ANNOUNCES RECORD FREE CASH FLOW FUELED BY LOWER PRICES AND YEAR-ROUND
WIRE)—January 27, 2004—Amazon.com, Inc. (NASDAQ:AMZN) today
announced financial results for its fourth quarter and year ended December
cash flow was $392 million for 2003, compared with $174 million for 2002.
Free cash flow was $346 million for 2003, compared with $135 million for
outstanding plus shares underlying stock-based employee awards totaled
433 million at December 31, 2003, flat compared with a year ago.
were $1.946 billion in the fourth quarter, compared with $1.429 billion
in fourth quarter 2002, an increase of 36%. Net sales benefited by $98
million from changes in foreign exchange rates compared with fourth quarter
were $5.264 billion in 2003, compared with $3.933 billion in 2002, an
increase of 34%. Net sales benefited by $232 million from changes in foreign
exchange rates compared with 2002.
income was $138 million in the fourth quarter, or 7% of net sales, compared
with $71 million, or 5% of net sales, in fourth quarter 2002. Consolidated
segment operating income grew to $153 million in the fourth quarter, or
8% of net sales, compared with $102 million, or 7% of net sales, in fourth
income improved to $271 million in 2003, or 5% of net sales, compared
with $64 million, or 2% of net sales, in 2002. Consolidated segment operating
income was $361 million in 2003, or 7% of net sales, an improvement of
$181 million compared with 2002.
was $73 million in the fourth quarter, or $0.17 per diluted share, compared
with $3 million, or $0.01 per diluted share, in fourth quarter 2002. Pro
forma net income in the fourth quarter grew 66% to $125 million, or $0.29
per diluted share, compared with $75 million, or $0.19 per diluted share,
in fourth quarter 2002.
was $35 million in 2003, or $0.08 per diluted share, compared with a net
loss of $149 million, or $(0.39) per share, in 2002. Pro forma net income
for 2003 improved $190 million to $256 million, or $0.61 per diluted share,
compared with $66 million, or $0.17 per diluted share, in 2002.
commitment to year-round free shipping and lower prices continues to be
a win-win for our customers and Amazon.com," said Jeff Bezos, founder
and CEO of Amazon.com. "In addition to purchasing thousands of $29
DVD players this holiday season, customers also bought Tibetan yak cheese,
pomegranate molasses and zero carb cheese straws."
also announced today that Amazon.co.uk further lowered book prices by
offering 30% off books over £10, reduced from 30% off books over
£15. Amazon.com continues to offer Free Super Saver Shipping on
orders over $25 at www.amazon.com and also has free shipping options at
its U.K., German, French, Japanese and Canadian sites. Amazon.com also
offers 30% off books over $15 and continues to lower prices every day
across its product offerings, ranging from electronics to jewelry to sporting
goods to tools.
also announced that its Board of Directors has authorized a debt repurchase
program pursuant to which the Company may from time to time repurchase
(through open market repurchases or private transactions), redeem or otherwise
retire, up to an aggregate of $500 million of its outstanding 4.75% Convertible
Subordinated Notes due 2009 and 6.875% Convertible Subordinated Notes
due 2010. In addition to this debt repurchase program, as separately announced
today, on February 26, 2004, the Company will redeem $150 million in principal
amount of its outstanding 4.75% Convertible Subordinated Notes due 2009
at a redemption price of 102.375%, plus accrued and unpaid interest from
February 1 through February 25, 2004.
Measures" for additional information.
of Fourth Quarter and 2003 Results
America segment sales, representing the Company's U.S. and Canadian
sites, grew 18% to $1.14 billion in the fourth quarter and segment operating
income grew 39% to $114 million, or 10% of net sales, compared with
fourth quarter 2002.
segment sales, representing the Company's U.K., German, French and Japanese
sites, grew 74% to $804 million in the fourth quarter and benefited
by $95 million from changes in foreign exchange rates compared with
fourth quarter 2002. In 2003, International segment sales exceeded $2
billion for the first time. International segment operating income was
$39 million, or 5% of net sales in the fourth quarter, compared with
$20 million, or 4% of net sales, in fourth quarter 2002.
and Other General Merchandise revenues exceeded $1.1 billion in 2003.
turns for the trailing twelve months decreased 5% to 18 in 2003.
24, 2003, the Company redeemed $200 million of its 4.75% Convertible
Subordinated Notes due 2009, for $206 million, a redemption price of
102.850%. For 2003, Amazon.com redeemed $464 million of its long-term
increased selection by adding over 40,000 unique gourmet food items,
more than 60,000 unique jewelry items, and over 70,000 unique health
and personal care items.
also launched a home and kitchen store in Japan and Marketplace in France
and Canada during the fourth quarter.
forward-looking statements reflect Amazon.com's expectations as of January
27, 2004. 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
First Quarter 2004 Guidance
quarter net sales are expected to be between $1.39 billion and $1.49
billion, or grow between 28% and 38%, compared with first quarter 2003.
segment operating income is expected to be between $95 million and $115
income is expected to be between $80 million and $100 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 March 31, 2004, is identical to the closing price of
$52.62 on December 31, 2003.
Year 2004 Expectations
are expected to be between $6.20 billion and $6.70 billion.
segment operating income is expected to be between $430 million and
income is expected to be between $355 million and $455 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 December 31, 2004, is identical to the closing price
of $52.62 on December 31, 2003.
call will be Webcast live today at 2 p.m. PT/5 p.m. ET and will be available
at least through March 31, 2004, at www.amazon.com/ir. This call will
contain forward-looking statements and other material information regarding
the Company's financial and operating results.
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.
measures are defined by the Securities and Exchange Commission as non-GAAP
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 Web site 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 other intangibles, and
reconciliation of differences from the comparable GAAP measure—operating
income—is included in the attached "Pro Forma Statements of
net income excludes the following line items on the Company's statements
of other intangibles,
of 6.875% PEACS and other,
in losses of equity-method investees, net, and
effect of change in accounting principle.
reconciliation of differences from the comparable GAAP measure—net
income (loss)—is included in the attached "Pro Forma Statements
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 health
and personal care, jewelry and watches, gourmet food, sporting goods,
apparel and accessories, books, music, DVDs, electronics and office, kids
and baby, and home and garden.
Financial and Operational Highlights
Fourth Quarter 2003 Results of Operations (comparisons are with
the equivalent period of the prior year, unless otherwise stated)
revenue, which excludes amounts earned from third-party sellers, was
approximately $137 million, up 13% from $121 million.
profit benefited by approximately $17 million, and consolidated segment
operating income by approximately $6 million, from changes in foreign
exchange rates compared with fourth quarter 2002.
loss was approximately $56 million, up from a loss of $30 million. We
continue to measure our shipping results relative to their effect on
our overall financial results and intend to continue providing our customers
with free shipping offers.
costs represent those costs incurred in operating and staffing our fulfillment
and customer service centers, credit card fees and bad debt costs, including
costs associated with our guarantee for certain third-party seller transactions.
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.
granted less than a half million stock awards during the quarter with
vesting periods generally ranging from three to six years.
December 31, 2003, there were 29 million stock awards outstanding, which
are excluded from common stock outstanding, consisting of 25 million
stock options ($12 average exercise price) and 4 million restricted
stock units. There are also 1 million shares of restricted stock, which
are included in common stock outstanding.
October 2002, we have awarded restricted stock units as our primary
form of stock-based compensation. Restricted stock units, under fixed
accounting, 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.
December 31, 2003, 1 million stock awards were subject to variable accounting.
Stock option grants after December 31, 2002 are subject to variable
accounting treatment. Under 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.
compensation" consisted of $6 million for stock awards under variable
accounting and $9 million for stock awards under fixed accounting. "Stock-based
compensation" includes matching stock contributions under our 401(k)
program but excludes payroll tax expense resulting from exercises of
first quarter 2001 we announced and began implementation of our operational
restructuring plan. The restructuring is complete; however, we may periodically
adjust our restructuring-related estimates in the future, if necessary.
payments resulting from our operational restructuring were $3 million,
compared with $11 million in fourth quarter 2002.
estimate, based on currently available information, the remaining net
cash outflows associated with restructuring-related leases and other
commitments will be $10 million in 2004, and $20 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 $39 million
(we have signed sublease agreements on $15 million in future income)
on gross lease and other obligations of $69 million.
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
$65 million, compared with $38 million in fourth quarter 2002.
includes a $36 million gain from remeasurement of intercompany balances,
corresponding with a decision reached during the fourth quarter of 2003,
that intercompany balances denominated in foreign currencies would be
repaid amongst subsidiaries.
connection with our November 24, 2003 redemption of $200 million of
our 4.75% Convertible Subordinated Notes due 2009, we recorded a charge
of $9 million representing a 2.85% premium and approximately $3 million
of remaining deferred issuance charges.
December 31, 2003, we had net operating loss carryforwards (NOLs) of
approximately $2.9 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
$1.6 billion of our NOLs relate to tax deductible stock-based compensation
in excess of amounts recognized for financial reporting purposes—to
the extent that any of this amount is realized for tax purposes but
not financial reporting purposes, the resulting benefit will be credited
to stockholders' equity, rather than results of operations.
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 and intercompany balances that results
from fluctuations in foreign exchange rates. These items represented
significant quarterly charges and gains during 2003 and may result in
significant charges or gains in future periods.
we reported net income for fourth quarter 2003, we believe that this
net income result should not be viewed as a material positive event
and is not necessarily predictive of future reported results for a variety
of reasons. For example, had we not changed our intent as to the settlement
of intercompany balances during the fourth quarter, we would have had
a net loss of less than half a million for the year and our net income
for the fourth quarter would have been reduced by almost 50%.
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, vendor payment terms and fluctuations in foreign
cash, cash equivalents and marketable securities of $1.4 billion, at
fair value, primarily consist of cash, commercial paper and short-term
securities, U.S. Treasury notes and bonds and asset-backed and agency
We have pledged approximately $87 million of our marketable securities
as collateral for property leases and other contractual obligations,
compared with $121 million at December 31, 2002.
revenue" is recorded when payments are received from third parties
in advance of us providing the associated service.
"Accrued expenses and other current liabilities" includes,
among other things, liabilities for gift certificates, marketing activities,
and workforce costs, including accrued payroll, vacation, and other
debt and other" 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 every February by 47.5 basis points until maturity, plus
any accrued and unpaid interest. In February 2004 we will redeem $150
million of our 4.75% Convertible Subordinated Notes for face value plus
a 2.375% premium, which will result in a $6 million charge to "Remeasurement
of 6.875% PEACS and other" in our first quarter GAAP results, consisting
of the $4 million premium and $2 million of unamortized debt issue costs.
(2) EUR 690 million principal amount, convertible at the holders' option
into our common stock at EUR 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 EUR 690 million, plus any accrued and unpaid
interest. Because we do not hedge any portion of the PEACS, we have interest
expense exposure to fluctuations in the Euro/US dollar exchange ratio.
(3) The "if converted" number of shares associated with each
of our convertible debt instruments (approximately 22 million total shares)
are excluded from diluted shares as their effect is anti-dilutive. We
have a program to repurchase or redeem up to an additional $500 million
of our remaining outstanding convertible debt over time.
Definitions and Other
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 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.
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, our mail-order tool catalog
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
provide 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, video games and video game consoles. Electronics and other
general merchandise consists of amounts earned from retail sales from
all sellers of items not included in Media, such as electronics and
office, kids and baby, home and garden, apparel, sporting goods, gourmet
food, jewelry and health and personal care. The Other category consists
of non-retail activities, such as the Merchant.com program and miscellaneous
marketing and promotional activities.
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
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.