AMAZON.COM ANNOUNCES FREE SHIPPING AND LOW PRICES FUEL 42% UNIT GROWTH
SEATTLE—(BUSINESS WIRE)—July 22, 2003—Amazon.com, Inc.
(NASDAQ: AMZN) today announced financial results for its second quarter
ended June 30, 2003.
cash flow was $285 million for the trailing twelve months, compared with
$48 million for the trailing twelve months ended June 30, 2002. Free cash
flow was $245 million for the trailing twelve months, compared with $16
million for the trailing twelve months ended June 30, 2002.
shares outstanding plus shares underlying stock-based employee awards
totaled 433 million at June 30, 2003, an increase of 1% compared with
a year ago.
sales were $1.1 billion in the second quarter, compared with $806 million
in the second quarter 2002, an increase of 37%. Net sales benefited by
$55 million from changes in foreign exchange rates compared with the second
income was $42 million, or 4% of net sales, compared with $1 million in
the second quarter 2002. Consolidated segment operating income improved
$41 million to $67 million, or 6% of net sales, compared with $26 million
in the second quarter 2002.
loss was $43 million, or $(0.11) per share, in the second quarter, compared
with $94 million, or $(0.25) per share, in the second quarter 2002. Pro
forma net income in the second quarter, which includes interest expense,
grew over $46 million to $42 million, or $0.10 per share, compared with
a pro forma net loss of $4 million, or $(0.01) per share, in the second
January, we shifted money from TV and print advertising to customers through
lower prices and free shipping," said Amazon.com founder and chief
executive officer Jeff Bezos. "We're pleased with the results."
the Company also announced it is lowering its Free Super Saver Delivery
threshold in the U.K. to £25 from £39. The Company currently
offers Free Super Saver Shipping on orders over $25 at www.amazon.com
and free shipping options at its German, French, Japanese and Canadian
sites. Amazon.com also offers 30% off books over $15 and significant savings
on electronics, tools, and bestselling CDs and DVDs.
customers continue to respond in record numbers to our everyday low prices
and free shipping," said Tom Szkutak, chief financial officer of
Amazon.com. "Our strategy of offering low prices and free shipping,
combined with the inherent advantages of online shopping, is allowing
us to raise our guidance."
See "Financial Measures" for additional information.
of Second Quarter 2003 Results (comparisons are with the equivalent
period of 2002)
Worldwide unit growth was 42% in the second quarter.
- In June
2003, the Company sold over 1.4 million units worldwide of Harry
Potter and the Order of the Phoenix.
seller transactions (new, used and refurbished items sold on the Company's
product detail pages by businesses and individuals) grew to 20% of worldwide
units in the second quarter, compared with 14% of units a year ago.
America segment sales, representing the Company's U.S. and Canadian
sites, grew 20% to $703 million in the second quarter and segment operating
income grew 53% to $55 million, or 8% of net sales.
segment sales, representing the Company's U.K., German, French and Japanese
sites, grew 81% to $397 million in the second quarter and benefited
by $54 million from changes in foreign exchange rates compared with
the second quarter 2002. International segment operating income was
$13 million, a $22 million improvement.
turns for the trailing four quarters improved to 20 for the second quarter,
up from 19.
May 28, 2003, the Company redeemed all of its outstanding 10% Senior
Discount Notes due May 2008, for $277 million, a redemption price of
105% of the $264 million principal amount.
Financial Guidance and 2003 Expectations
The following forward-looking statements
reflect Amazon.com's expectations as of July 22, 2003. 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 emerging nature and rate of growth of the Internet and online
commerce, and the various factors detailed below.
Quarter 2003 Guidance
quarter net sales are expected to be between $1.075 billion and $1.15
billion, or grow between 26% and 35%, compared with third quarter
segment operating income is expected to be between $55 million and
income is expected to be between $40 million and $55 million, assuming
among other things that the Company does
not record any revisions to its restructuring-related estimates and
that the closing price of Amazon.com common stock on September 30,
2003 is identical to the closing price of $36.32 on June 30, 2003.
Year 2003 Expectations
Net sales are expected to be between $4.9 billion and $5.1 billion,
or grow between 25% and 30%, compared with 2002.
segment operating income is expected to be between $300 million and
income is expected to be between $215 million and $255 million, assuming
among other things that the Company does not record any revisions
to its restructuring-related estimates and that the closing price
of Amazon.com common stock on September 30, 2003 and December 31,
2003 is identical to the closing price of $36.32 on June 30, 2003.
A conference call will be Webcast live today at 2 p.m. PT/5 p.m. ET and
will be available at least through September 30, 2003, 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; risks of inventory management;
the degree to which the Company enters into, maintains and develops commercial
agreements and strategic transactions; 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.
following measures are defined by the Securities and Exchange Commission
as non-GAAP financial measures.
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
Segment Operating Income
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:
of goodwill and other intangibles, and
tabular reconciliation of differences from the comparable GAAP measure—operating
income (loss)—is included in "Segment Information" in
the attached financial statements.
Forma Net Income (Loss)
forma net income (loss) excludes the following line items on the Company's
statements of operations:
of goodwill and other intangibles,
of 6.875% PEACS and other,
in losses of equity-method investees, net, and
effect of change in accounting principle.
tabular reconciliation of differences from the comparable GAAP measure—net
income (loss)—is included in the attached "Pro Forma Statements
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.
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.
operates six Web sites: www.amazon.com,
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Financial and Operational Highlights
Second Quarter 2003 Results of Operations (comparisons
are with the equivalent period of the prior year)
revenue, which excludes amounts earned from third-party sellers, was
approximately $80 million, down from $81 million.
profit benefited by approximately $12 million, and consolidated segment
operating income by approximately $3 million, from changes in foreign
exchange rates compared with second quarter 2002.
loss was approximately $26 million, down from income of $2 million.
We continue to measure our shipping results relative to their effect
on our overall financial results, with the viewpoint that free shipping
offers 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.
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-parties, 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, are classified as cost of sales rather than fulfillment.
card fees associated with third-party seller transactions represent
a significant percentage relative to commission amounts earned, and
as a result, negatively affect fulfillment as a percentage of net sales.
based compensation consisted of $15 million for stock awards under variable
accounting and $10 million for stock awards under fixed accounting.
Stock based compensation includes matching contributions under our 401(k)
program but excludes payroll tax expense resulting from exercises of
- We granted
2 million stock awards during the quarter with vesting periods generally
ranging from three to six years. At June 30, 2003, outstanding stock
awards consisted of 32 million stock options ($12 average exercise price),
4 million restricted stock units and 1 million shares of restricted
stock. Restricted stock is included in common stock outstanding; restricted
stock units are not.
the fourth quarter 2002, we have awarded restricted stock units as our
primary form of stock-based compensation. Restricted stock units 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 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.
- At June
30, 2003, 2 million stock awards are subject to variable accounting,
of which less than 1 million options granted under the January 2001
exchange offer are scheduled to expire in the third quarter of 2003.
Stock option grants after December 31, 2002 are subject to variable
variable stock award accounting, we will incur unpredictable charges
or credits dependent on the fluctuations in market prices of our common
stock, which we are unable to forecast. For example, if at the end of
any quarter the quoted price of our common stock is lower than the quoted
price at the end of the previous quarter, or to the extent previously-recorded
amounts relate to unvested portions of awards that were cancelled, compensation
expense associated with variable accounting will be recalculated using
the cumulative expense method and may result in a net benefit to our
results of operations.
the following hypothetical market prices of our common stock above and
below our June 30, 2003 closing price of $36.32, our hypothetical stock-based
compensation expense for the three months ended June 30, 2003 would
have been affected by variable accounting treatment as follows (in millions,
except percentages and per share amounts):
Closing Price (1)
Market Price per Share (1)
(1) Hypothetical—not a prediction of future performance of quoted
prices of our common stock.
(2) Represents actual stock-based compensation expense for the second quarter
- As previously
disclosed, in the first quarter 2001 we announced and began implementation
of our operational restructuring plan. The restructuring is complete;
however, we may adjust our restructuring-related estimates in the future,
payments resulting from our operational restructuring were $4 million,
compared with $13 million in the second quarter 2002.
- We estimate,
based on currently available information, the remaining net cash outflows
associated with restructuring-related leases and other commitments will
be $6 million in the remainder of 2003, $12 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
income) on gross lease obligations of $83 million.
income, net primarily consisted of net gains on sales of marketable
of 6.875% PEACS and Other
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 $38 million,
compared with $71 million in the second quarter 2002.
- In connection
with our May 28, 2003 redemption of our 10% Senior Discounts Notes,
we recorded a charge of $15 million representing a 5% premium and $2
million of remaining deferred issuance costs. Additionally, we paid
$2 million for interest accrued between May 1, 2003 and May 28, 2003
which was recorded to "Interest expense."
the second quarter of 2003, we terminated our cross-currency swap agreement
that hedged a portion of principal and interest payments on our PEACS.
No cash was paid or received to terminate the swap agreement, however
we recorded a charge of $6 million to "Remeasurement of 6.875%
PEACS and other," representing the remaining fair value of the
swap asset. At June 30, 2003, the balance of the cumulative losses related
to the swap agreement, included in "Accumulated other comprehensive
income (loss)" on our consolidated balance sheets, was $14 million,
which will be amortized to "Remeasurement of 6.875% PEACS and other"
over the remaining life of the PEACS. If we redeem or otherwise restructure
our PEACS prior to maturity, any remaining cumulative unrealized loss
resulting from the swap agreement would be recognized as a charge to
"Remeasurement of 6.875% PEACS and other."
- At June
30, 2003, we had net operating loss carryforwards (NOLs) of approximately
$2.7 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 $1.3 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 $50 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 associated with variable accounting treatment 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 and second quarters of 2003 and
may result in significant charges or gains in future periods.
Flows and Balance Sheet
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, and vendor payment terms. For example, our second
quarter 2003 trailing twelve month operating cash flow and free cash
flow were positively impacted by approximately $20 million because,
as previously reported, a credit card service provider unintentionally
failed to make a scheduled quarter-end payment to us until the third
quarter 2002, and in the second quarter 2003 we purchased and received
customer payment for over 1.4 million units of Harry Potter and
the Order of the Phoenix, for which payment was generally not due
to our vendors until after the second quarter of 2003.
- Our cash,
cash equivalents and marketable securities of $989 million are estimated
fair value and primarily consist of cash, commercial paper and short-term
obligations, U.S. Treasury notes and bonds and asset-backed and agency
- We have
pledged approximately $104 million of our marketable securities as collateral
for property leases and other contractual obligations, compared with
$124 million at June 30, 2002.
Long-term debt primarily includes the following (in millions):
(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 102.85% of the principal,
which decreases to 100% over time, plus any unaccrued and unpaid interest.
(2) €690 million principal amount, convertible at the holders' option
into our common stock at €84.883 per share. The U.S. Dollar equivalent
principal, interest, and conversion price fluctuates based on the Euro/U.S.
Dollar exchange ratio. We have the right to redeem the PEACS, in whole or
in part, by paying the €690 million, plus any accrued and unpaid interest.
Because we have terminated our cross-currency swap agreement relating to
the PEACS, we have additional interest expense exposure to fluctuations
in the Euro/US 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 exclude stock-based
compensation, amortization of goodwill and other intangibles, and restructuring-related
and other charges, each of which is not allocated to segment results.
All 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 through www.amazon.com and www.amazon.ca
(including from third-party sellers), from North America focused Syndicated
Stores, such as www.cdnow.com, and mail-order catalogs and
from non-retail activities such as North America focused Merchant.com,
marketing and promotional agreements.
- The 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.
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 activities.
- All 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 order.
- All 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 certificates.
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