2002 Financial Results
AMAZON.COM ANNOUNCES OPERATING PROFIT, LOWERS BOOK PRICES AGAIN AND RAISES
FINANCIAL GUIDANCE--THIRD PRICE CUT IN NINE MONTHS EFFECTIVE TODAY
SEATTLE--Apr. 23, 2002--Amazon.com, Inc. (NASD: AMZN) today announced
financial results for its first quarter ended March 31, 2002, and further
reductions in book prices.
Net sales for the
quarter were $847 million, compared with $700 million in the first quarter
of 2001, an increase of 21%.
The Company recorded
a first quarter 2002 operating profit of $2 million, compared with a loss
of $217 million a year ago. Net loss for the first quarter of 2002 was
$23 million, or $0.06 per share, compared with a first quarter 2001 net
loss of $234 million (including restructuring-related and other charges
of $114 million and goodwill amortization of $49 million), or $0.66 per
its pro forma operating profit goal for the quarter. Pro forma operating
profit was $25 million, compared with a loss of $49 million in the first
quarter of 2001, an improvement of over $70 million. Pro forma net loss,
which includes net interest expense, for the first quarter of 2002 was
$5 million, or $0.01 per share, compared with a pro forma net loss of
$76 million, or $0.21 per share, in the first quarter of 2001. (Details
on the differences between GAAP results and pro forma results are included
below, with a tabular reconciliation of those differences included in
the attached financial statements.)
The Company also announced
that, effective today, Amazon.com has lowered book prices again. Customers
can now save 30% on books over $15, unless marked otherwise.
"Last July we
lowered book prices to 30% off books over $20, then six months later we
introduced free Super Saver Shipping on orders over $99. Today, we're
thrilled to extend our 30% discount to include books over $15," said
Jeff Bezos, founder and CEO of Amazon.com. "We said we're the type
of retailer that relentlessly works to lower prices for customers, but
we didn't expect to be able to do it again so soon."
"We are ahead
of schedule financially. Our continued operational progress and momentum
allow us to further lower prices for customers and at the same time increase
our 2002 guidance," said Warren Jenson, chief financial officer.
"It's the best of all worlds--lower prices for customers, better
customer service and lower costs--all driving us toward our objective
of free cash flow for the year."
Highlights of First
Quarter Results (comparisons are with the equivalent period of 2001)
- Operating cash
flow reached $46 million for the trailing twelve months, an improvement
of over $260 million.
- Marketplace (new,
used and refurbished items sold on Amazon.com product detail pages by
small businesses and individuals) equaled approximately 23% of total
U.S. orders and 12% of U.S. units, compared with 4% of U.S. orders and
2% of U.S. units.
- International segment
sales, from the Company's U.K., Germany, France and Japan sites, grew
71% to $226 million and pro forma operating results improved by 67%
to a loss of $11 million, or 5% of International sales.
- Including sales
from the U.S. site, more than one-third of the Company's sales were
made to international customers.
- U.S. Books, Music,
and DVD/Video segment sales growth accelerated to 8% and pro forma operating
profit increased 68%.
- U.S. Electronics,
Tools and Kitchen segment sales grew 8% to $126 million and pro forma
operating losses declined by 55%, to $21 million.
- Annualized inventory
turns improved 40% to 18, up from 13.
- Cash and marketable
securities were $745 million at March 31, 2002.
The following forward-looking
statements reflect Amazon.com's expectations as of April 23, 2002. Results
may be materially affected by many factors, such as potential changes
in general economic conditions and consumer spending, the emerging nature
and rate of growth of the Internet and online commerce, and the various
factors detailed below.
Quarter 2002 Expectations
- Net sales are expected
to be between $765 million and $815 million, or grow between 15% and
- Pro forma operating
income is expected to be between $5 million and $15 million.
Year 2002 Expectations
- Net sales are
expected to grow by over 15%.
- Pro forma operating
income is expected to be over $100 million.
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, 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, risks of inventory management, the degree to
which the Company enters into, maintains and develops service relationships
with third-party sellers and other strategic transactions, foreign currency
exchange risks, seasonality, international growth and expansion, risks
of fulfillment throughput and productivity, and fluctuations in the value
of securities and non-cash payments Amazon.com receives in connection
with such transactions. Other risks and uncertainties include, among others,
risk of future losses, significant amount of indebtedness, competition,
potential fluctuations in operating results, management of potential growth,
system interruption, consumer trends, fulfillment center optimization,
inventory, limited operating history, government regulation and taxation,
customer or third-party sellers fraud and Amazon.com Payments, new business
areas, business combinations, and strategic alliances. 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,
2001, and all subsequent filings.
The Company intends
to continue its practice of not updating forward-looking statements other
than in publicly available documents.
Pro Forma Results
Pro forma results,
which generally exclude non-operational, non-cash charges and benefits
as well as one-time charges, are provided as a complement to results provided
in accordance with accounting principles generally accepted in the United
States (known as "GAAP"). Management uses such pro forma measures
internally to evaluate the Company's performance and manage its operations.
A reconciliation of GAAP to pro forma is included in the attached financial
Pro forma operating
results exclude the following line items on the Company's statements of
- Stock-based compensation,
- Amortization of
goodwill and other intangibles, and
Pro forma net results
exclude, in addition to the line items described above, the following
line items on the Company's statements of operations:
- Other gains (losses),
- Equity in losses
of equity-method investees, net, and
- Cumulative effect
of change in accounting principle.
A conference call
will be Webcast live at www.amazon.com/ir
today at 2 p.m. PDT/5 p.m. EDT and will be available through June 30,
2002. This call will contain forward-looking statements and other material
its virtual doors on the World Wide Web in July 1995 and today offers
Earth's Biggest Selection. Amazon.com seeks to be the world's most customer-centric
company, where customers can find and discover anything they might want
to buy online. Amazon.com and sellers list millions of unique new and
used items in categories such as electronics, computers, kitchen and housewares,
books, music, DVDs, videos, camera and photo items, toys, baby and baby
registry, software, computer and video games, cell phones and service,
tools and hardware, travel services, magazine subscriptions and outdoor
living items. Through Amazon Marketplace, zShops and Auctions, any business
or individual can sell virtually anything to Amazon.com's millions of
customers, and with Amazon.com Payments, sellers can accept credit card
transactions, avoiding the hassles of offline payments.
four international Web sites: www.amazon.co.uk,
and www.amazon.co.jp. It also operates
the Internet Movie Database (www.imdb.com),
the Web's comprehensive and authoritative source of information on more
than 300,000 movies and entertainment titles and 1 million cast and crew
members dating from the birth of film.
Financial and Operational Highlights
First Quarter Ended March 31, 2002
Results of Operations (all comparisons are with the comparable
period of 2001)
- Shipping revenue,
excluding commissions earned from Amazon Marketplace, was approximately
$89 million, up from $82 million.
- Equity-based services
revenues decreased to approximately $5 million, or 10% of services net
sales, from $9 million, or 21%.
- Gross margin, excluding
the results of our Services segment, would have been 24%, up from 23%.
- Effective January
1, 2002, we prospectively changed our inventory costing method from
the specific-identification method to the first-in, first-out (FIFO)
method of accounting. This change resulted in a cumulative increase
in product inventory of $0.8 million, with a corresponding amount recorded
to "Cumulative effect of change in accounting principle" on
the statements of operations. The effect on each quarter during 2001
would have been less than $1.2 million individually and in the aggregate.
- Costs associated
with our services revenues, classified as cost of services, generally
include fulfillment-related costs to ship products on behalf of third-party
sellers, costs to provide customer service, credit card fees and other
- Shipping loss was
approximately $1 million, down from $5 million. We continue to measure
our shipping results relative to their impact on our overall financial
results, with the viewpoint that shipping promotions are an effective
marketing tool. We will continue offering shipping promotions to our
customers, which reduce shipping revenue as a percentage of sales and
will negatively affect gross margins on our retail sales.
- Fulfillment costs
represent those costs incurred in operating and staffing our fulfillment
and customer service centers, including costs attributable to receiving,
inspecting and warehousing inventories; picking, packaging and preparing
customers' orders for shipment; credit card fees and bad debt costs;
and responding to inquiries from customers. Fulfillment costs also include
amounts paid to third-party co-sourcers, who assist us in fulfillment
and customer service operations. Certain fulfillment-related costs incurred
on behalf of third-party sellers, excluding those costs associated with
Syndicated Stores, are classified as cost of sales rather than fulfillment.
- During the first
quarter 2001, we offered a limited non-compulsory exchange of employee
stock options. This option exchange offer results in variable accounting
treatment for approximately 11 million stock options at March 31, 2002,
which includes approximately 10 million options granted under the exchange
offer with an exercise price of $13.375 and approximately 1 million
options that were subject to the exchange offer but were not exchanged.
Variable accounting treatment will result in unpredictable and potentially
significant charges or credits, depending on fluctuations in quoted
prices for our common stock, which we are unable to forecast.
Goodwill and Other Intangibles
- As a result of
our adoption of the full provisions of Statement of Financial Accounting
Standards No. 141 and No. 142, during the first quarter we reclassified
$25 million of other intangibles (comprising only assembled workforce
intangibles) to goodwill and discontinued the amortization of our goodwill
assets. In addition, we completed an impairment analysis of goodwill
and determined the amount to be fairly stated.
- In 2001 we initiated
an operational restructuring plan to reduce our operating costs, streamline
our organizational structure, consolidate certain of our fulfillment
and customer service operations and migrate a large portion of our technology
infrastructure to a new operating platform. As a result of this initiative,
we recorded restructuring and other charges of approximately $114 million
in the first quarter 2001 and an additional $68 million during the last
three quarters of 2001. Each component of the restructuring plan has
been substantially completed.
- During the first
quarter 2002 we permanently closed our fulfillment center in Seattle
and, in connection with our 2001 operational restructuring, we revised
our sublease income estimates for Seattle-area restructured office space.
These items resulted in additional restructuring-related expenses of
$10 million primarily associated with ongoing lease obligations.
- Cash payments resulting
from the restructuring were $14 million in the first quarter 2002 and
$10 million in first quarter 2001. The restructuring charges are anticipated
to result in the following net cash outflows (included within accrued
expenses and other current liabilities and long-term debt and other
on our balance sheet):
Other Income (Expense),
- Other income (expense)
consists primarily of net realized gains and losses on sales of marketable
securities, miscellaneous state and foreign taxes and certain foreign-currency-related
transaction gains and losses.
Other Gains (Losses),
- Other gains, net
were $6 million for the three months ended March 31, 2002, primarily
consisting of a foreign-currency gain on the remeasurement of our 6.875%
convertible subordinated notes from Euros to U.S. dollars.
- We are unable to
forecast the gains or losses associated with our 6.875% convertible
subordinated notes that will result from fluctuations in foreign exchange
rates in future periods.
Earnings per Share
- Basic and diluted
earnings per share is computed using the weighted average number of
common and common stock equivalent shares outstanding during the period;
common stock equivalent shares, such as options, warrants and convertible
securities, were excluded from the computation because their effect
is antidilutive. If the effect of common stock equivalents had been
included, the number of shares used in the computation of diluted loss
per share would have been approximately 394 million, compared with 374
Cash and Marketable
- Cash and marketable
securities are impacted by the effect of quarterly fluctuations in foreign-currency
exchange rates, particularly the Euro. Our Euro investments, classified
as available for sale, had a balance of 160 million Euros ($140 million,
based on the exchange rate as of March 31, 2002).
- Our marketable
securities, at estimated fair value, consist of the following, as of
March 31, 2002 (in thousands):
- We have pledged
approximately $158 million of our marketable securities as collateral
for certain contractual obligations, compared to $167 million as of
December 31, 2001. Amounts pledged for standby letters of credit that
guarantee certain contractual obligations, primarily property leases,
were $72 million; $46 million is pledged for the swap agreement that
hedges the foreign-exchange rate risk on a portion of our 6.875% convertible
subordinated notes; and $41 million is pledged for certain of our real
estate lease agreements. The amount of marketable securities we are
required to pledge pursuant to the swap agreement fluctuates with the
fair market value of the swap obligation.
- Our segment reporting
includes four segments: U.S. Books, Music and DVD/Video; U.S. Electronics,
Tools and Kitchen; International; and Services. Allocation methodologies
have been consistently applied.
- The U.S. Books,
Music and DVD/Video segment includes revenues, direct costs and cost
allocations associated with retail sales from www.amazon.com
for books, music, DVDs, video products and magazine subscriptions, and
from stores offering these products through our Syndicated Stores Program
(whereby a third-party seller's e-commerce Web site uses our e-commerce
services and tools, and offers our product selection), such as www.borders.com.
This segment also includes commissions and other amounts earned from
sales of these products, new or used, through Amazon Marketplace, and
will include amounts earned from offerings of these products by third-party
sellers, if any, under our Merchant@amazon.com Program (whereby a third-party
seller offers its products or services for sale on our Web site, either
in our retail stores or in a cobranded store on our Web site, or both).
- The U.S. Electronics,
Tools and Kitchen segment includes revenues, direct costs and cost allocations
associated with www.amazon.com retail
sales of electronics, computers, kitchen products and housewares, camera
and photo items, software, cell phones and service, tools and hardware,
outdoor living items, and computer and video game products, sold other
than through our Toysrus.com strategic alliance, as well as catalog
sales of toys and tools and hardware, and will include stores offering
these products, if any, through our Syndicated Stores Program. This
segment also includes commissions earned from sales of these products,
new or used, through Amazon Marketplace and from offerings of these
products by third-party sellers under our Merchant@amazon.com Program,
such as Circuit City.
- The International
segment includes all revenues, direct costs and cost allocations associated
with the retail sales of our four internationally focused Web sites--www.amazon.de,
from stores offering products through our Syndicated Stores Program.
This segment also includes commissions and other amounts earned from
sales of products, new or used, through Amazon Marketplace, and amounts
earned from offerings of products by third-party sellers, if any, under
our Merchant@amazon.com Program.
- The Services segment
includes revenues, direct costs and cost allocations associated with
our business-to-business strategic alliances, including the Merchant
Program (whereby a third-party seller's e-commerce Web site operates
at its own URL using our features and technology), such as www.target.com
beginning summer 2002, and, to the extent full product categories are
not also offered by our online retail stores, the Merchant@amazon.com
Program, such as our strategic alliance with Toysrus.com, as well as
the strategic technology alliance with America Online, Inc. This segment
also includes Amazon Auctions, zShops and Payments, and miscellaneous
marketing and promotional agreements.
- 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 Amazon.com. Customer
accounts include customers of Amazon Marketplace, Auctions and zShops
services and from our Merchant@amazon.com and Syndicated Stores Programs,
but exclude Amazon.com Payments customers, our catalog customers and
the customers of selected companies with whom we have strategic marketing
and promotional relationships.
- Trailing twelve-month
net sales per active customer account figures include all amounts earned
through Internet sales, including net sales earned from new or used
products sold through Amazon Marketplace, Auctions and zShops services,
and products sold through our Merchant@amazon.com and Syndicated Stores
Programs, but excluding products sold through our catalogs and certain
strategic alliances and sales of inventory to Toysrus.com. A customer
is considered active upon placing an order.