2002 Financial Results
AMAZON.COM ANNOUNCES 21% SALES GROWTH DRIVEN BY LOWER PRICES AND EXPANDED
SELECTION; RAISES FINANCIAL GUIDANCE
SEATTLE -- (BUSINESS WIRE) -- July 23, 2002 -- Amazon.com,
Inc. (NASD: AMZN) today announced financial
results for its second quarter ended June 30, 2002.
Free cash flow was $16 million for the trailing four quarters,
compared with negative $270 million for the four quarters
ended June 2001. Free cash flow includes interest payments and capital
expenditures and excludes proceeds from
exercise of stock options.
Common stock outstanding was 380 million shares at June 30, 2002, an
increase of 5% compared to June 30, 2001
(approximately half of the increase was in connection with a July 2001
$100 million investment in the Company).
Net sales were $806 million, compared with $668 million
in the second quarter 2001, an increase of 21%.
Operating profit was $1 million, compared with a loss of
$140 million a year ago. Pro forma operating profit was
$26 million, or 3% of net sales, exceeding the Company's guidance of $5
million to $15 million. This compares with
a pro forma operating loss of $28 million in the second quarter 2001,
an improvement of $54 million.
Net loss was $94 million, or $0.25 per share, compared with
a second quarter 2001 net loss of $168 million, or
$0.47 per share. Pro forma net loss, which includes interest expense,
was $4 million, or $0.01 per share, compared
with a pro forma net loss of $58 million, or $0.16 per share, in the second
quarter 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.)
"I'm especially pleased with the outstanding job our
U.S. Books team is doing -- posting another quarter of 20%
year-over-year book unit growth, up from 15% growth this past fourth quarter,"
said Jeff Bezos, founder and CEO
of Amazon.com. "Also, Electronics, Tools and Kitchen revenues accelerated
as we lowered prices and expanded
Electronics selection by 40% to over 60,000 items, including products
from Sony, Toshiba, Yamaha and Microsoft."
In June, Amazon.com announced its fourth significant price
decrease in the past year. In July 2001, the Company
lowered book prices to 30% off books over $20, and in January introduced
its Free Super Saver Shipping option on
orders over $99. In April, Amazon.com extended the 30% discount to books
over $15, and in June extended its Free
Super Saver Shipping option to qualifying orders over $49 as a long-term
test. Additionally, Amazon.com recently
reduced prices on electronics, tools and many bestselling CDs and DVDs.
Highlights of Second Quarter Results (comparisons are
with the equivalent period of 2001)
- Third-party transactions (new, used and refurbished items sold on
Amazon.com product detail pages by businesses
and individuals) grew sequentially to 20% of North American units, representing
35% of North American orders,
compared with 10% of units and 18% of orders.
- International segment sales, from the Company's U.K., German, French
and Japanese sites, grew 70% to
$218 million, and pro forma operating results improved by 66% to a loss
of $10 million, or 5% of International sales.
- Electronics, Tools and Kitchen segment sales growth accelerated to
16% from 8% growth in the first quarter 2002,
and pro forma operating losses declined 55% to $18 million.
- Books unit growth was 20%. Books, Music and DVD/Video segment sales
grew 6% to $412 million. Pro forma
operating profit grew 26% to $49 million, a record 12% of Books, Music
and DVD/Video sales.
Pro forma operating profit was $82 million for the trailing four quarters,
or 2% of net sales.
- Inventory turns improved 35% to 19 for the trailing four quarters,
up from 14.
The Company announced that by the beginning of 2003 all
stock-based awards granted thereafter will be expensed.
The following forward-looking statements reflect Amazon.com's
expectations as of July 23, 2002. Results may be
Third Quarter 2002 Expectations
materially affected by many factors, such as 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.
sales are expected to be between $780 million and $830 million.
forma operating income is expected to be between $8 million and $17 million,
or between 1% and 2%
Full Year 2002 Expectations
cash flow is expected.
sales are expected to grow by over 18%.
Pro forma net income is expected
A conference call will be Webcast live at www.amazon.com/ir
today at 2 p.m. PT/5 p.m. ET and will be available
through September 30, 2002. This call will contain forward-looking statements
and other material information.
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; 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 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, potential fluctuations
in operating results, management
of potential growth, system interruptions, consumer trends, fulfillment
center optimization, inventory, limited
operating history, government regulation and taxation, customer
or third-party sellers fraud, Amazon.com
Payments, and new business areas, business combinations and strategic
alliances. More information about
f actors 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
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 operations:
- Stock-based compensation,
- Amortization of goodwill and other intangibles, and
- Restructuring-related and other.
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), net,
- Equity in losses of equity-method investees, net, and
- Cumulative effect of change in accounting principle.
Amazon.com, a Fortune 500 company based in Seattle, opened
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, kitchenware and housewares,
books, music, DVDs, videos, camera and photo items, toys, baby items 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.
Amazon.com operates five international Web sites: www.amazon.ca,
www.amazon.fr and www.amazon.co.jp.
It also operates the Internet Movie Database (www.imdb.com),
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
Second Quarter Ended June 30, 2002
Results of Operations (all comparisons are with the equivalent
period of 2001)
- The benefit to net sales from foreign-currency exchange rate fluctuations
was less than $0.1 million.
- Shipping revenue, excluding commissions earned from Amazon Marketplace,
was approximately $81 million, up from
- Equity-based services revenues decreased to approximately $5 million
from $8 million.
- Shipping profit was approximately $2 million, improving from a loss
of $2 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 expect to continue offering shipping promotions to our customers,
which reduce shipping revenue as
a percentage of sales and will negatively affect gross margins on our
- 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 cosourcers,
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
- During the first quarter 2001, we offered a limited non-compulsory
exchange of employee stock options, which results
in variable accounting treatment for approximately 8 million stock options
at June 30, 2002, including approximately
7 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
the fluctuation in quoted prices for our common stock, which we are
unable to forecast.
- Cumulative compensation expense recorded at June 30, 2002, associated
with variable accounting was $31 million--
based on exercises to date and a quarter-end closing common stock price
of $16.25--of which $11 million is
associated with options exercised and no longer subject to future variability.
- We have quantified the hypothetical effect on stock-based compensation
associated with various quoted prices of our
common stock using a sensitivity analysis for our outstanding stock
options subject to variable accounting. We have
provided this information to give additional insight into the volatility
we may experience in the future in our results of
operations to the extent that the quoted price for our common stock
is above $13.375. This sensitivity analysis is not a prediction of future
performance of the quoted prices of our common stock. Using the following
prices of our common stock above $13.375, and the actual expense associated
with options exercised and no longer
subject to future variability, our hypothetical cumulative compensation
expense at June 30, 2002, and the difference
between hypothetical cumulative compensation expense and actual cumulative
compensation expense recorded at
June 30, 2002, resulting from variable accounting treatment would have
been as follows (in thousands):
Amortization of 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.
Restructuring-Related and Other
- 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,
we recorded restructuring and other charges of approximately $114 million
in the first quarter 2001, $59 million in the second quarter and $9
million during the
second half of 2001. The restructuring plan is complete, although estimates
may be adjusted prospectively if necessary.
- 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 our vacated Seattle-area
office space. These
items resulted in additional restructuring-related expenses of $10 million
primarily associated with ongoing lease
- Cash payments resulting from the restructuring were $13 million in
the second quarter 2002, compared with
$11 million. 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):
Months Ending December 31
Ending December 31
Estimated Cash Outflows
(a) Net of anticipated sublease income of approximately
$59 million on gross lease
obligations of $97 million.
Other Income (Expense), Net
- Other income (expense) consists primarily of net realized gains and
losses on sales of marketable securities and
disposals of fixed assets, miscellaneous state and foreign taxes and
certain foreign-currency-related transaction gains
Other Gains (Losses), Net
- Other losses, net were $63 million for the second quarter 2002, and
primarily consist of a $71 million foreign-currency
loss on the remeasurement of our 6.875% convertible subordinated notes
from Euros to U.S. dollars and a $10 million
net gain on sales of equity investments.
- 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 (outstanding employee
stock options were approximately 50 million, compared with 66 million),
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 399 million, compared with
- 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 58 million Euros
(approximately $58 million, based on the exchange rate as of June 30,
- Our marketable securities, at estimated fair value, consist of the
following, as of June 30,
2002 (in thousands):
Asset-backed and agency securities ||
|Treasury notes and bonds || 108,051|
|Commercial paper and short-term
|Certificates of deposit|| 20,663|
|Corporate notes and bonds || 16,885
| $553,141 |
- We have pledged approximately $124 million of our marketable securities
as collateral for certain contractual
obligations, compared with $167 million as of December 31, 2001. Amounts
pledged for standby letters of credit
that guarantee certain contractual obligations, primarily property leases,
were $56 million; $28 million is pledged for
a swap agreement that hedges the foreign-exchange-rate risk on a portion
of our 6.875% convertible subordinated
notes; and $40 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.
- On the last business day of the quarter, a credit card service provider
unintentionally failed to make a required
payment of approximately $20 million. This resulted in an increase in
receivables, classified within "Prepaid expenses
and other current assets", at quarter end and will favorably impact
operating cash flows for the September quarter.
Certain Definitions and Other
- Our segment reporting includes four segments: North America Books,
Music and DVD/Video ("BMVD");
North America Electronics, Tools and Kitchen ("ETK"); International;
- Allocation of centrally incurred operating costs methodologies have
been consistently applied and there are no
internal transactions between segments.
- The BMVD segment includes revenues, direct costs and cost allocations
primarily associated with retail sales from www.amazon.com and www.amazon.ca
for books, music, DVDs, video products and magazine subscription
commissions. This segment also includes commissions and other amounts
earned from sales of these products, new
or used, through Amazon Marketplace and revenues from stores offering
these products through our Syndicated
Stores Program, such as www.borders.com.
- The ETK segment includes revenues, direct costs and cost allocations
primarily 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, and outdoor living items, as
well as catalog sales of toys and tools and
hardware. This segment also includes commissions and other amounts 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
Target and Circuit City.
- The International segment includes all revenues, direct costs and
cost allocations associated with the retail sales of
our German, French, Japanese and U.K. Web sites--www.amazon.de,
and www.amazon.co.uk. This segment also
includes commissions and other amounts earned from sales of products,
new or used, through Amazon Marketplace and revenues from stores offering
these products through our Syndicated
- The Services segment includes revenues, direct costs and cost allocations
associated with our business-to-business
commercial agreements, including the Merchant Program, such as www.target.com
beginning third quarter 2002,
and, to the extent full product categories are not also offered by our
online retail stores, the Merchant@amazon.com
Program, such as Toysrus.com. This segment also includes our technology
alliance with America Online and
miscellaneous marketing, promotional and other 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 our Web sites.
Customer accounts include customers of Amazon Marketplace, Auctions
and zShops services and from our Merchant@amazon.com and Syndicated
Stores Programs, but exclude Merchant Program customers, 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 Merchant Program, catalogs and certain strategic
alliances and sales of inventory to
Toysrus.com. A customer is considered active upon placing an order.