements
SEATTLE--(BUSINESS WIRE)--April 24, 2003--Amazon.com, Inc.
(NASDAQ: AMZN) today announced financial results for its first quarter
ended March 31, 2003.
Operating cash flow was $164 million for the trailing four
quarters, compared with $46 million for the four quarters ended March 31,
2002. Free cash flow was $123 million for the trailing four quarters,
compared with $10 million for the four quarters ended March 31,
Common shares outstanding plus shares underlying stock-based
employee awards totaled 432 million at March 31, 2003, a decrease of 1%
compared with a year ago.
Net sales were $1.084 billion in the first quarter, compared with
$847 million in the first quarter 2002, an increase of 28%.
Net loss was $10 million, or $(0.03) per share, in the first
quarter, compared with $23 million in the first quarter 2002, or $(0.06)
per share. Pro forma net income in the first quarter, which includes
interest expense, grew over $45 million to $40 million, or $0.10 per
share, compared with a pro forma net loss of $5 million, or $(0.01) per
share, in the first quarter 2002.
"Our strategy of driving down costs to give customers lower prices
continues to pay off," said Tom Szkutak, chief financial officer of
Amazon.com. "In the first quarter, customers took advantage of Free Super
Saver Shipping and broad everyday low prices, which created our first-ever
non-holiday quarter with sales over $1 billion, but this was only possible
because we reduced our costs in virtually every area of our
addition to its year-round Free Super Saver Shipping on orders over $25 at
www.amazon.com, the Company offers free shipping options at its U.K.,
German, French, Japanese and Canadian sites. Amazon.com also offers 30%
off books over $15 and significantly lowered prices on electronics, tools,
and bestselling CDs and DVDs.
"Meaningful innovation leads, launches, inspires relentless Amazon
visitor improvements," said Jeff Bezos, founder and chief executive
officer of Amazon.com. "We are simultaneously lowering prices and driving
The company also announced that on May 28, 2003, it will redeem all
of its outstanding 10% Senior Discount Notes due May 2008, for $277
million, a redemption price of 105% of the $264 million principal
See "Financial Measures" for additional information about certain
of our financial measures.
Highlights of First Quarter 2003 Results (comparisons are
with the equivalent period of 2002)
- Worldwide unit growth was 35% in the first quarter.
- Third-party seller transactions (new, used and refurbished
items sold on Amazon.com product detail pages by businesses and
individuals) grew to 19% of worldwide units in the first quarter,
compared with 13% of units a year ago.
America segment sales grew 13% to $705 million in the first quarter,
unit growth was 28%, and segment operating income grew 46% to $52
- International segment sales, representing the Company's U.K.,
German, French and Japanese sites, grew 68% to $379 million in the
first quarter, unit growth was 52%, and excluding the benefit from
foreign exchange rates compared with the first quarter 2002,
International segment sales grew 45%. International segment operating
income was $16 million, a $27 million improvement.
Company's U.K. and German sites expanded selection by opening Kitchen
& Home stores.
- Inventory turns for the trailing four quarters improved to 20
for the first quarter, up from 17.
Company has been taking pre-orders worldwide for copies of the
highly-anticipated Harry Potter and the Order of the Phoenix.
And, in what will be the largest single e-commerce distribution event
in history, customers in the U.S. and Canada can receive their copy on
Saturday, June 21, the first day the book is available to the public.
Financial Guidance and 2003 Expectations
The following forward-looking statements reflect Amazon.com's
expectations as of April 24, 2003. Results may be materially affected by
many factors, such as changes in global economic conditions and consumer
spending, world events, fluctuations in foreign exchange rates, the
emerging nature and rate of growth of the Internet and online commerce,
and the various factors detailed below.
Second Quarter 2003 Guidance
quarter net sales are expected to be between $1.00 billion and $1.05
billion, or grow between 24% and 30%.
Consolidated segment operating income is expected to be between
$45 million and $60 million.
Full Year 2003 Expectations
sales are expected to be $4.7 billion or more, or grow over
Consolidated segment operating income is expected to be $275
million or more, or grow over 50%.
The Company is unable to forecast the effect on its future
reported results of certain items, including the stock-based
compensation charges or credits associated with variable accounting
treatment on certain stock awards that result from fluctuations in its
stock price, and the gain or loss associated with the remeasurement of
its 6.875% PEACS that results from fluctuations in foreign exchange
rates. Accordingly, because stock-based compensation and remeasurement
of 6.875% PEACS and other are impossible to predict, the Company cannot
estimate future operating income (loss) or net income (loss).
A conference call will be Webcast live today at 2 p.m. PT/5 p.m.
ET and will be available through June 30, 2003, at http://www.amazon.com/ir.
This call will contain forward-looking statements and other material
information regarding the Company's financial and operating
These forward-looking statements are inherently difficult to
predict. Actual results could differ materially for a variety of
reasons, including, among others, the rate of growth of the economy in
general and of the Internet and online commerce; customer spending
patterns; world events, 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; risks of inventory management;
the degree to which the Company enters into, maintains and develops
commercial agreements and strategic transactions; foreign exchange
risks; seasonality; international growth and expansion; and risks of
fulfillment throughput and productivity. Other risks and uncertainties
include, among others, risk of future losses, significant amount of
indebtedness, potential fluctuations in operating results, management of
potential growth, system interruptions, consumer trends, fulfillment
center optimization, 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, 2002, and all subsequent filings.
Free Cash Flow
Free cash flow is net cash provided by (used in) operating
activities (operating cash flow includes cash outflows for interest and
excludes proceeds from the exercise of stock-based employee awards) less
purchases of fixed assets (purchases of fixed assets includes
internal-use software and web-site development). Free cash flow is
provided as a complement to results provided in accordance with
accounting principles generally accepted in the United States (known as
"GAAP"). Management uses this measure internally to evaluate the
Company's performance and manage its operations. 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, a GAAP measure, excludes
the following line items on the Company's statements of
Amortization of goodwill and other intangibles, and
Restructuring-related and other.
A tabular reconciliation of differences from operating income is
included in "Segment Information" in the attached financial
Forma Net Income (Loss)
Pro forma net income (loss) excludes the following line items
on the Company's statements of operations:
Amortization of goodwill and other intangibles,
Restructuring-related and other,
Remeasurement of 6.875% PEACS and other,
in losses of equity-method investees, net, and
Cumulative effect of change in accounting principle.
Pro forma net income is provided as a complement to results
provided in accordance with GAAP. Management uses this measure
internally to evaluate the Company's performance and manage its
operations. A tabular reconciliation of differences from the comparable
GAAP measure--net income (loss)--is included in the attached "Pro Forma
Statements of Operations."
Amazon.com, a Fortune 500 company based in Seattle, opened on the
World Wide Web in July 1995 and today offers Earth's Biggest Selection.
Amazon.com seeks to be Earth's most customer-centric company, where
customers can find and discover anything they might want to buy online,
and endeavors to offer its customers the lowest possible prices.
Amazon.com and other sellers list millions of unique new and used items
in categories such as apparel and accessories, electronics, computers,
kitchenware and housewares, books, music, DVDs, videos, cameras and
photo items, toys, baby items and baby registry, software, computer and
video games, cell phones and service, tools and hardware, magazine
subscriptions and outdoor living items.
Amazon.com operates six Web sites: amazon.com,
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Financial and Operational
First Quarter 2003 Results of Operations (comparisons
are with the equivalent period of the prior year)
- Net sales
benefited by approximately $51 million from changes in foreign exchange
rates compared with first quarter 2002.
revenue, which excludes amounts earned from third-party sellers, was
approximately $78 million, down from $89 million.
profit benefited by approximately $11 million, and consolidated segment
operating profit by approximately $4 million, from changes in foreign
exchange rates compared with first quarter 2002.
loss was approximately $27 million, up from a loss of $1 million. We
continue to measure our shipping results relative to their effect on our
overall financial results, with the viewpoint that shipping promotions
are an effective marketing tool. We intend to continue offering our
customers free shipping alternatives, which will reduce shipping revenue
as a percentage of sales and negatively affect gross margins.
- Fulfillment costs represent those costs incurred in operating and
staffing our fulfillment and customer service centers, credit card fees
and bad debt costs. Fulfillment costs also include amounts paid to
third-party cosourcers, who assist us in fulfillment and customer
service operations. Certain of our fulfillment-related costs incurred on
behalf of other businesses, such as Toysrus.com and Target Corporation,
are classified as cost of sales rather than fulfillment.
Restructuring-Related and Other
previously disclosed, in the first quarter 2001 we announced and began
implementation of our operational restructuring plan. The restructuring
plan is complete; however, we may adjust our restructuring-related
estimates in the future, if necessary.
payments resulting from our operational restructuring were $16 million,
compared with $14 million in the first quarter 2002. In December 2002,
we reached a termination agreement with the landlord of our leased
fulfillment center facility in McDonough, Georgia. This agreement
resulted in $12 million of cash payments in the first quarter 2003,
including $8 million associated with the termination agreement and $4
million associated with restoration costs. No further payments are
required relating to the McDonough, Georgia facility.
estimate, based on currently available information, the remaining net
cash outflows associated with restructuring-related leases and other
commitments will be $9 million in the remainder of 2003, $13 million in
2004, and $19 million thereafter. Amounts due within 12 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 approximately
$47 million (we have signed sublease agreements on $10 million in future
payments) on gross lease obligations of $87 million.
Other Income, Net
income, net primarily consisted of net gains on sales of marketable
securities of $4 million, compared with less than $1 million in the
first quarter 2002.
Remeasurement of 6.875% PEACS and Other
- Remeasurement of 6.875% PEACS and other, primarily consisted of
foreign-currency losses on remeasurement of 6.875% PEACS from Euros to
U.S. Dollars of $25 million, compared with gains of $6 million in the
first quarter 2002.
- At March
31, 2003, we had net operating loss carryforwards (NOLs) of
approximately $2.5 billion related to U.S. federal, state and foreign
jurisdictions. Utilization of NOLs, which begin to expire at various
times starting in 2010, may be subject to certain limitations.
Approximately $1.2 billion of our NOLs relate to tax deductible
stock-based compensation in excess of amounts recognized for financial
reporting purposes--to the extent any of this amount is realized, the
resulting benefit will be credited to stockholders' equity, rather than
results of operations.
we reported a $13 million improvement in our net loss, we believe that
this improvement is not necessarily predictive of future trends for a
variety of reasons. For example, we are unable to forecast the effect on
our future reported results of certain items, including the stock-based
compensation charges or credits associated with variable accounting
treatment on certain stock awards that result from fluctuations in our
stock price and the gain or loss associated with the remeasurement of
our 6.875% PEACS that results from fluctuations in foreign exchange
rates. These items represented significant charges during the first
quarter of 2003 and may result in significant charges or credits in
- Our cash,
cash equivalents and marketable securities, at estimated fair value,
consist of the following at March 31, 2003 (in millions):
|Commercial paper and short-term obligations
|Cash and cash equivalents
|U.S. Treasury notes and bonds
|Asset-backed and agency securities
|Corporate notes and bonds
|Certificates of deposit, commercial paper, short-term
obligations and equity securities
|Marketable securities (1)
We have pledged approximately $105 million as collateral for property
leases and other contractual obligations, compared with $158 million at
March 31, 2002.
debt primarily includes the following (in millions):
|Senior Discount Notes
|Convertible Subordinated Notes
(1) We announced that on May 28, 2003, we
will redeem our Senior Discount Notes at a redemption price of $277
million, a 5% premium over the principal amount of $264 million. We
will record a charge of approximately $15 million, classified in
non-operating expenses in the second quarter 2003, consiting of the
$13 million premium and $2 million of unamortized debt issuance costs.
Accrued interest from May 1, 2003 to May 27, 2003 will also be payable
(2) Convertible at the holders' option into our
common stock at $78.03.
(3) 690 million Euros. Convertible at the
holders' option into our common stock at 84.88 Euros. The U.S. Dollar
long-term debt amount and conversion price fluctuates based on the
Euro/U.S. Dollar exchange ratio.
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, amortization of goodwill and other intangibles, and
restructuring-related and other charges, each of which are not allocated
to segment results. All other centrally-incurred operating costs are
fully allocated to segment results. There are no internal revenue
transactions between our reporting segments.
- The North
America segment consists of amounts earned from retail sales of consumer
products through www.amazon.com and www.amazon.ca (including from
third-party sellers), from North America focused Syndicated Stores and
mail-order catalogs and from non-retail activities such as North America
focused Merchant.com, marketing and promotional agreements.
International segment consists of amounts earned from retail sales of
consumer products through www.amazon.co.uk, www.amazon.de, www.amazon.fr
and www.amazon.co.jp (including from third-party sellers), from
internationally focused Syndicated Stores and from non-retail activities
such as internationally focused marketing and promotional agreements.
This segment includes export sales from www.amazon.co.uk, www.amazon.de,
www.amazon.fr and www.amazon.co.jp (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. Operating results for the
International segment are affected by movements in foreign exchange
- We have
also provided supplemental revenue information within each segment for
three categories: "Media", "Electronics and other general merchandise"
and "Other." Media consists of amounts earned from retail sales from all
sellers of books, music, DVD/video, magazine subscriptions, software and
video games. Electronics and other general merchandise consists of
amounts earned from retail sales from all sellers of items not included
in Media, such as electronics, toys, home improvement, home and garden,
and apparel. The Other category consists of non-retail activities, such
as the Merchant.com program and miscellaneous marketing and promotional
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 Web
sites. Customer accounts include customers of Amazon Marketplace,
Auctions and zShops and our Merchants@ and Syndicated Stores Programs,
but exclude 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
relationships. A customer is considered active upon placing an
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.ca, www.amazon.fr, www.amazon.co.uk,
www.amazon.de and www.amazon.co.jp--and at Syndicated Stores domains, as
well as Amazon.com-owned items sold 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 Amazon.com gift
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