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Amazon.com Announces 45% Free Cash Flow Growth and 26% Sales Growth, Fueled by Low Prices and Free Shipping; Raises Financial Guidance

SEATTLE--(BUSINESS WIRE)--July 22, 2004--Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its second quarter ended June 30, 2004.

Operating cash flow was $410 million for the trailing twelve months, compared with $285 million for the trailing twelve months ended June 30, 2003. Free cash flow grew 45% to $354 million for the trailing twelve months, compared with $245 million for the trailing twelve months ended June 30, 2003.

Common shares outstanding plus shares underlying stock-based awards outstanding totaled 434 million at June 30, 2004, compared with 433 million a year ago.

Net sales were $1.39 billion in the second quarter, compared with $1.10 billion in second quarter 2003, an increase of 26%. Net sales, excluding the $47 million benefit from changes in foreign exchange rates, grew 22% compared with second quarter 2003.

Operating income was $86 million in the second quarter, compared with $42 million in second quarter 2003. Consolidated segment operating income grew 50% to $101 million in the second quarter, compared with $67 million in second quarter 2003. Consolidated segment operating income, excluding the $4 million benefit from changes in foreign exchange rates, grew 44% compared with second quarter 2003.

Net income was $76 million in the second quarter, or $0.18 per diluted share, compared with a net loss of $43 million, or $(0.11) per share, in second quarter 2003. Pro forma net income in the second quarter grew 77% to $75 million, or $0.18 per diluted share, compared with $42 million, or $0.10 per diluted share, in second quarter 2003.

"Worldwide adoption of our everyday free shipping reached another record high point this quarter," said Jeff Bezos, founder and CEO of Amazon.com. "While free shipping is expensive for the Company, it saves our customers tens of millions of dollars each quarter, and we plan to keep it in place indefinitely."

Amazon.com continues to offer Free Super Saving Shipping on orders over $25 at www.amazon.com and also has free shipping offers at its U.K., German, French, Japanese and Canadian sites. Amazon.com offers 30% off books over $15 and continues to lower prices every day across its product offerings, ranging from electronics to jewelry to sports and outdoors items to tools.

    See "Financial Measures" for additional information.

    Highlights

    --  North America segment sales, representing the Company's U.S.
        and Canadian sites, grew 13% to $792 million and segment
        operating income grew 21% to $66 million, compared with second
        quarter 2003.

    --  International segment sales, representing the Company's U.K.,
        German, French and Japanese sites, grew 50% to $595 million.
        Net sales, excluding the benefit from changes in foreign
        exchange rates, grew 38% compared with second quarter 2003.
        International segment operating income grew to $35 million,
        compared with $13 million in second quarter 2003.

    --  International segment sales on a trailing-twelve-month basis
        were $2.51 billion, representing 42% of worldwide net sales.

    --  Electronics & Other General Merchandise sales were $1.36
        billion for the trailing twelve months, representing 23% of
        worldwide net sales.

    --  Inventory turns for the trailing twelve months were 18, down
        from 20 a year ago, as the Company continues to expand
        selection and availability.

    --  The Company introduced two new stores in the U.S., offering
        more than 20,000 Beauty products and over 30,000 Musical
        Instrument items.

    Financial Guidance

The following forward-looking statements reflect Amazon.com's expectations as of July 22, 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 below.

    Third Quarter 2004 Guidance

    --  Third quarter net sales are expected to be between $1.425
        billion and $1.525 billion, or grow between 26% and 34%,
        compared with third quarter 2003.

    --  Consolidated segment operating income is expected to be
        between $80 million and $100 million, or grow between 9% and
        36%, compared with third quarter 2003.

    --  Operating income is expected to be between $50 million and $70
        million, assuming, among other things, that the Company does
        not record any further revisions to its restructuring-related
        estimates and that the closing price of Amazon.com common
        stock on September 30, 2004, is identical to the closing price
        of $54.40 on June 30, 2004.

    Full Year 2004 Expectations

    --  Net sales are expected to be between $6.625 billion and $6.925
        billion.

    --  Consolidated segment operating income is expected to be
        between $475 million and $535 million.

    --  Operating income is expected to be between $400 million and
        $460 million, assuming, among other things, that the Company
        does not record any further 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 $54.40 on June 30, 2004.

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, 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.

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, 2003, and all subsequent filings.

Financial Measures

The following measures are defined by the Securities and Exchange Commission as non-GAAP financial measures.

Free Cash Flow

Operating 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 Metrics."

Consolidated Segment Operating Income

Consolidated 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:

    --  Stock-based compensation, and

    --  Other operating expense (income).

A tabular reconciliation of differences from the comparable GAAP measure -- operating income -- is included in the attached "Pro Forma Statements of Operations."

Pro Forma Net Income

Pro forma net income excludes the following line items on the Company's statements of operations:

    --  Stock-based compensation,

    --  Other operating expense (income), and

    --  Remeasurements and other.

A tabular reconciliation of differences from the comparable GAAP measure -- net income (loss) -- is included in the attached "Pro Forma Statements of Operations."

For 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.

About Amazon.com

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 offer millions of unique new, refurbished and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, kids and baby, and home and garden.

Amazon.com operates six websites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.fr, www.amazon.co.jp and www.amazon.ca.

                           AMAZON.COM, INC.
                Consolidated Statements of Cash Flows
                            (in thousands)
                             (unaudited)

                           Three Months Ended      Six Months Ended
                                June 30,              June 30,
                          -------------------- -----------------------
                             2003       2004       2003       2004
                           ---------- ---------  ---------- ----------
CASH AND CASH
 EQUIVALENTS, BEGINNING
 OF PERIOD                $ 495,773  $ 768,587  $ 738,254  $1,102,273

OPERATING ACTIVITIES:
Net income (loss)           (43,314)    76,480    (53,435)    187,616
Adjustments to reconcile
 net income (loss) to
 net cash provided by
  (used in) operating
  activities:
Depreciation of fixed
 assets, including
 internal-use software
and website development,
 and other amortization      19,003     18,129     38,753      35,810
Stock-based compensation     24,453     21,692     51,776      28,799
Other operating expense
 (income)                       913     (7,150)     1,825      (7,692)
Losses (gains) on sales
 of marketable
 securities, net             (5,272)        77     (9,252)     (1,010)
Remeasurements and other     60,216    (16,302)    82,450     (36,662)
Non-cash interest expense
 and other                    3,532      1,113     11,409       2,262
Changes in operating
 assets and liabilities:
Inventories                  (2,479)    (4,716)    28,146       8,454
Accounts receivable, net
 and other current assets     5,914     (3,272)    33,147       7,026
Accounts payable             45,486     22,612   (181,119)   (233,382)
Accrued expenses and
 other current
 liabilities                 (7,138)     6,861    (94,203)    (66,908)
Additions to unearned
 revenue                     25,752     27,495     48,720      50,762
Amortization of
 previously unearned
 revenue                    (29,998)   (25,058)   (57,903)    (49,125)
Interest payable             28,956     25,075    (26,072)    (33,602)
                           ---------  ---------  ---------  ----------
Net cash provided by
 (used in) operating
 activities                 126,024    143,036   (125,758)   (107,652)

INVESTING ACTIVITIES:
Sales and maturities of
 marketable securities
 and other investments      350,068     42,556    559,023     612,324
Purchases of marketable
 securities                (109,259)  (250,702)  (342,314)   (755,381)
Purchases of fixed
 assets, including
 internal-use software
  and website development    (7,141)   (14,143)   (13,535)    (23,656)
Proceeds from sale of
 subsidiary and other             -          -          -           -
                           ---------  ---------  ---------  ----------
Net cash provided by
 (used in) investing
 activities                 233,668   (222,289)   203,174    (166,713)

FINANCING ACTIVITIES:
Proceeds from exercises
 of stock options and
 other                       53,042     20,077     91,597      34,891
Repayments of long-term
 debt, capital lease
 obligations,
 and other                 (280,918)      (645)  (284,139)   (156,292)
                           ---------  ---------  ---------  ----------
Net cash provided by
 (used in) financing
 activities                (227,876)    19,432   (192,542)   (121,401)

Foreign-currency effect
 on cash and cash
 equivalents                 14,139     (7,616)    18,600      (5,357)
                           ---------  ---------  ---------  ----------
Net increase (decrease)
 in cash and cash
 equivalents                145,955    (67,437)   (96,526)   (401,123)
                           ---------  ---------  ---------  ----------

CASH AND CASH
 EQUIVALENTS, END OF
 PERIOD                   $ 641,728  $ 701,150  $ 641,728  $  701,150
                           =========  =========  =========  ==========

SUPPLEMENTAL CASH FLOW
 INFORMATION:
Fixed assets acquired
 under capital
 leases and other
  financing arrangements  $     415  $      31  $   1,076  $      523
Cash paid for interest        2,601         45     86,816      86,068
Cash paid for income
 taxes                          307        561        609       1,008


                                        Twelve Months Ended
                                             June 30,
                                       ---------------------
                                          2003       2004
                                        ---------- ---------

CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD                              $ 270,438  $ 641,728

OPERATING ACTIVITIES:
Net income (loss)                        (85,864)   276,333
Adjustments to reconcile net income
 (loss) to
 net cash provided by (used in)
  operating activities:
Depreciation of fixed assets, including
 internal-use software
and website development, and other
 amortization                             79,117     72,615
Stock-based compensation                  86,624     64,774
Other operating expense (income)           7,420     (6,765)
Losses (gains) on sales of marketable
 securities, net                         (14,139)    (1,356)
Remeasurements and other                 122,042     10,985
Non-cash interest expense and other       26,470      3,771
Changes in operating assets and
 liabilities:
Inventories                              (44,251)   (96,478)
Accounts receivable, net and other
 current assets                           16,949    (25,816)
Accounts payable                         131,127    115,469
Accrued expenses and other current
 liabilities                             (11,362)     1,555
Additions to unearned revenue             94,720    103,683
Amortization of previously unearned
 revenue                                (125,115)  (102,962)
Interest payable                           1,191     (5,680)
                                        ---------  ---------
Net cash provided by (used in)
 operating activities                    284,929    410,128

INVESTING ACTIVITIES:
Sales and maturities of marketable
 securities and other investments        762,401    866,485
Purchases of marketable securities      (544,020)  (948,709)
Purchases of fixed assets, including
 internal-use software and website
  development                            (40,404)   (56,084)
Proceeds from sale of subsidiary and
 other                                         -      5,072
                                        ---------  ---------
Net cash provided by (used in)
 investing activities                    177,977   (133,236)

FINANCING ACTIVITIES:
Proceeds from exercises of stock
 options and other                       163,011    106,616
Repayments of long-term debt, capital
 lease obligations,
 and other                              (290,939)  (367,461)
                                        ---------  ---------
Net cash provided by (used in)
 financing activities                   (127,928)  (260,845)

Foreign-currency effect on cash and
 cash equivalents                         36,312     43,375
                                        ---------  ---------
Net increase (decrease) in cash and
 cash equivalents                        371,290     59,422
                                        ---------  ---------

CASH AND CASH EQUIVALENTS, END OF
 PERIOD                                $ 641,728  $ 701,150
                                        =========  =========

SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired under capital
 leases and other financing
  arrangements                         $   1,964  $   2,124
Cash paid for interest                   117,356    119,199
Cash paid for income taxes                 1,291      2,224

Note:  The attached "Financial and Operational Highlights" are an
 integral part of the press release financial statements.


                           AMAZON.COM, INC.
                 Consolidated Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                         Three Months Ended       Six Months Ended
                              June 30,                June 30,
                        ----------------------  ----------------------
                           2003        2004        2003        2004
                        ----------- ----------  ----------- ----------

Net sales              $1,099,912  $1,387,341  $2,183,471  $2,917,690
Cost of sales             825,984   1,046,295   1,638,961   2,215,810
                        ----------  ----------  ----------  ----------
Gross profit              273,928     341,046     544,510     701,880

Operating expenses:
  Fulfillment             107,455     122,717     211,160     250,422
  Marketing                25,326      31,839      53,553      65,475
  Technology and content   52,135      58,475     102,223     113,551
  General and
   administrative          21,823      27,199      42,925      54,616
  Stock-based
   compensation (1)        24,453      21,692      51,776      28,799
  Other operating
   expense (income)           913      (7,150)      1,825      (7,692)
                        ----------  ----------  ----------  ----------
       Total operating
        expenses          232,105     254,772     463,462     505,171
                        ----------  ----------  ----------  ----------

Income from operations     41,823      86,274      81,048     196,709

Interest income             5,761       5,311      12,301      10,866
Interest expense          (34,367)    (26,055)    (70,878)    (53,786)
Other income (expense),
 net                        3,685      (5,352)      6,544      (2,835)
Remeasurements and other  (60,216)     16,302     (82,450)     36,662
                        ----------  ----------  ----------  ----------
       Total non-operating
        expense, net      (85,137)     (9,794)   (134,483)     (9,093)
                        ----------  ----------  ----------  ----------

Net income (loss)      $  (43,314) $   76,480  $  (53,435) $  187,616
                        ==========  ==========  ==========  ==========

Basic earnings (loss)
 per share             $    (0.11) $     0.19  $    (0.14) $     0.46
                        ==========  ==========  ==========  ==========

Diluted earnings
 (loss) per share      $    (0.11) $     0.18  $    (0.14) $     0.44
                        ==========  ==========  ==========  ==========

Weighted average shares used in
 computation of earnings (loss)
 per share:
  Basic                   393,876     405,268     391,223     404,399
                        ==========  ==========  ==========  ==========
  Diluted                 393,876     424,678     391,223     424,592
                        ==========  ==========  ==========  ==========

(1) Components of
 stock-based compensation:
  Fulfillment          $    4,862  $    3,287  $   11,847  $    4,293
  Marketing                 1,606       2,095       2,585       2,703
  Technology and content   13,578      12,834      27,794      16,133
  General and
   administrative           4,407       3,476       9,550       5,670
                        ----------  ----------  ----------  ----------
                       $   24,453  $   21,692  $   51,776  $   28,799
                        ==========  ==========  ==========  ==========

Note: The attached "Financial and Operational Highlights" are an
      integral part of the press release financial statements.



                           AMAZON.COM, INC.
                  Pro Forma Statements of Operations
                (in thousands, except per share data)
                             (unaudited)

                                         Three Months Ended
                                           June 30, 2003
                                 ----------------------------------
                                 As Reported
                                     (1)     Adjustments Pro Forma
                                 ----------- ----------- ---------
Net sales                        $1,099,912  $       -  $1,099,912
Cost of sales                       825,984          -     825,984
                                  ----------  ---------  ----------
Gross profit                        273,928          -     273,928

Operating expenses:
 Fulfillment                        107,455          -     107,455
 Marketing                           25,326          -      25,326
 Technology and content              52,135          -      52,135
 General and administrative          21,823          -      21,823
 Stock-based compensation            24,453    (24,453)          -
 Other operating expense (income)       913       (913)          -
                                  ----------  ---------  ----------
       Total operating expenses     232,105    (25,366)    206,739
                                  ----------  ---------  ----------

Income from operations               41,823     25,366      67,189 (2)

Interest income                       5,761          -       5,761
Interest expense                    (34,367)         -     (34,367)
Other income (expense), net           3,685          -       3,685
Remeasurements and other            (60,216)    60,216           -
                                  ----------  ---------  ----------
       Total non-operating
        expense, net                (85,137)    60,216     (24,921)
                                  ----------  ---------  ----------

Net income (loss)                $  (43,314) $  85,582  $   42,268
                                  ==========  =========  ==========

Basic earnings (loss) per share  $    (0.11) $    0.22  $     0.11
                                  ==========  =========  ==========

Diluted earnings (loss) per share$    (0.11) $    0.21  $     0.10
                                  ==========  =========  ==========

Weighted average shares used in computation
 of earnings (loss)
 per share:
  Basic                             393,876               393,876
                                  ==========            ==========
  Diluted                           393,876               418,138
                                  ==========            ==========

Net cash provided by operating
 activities                                            $  126,024
Purchases of fixed assets, including
 internal-use software
 and website development                                   (7,141)
                                                        ----------
Free cash flow                                         $  118,883
                                                        ==========

Net cash provided by (used in) investing
 activities                                            $  233,668
                                                        ==========

Net cash provided by (used in) financing
 activities                                            $ (227,876)
                                                        ==========



                                         Three Months Ended
                                           June 30, 2004
                                 ----------------------------------
                                 As Reported Adjustments Pro Forma
                                     (1)
                                 ----------- ----------- ----------
Net sales                        $1,387,341   $      -  $1,387,341
Cost of sales                     1,046,295          -   1,046,295
                                  ----------   --------  ----------
Gross profit                        341,046          -     341,046

Operating expenses:
 Fulfillment                        122,717          -     122,717
 Marketing                           31,839          -      31,839
 Technology and content              58,475          -      58,475
 General and administrative          27,199          -      27,199
 Stock-based compensation            21,692    (21,692)          -
 Other operating expense (income)    (7,150)     7,150           -
                                  ----------   --------  ----------
       Total operating expenses     254,772    (14,542)    240,230
                                  ----------   --------  ----------

Income from operations               86,274     14,542     100,816 (2)

Interest income                       5,311          -       5,311
Interest expense                    (26,055)         -     (26,055)
Other income (expense), net          (5,352)         -      (5,352)
Remeasurements and other             16,302    (16,302)          -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                 (9,794)   (16,302)    (26,096)
                                  ----------   --------  ----------

Net income (loss)                $   76,480   $ (1,760) $   74,720
                                  ==========   ========  ==========

Basic earnings (loss) per share  $     0.19   $  (0.01) $     0.18
                                  ==========   ========  ==========

Diluted earnings (loss) per share$     0.18   $      -  $     0.18
                                  ==========   ========  ==========

Weighted average shares used in computation
 of earnings (loss) per share:
  Basic                             405,268                405,268
                                  ==========             ==========
  Diluted                           424,678                424,678
                                  ==========             ==========

Net cash provided by operating
 activities                                             $  143,036
Purchases of fixed assets, including
 internal-use software
 and website development                                   (14,143)
                                                         ----------
Free cash flow                                          $  128,893
                                                         ==========

Net cash provided by (used in) investing
 activities                                             $ (222,289)
                                                         ==========

Net cash provided by (used in) financing
 activities                                             $   19,432
                                                         ==========

(1)  In accordance with accounting principles generally
     accepted in the United States.

(2)  Consolidated segment operating income.

Note: The attached "Financial and Operational Highlights" are an
integral part of the press release financial statements.



                           AMAZON.COM, INC.
                  Pro Forma Statements of Operations
                 (in thousands, except per share data)
                              (unaudited)

                                          Six Months Ended
                                            June 30, 2003
                                 ----------------------------------
                                 As Reported Adjustments Pro Forma
                                     (1)
                                 ----------- ----------- ----------
Net sales                        $2,183,471  $       -  $2,183,471
Cost of sales                     1,638,961          -   1,638,961
                                  ----------  ---------  ----------
Gross profit                        544,510          -     544,510

Operating expenses:
 Fulfillment                        211,160          -     211,160
 Marketing                           53,553          -      53,553
 Technology and content             102,223          -     102,223
 General and administrative          42,925          -      42,925
 Stock-based compensation            51,776    (51,776)          -
 Other operating expense (income)     1,825     (1,825)          -
                                  ----------  ---------  ----------
       Total operating expenses     463,462    (53,601)    409,861
                                  ----------  ---------  ----------

Income from operations               81,048     53,601     134,649 (2)

Interest income                      12,301          -      12,301
Interest expense                    (70,878)         -     (70,878)
Other income (expense), net           6,544          -       6,544
Remeasurements and other            (82,450)    82,450           -
                                  ----------  ---------  ----------
       Total non-operating
        expense, net               (134,483)    82,450     (52,033)
                                  ----------  ---------  ----------

Net income (loss)                $  (53,435) $ 136,051  $   82,616
                                  ==========  =========  ==========

Basic earnings (loss) per share  $    (0.14) $    0.35  $     0.21
                                  ==========  =========  ==========

Diluted earnings (loss) per share$    (0.14) $    0.34  $     0.20
                                  ==========  =========  ==========

Weighted average shares used in computation
 of earnings (loss) per share:
  Basic                             391,223               391,223
                                  ==========            ==========
  Diluted                           391,223               414,965
                                  ==========            ==========

Net cash used in operating
 activities                                            $ (125,758)
Purchases of fixed assets, including
 internal-use software
 and website development                                  (13,535)
                                                        ----------
Free cash flow                                         $ (139,293)
                                                        ==========

Net cash provided by (used in) investing
 activities                                            $  203,174
                                                        ==========

Net cash used in financing
 activities                                            $ (192,542)
                                                        ==========



                                        Six Months Ended
                                          June 30, 2004
                                 ----------------------------------
                                 As Reported Adjustments Pro Forma
                                     (1)
                                 ----------------------------------
Net sales                        $2,917,690   $      -  $2,917,690
Cost of sales                     2,215,810          -   2,215,810
                                  ----------   --------  ----------
Gross profit                        701,880          -     701,880

Operating expenses:
 Fulfillment                        250,422          -     250,422
 Marketing                           65,475          -      65,475
 Technology and content             113,551          -     113,551
 General and administrative          54,616          -      54,616
 Stock-based compensation            28,799    (28,799)          -
 Other operating expense (income)    (7,692)     7,692           -
                                  ----------   --------  ----------
       Total operating expenses     505,171    (21,107)    484,064
                                  ----------   --------  ----------

Income from operations              196,709     21,107     217,816 (2)

Interest income                      10,866          -      10,866
Interest expense                    (53,786)         -     (53,786)
Other income (expense), net          (2,835)         -      (2,835)
Remeasurements and other             36,662    (36,662)          -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                 (9,093)   (36,662)    (45,755)
                                  ----------   --------  ----------

Net income (loss)                $  187,616   $(15,555) $  172,061
                                  ==========   ========  ==========

Basic earnings (loss) per share  $     0.46   $  (0.03) $     0.43
                                  ==========   ========  ==========

Diluted earnings (loss) per share$     0.44   $  (0.03) $     0.41
                                  ==========   ========  ==========

Weighted average shares used in computation
 of earnings (loss) per share:
  Basic                             404,399                404,399
                                  ==========             ==========
  Diluted                           424,592                424,592
                                  ==========             ==========

Net cash used in operating
 activities                                             $ (107,652)
Purchases of fixed assets, including
 internal-use software
 and website development                                   (23,656)
                                                         ----------
Free cash flow                                          $ (131,308)
                                                         ==========

Net cash provided by (used in) investing
 activities                                             $ (166,713)
                                                         ==========

Net cash used in financing
 activities                                             $ (121,401)
                                                         ==========

(1)  In accordance with accounting principles generally
     accepted in the United States.

(2) Consolidated segment operating income.

Note: The attached "Financial and Operational Highlights" are an
integral part of the press release financial statements.



                           AMAZON.COM, INC.
                          Segment Information
                            (in thousands)
                              (unaudited)

                          Three Months Ended       Six Months Ended
                               June 30,                June 30,
                        ----------------------  ----------------------
                          2003        2004        2003        2004
                        ----------  ----------  ----------  ----------
North America
 Net sales             $  702,523  $  792,132  $1,407,235  $1,638,973
 Cost of sales            512,466     572,420   1,030,346   1,193,386
                        ----------  ----------  ----------  ----------
 Gross profit             190,057     219,712     376,889     445,587
 Direct segment
  operating expenses      135,459     153,791     270,630     304,157
                        ----------  ----------  ----------  ----------
 Segment operating income  54,598      65,921     106,259     141,430

International
 Net sales                397,389     595,209     776,236   1,278,717
 Cost of sales            313,518     473,875     608,615   1,022,424
                        ----------  ----------  ----------  ----------
 Gross profit              83,871     121,334     167,621     256,293
 Direct segment
  operating expenses       71,280      86,439     139,231     179,907
                        ----------  ----------  ----------  ----------
 Segment operating income  12,591      34,895      28,390      76,386

Consolidated
 Net sales              1,099,912   1,387,341   2,183,471   2,917,690
 Cost of sales            825,984   1,046,295   1,638,961   2,215,810
                        ----------  ----------  ----------  ----------
 Gross profit             273,928     341,046     544,510     701,880
 Direct segment
  operating expenses      206,739     240,230     409,861     484,064
                        ----------  ----------  ----------  ----------
 Segment operating income  67,189     100,816     134,649     217,816
 Stock-based compensation  24,453      21,692      51,776      28,799
 Other operating expense
  (income)                    913      (7,150)      1,825      (7,692)
                        ----------  ----------  ----------  ----------

 Income from operations    41,823      86,274      81,048     196,709
 Total non-operating
  expense, net            (85,137)     (9,794)   (134,483)     (9,093)
                        ----------  ----------  ----------  ----------

 Net income (loss)     $  (43,314) $   76,480  $  (53,435) $  187,616
                        ==========  ==========  ==========  ==========

Segment Highlights:
 Y/Y net sales growth:
  North America             20%         13%         17%         16%
  International             81          50          74          65
  Consolidated              37          26          32          34
 Y/Y gross profit growth:
  North America             12%         16%         10%         18%
  International             75          45          72          53
  Consolidated              26          25          23          29
Y/Y segment operating
 income growth:
  North America             53%         21%         49%         33%
  International            N/A         177         N/A         169
  Consolidated             158          50         166          62
Net sales mix:
  North America             64%         57%         64%         56%
  International             36          43          36          44

Note: The attached "Financial and Operational Highlights" are an
      integral part of the press release financial statements.



                           AMAZON.COM, INC.
                  Supplemental Net Sales Information
                            (in thousands)
                             (unaudited)

                         Three Months Ended       Six Months Ended
                               June 30,                June 30,
                      ----------------------- -----------------------
                            2003        2004        2003        2004
                       ----------  ----------  ----------  ----------
North America
 Media                $  499,051  $  541,807  $1,016,310  $1,140,489
 Electronics and
  other general
  merchandise            177,439     225,805     345,584     450,238
 Other                    26,033      24,520      45,341      48,246
                       ----------  ----------  ----------  ----------
                         702,523     792,132   1,407,235   1,638,973

International
 Media                   366,034     495,526     721,746   1,071,586
 Electronics and other
  general merchandise     31,089      98,947      53,952     205,948
 Other                       266         736         538       1,183
                       ----------  ----------  ----------  ----------
                         397,389     595,209     776,236   1,278,717

Consolidated
 Media                   865,085   1,037,333   1,738,056   2,212,075
 Electronics and other
  general merchandise    208,528     324,752     399,536     656,186
 Other                    26,299      25,256      45,879      49,429
                       ----------  ----------  ----------  ----------
                      $1,099,912  $1,387,341  $2,183,471  $2,917,690
                       ==========  ==========  ==========  ==========

Y/Y Net Sales Growth:
North America:
 Media                        14%          9%         12%         12%
 Electronics and other
  general merchandise         36          27          34          30
 Other                        53          (6)         15           6

International:
 Media                        75%         35%         71%         48%
 Electronics and other
  general merchandise        221         218         156         282
 Other                       (49)        177         (47)        120

Consolidated:
 Media                        33%         20%         30%         27%
 Electronics and other
  general merchandise         49          56          43          64
 Other                        50          (4)         14           8

Consolidated Net Sales Mix:
 Media                        79%         75%         80%         76%
 Electronics and other
  general merchandise         19          23          18          22
 Other                         2           2           2           2

Note: The attached "Financial and Operational Highlights" are an
integral part of the press release financial statements.



                           AMAZON.COM, INC.
                     Consolidated Balance Sheets
                (in thousands, except per share data)
                             (unaudited)

                                  June 30,   December 31,   June 30,
                                    2003         2003         2004
                                 -----------  -----------  -----------
ASSETS
Current assets:
 Cash and cash equivalents      $   641,728  $ 1,102,273  $   701,150
 Marketable securities              347,044      292,550      450,201
                                 -----------  -----------  -----------
    Cash, cash equivalents, and
     marketable securities          988,772    1,394,823    1,151,351
 Inventories                        178,107      293,917      284,194
 Accounts receivable, net and
  other current assets               84,375      132,069      125,647
                                 -----------  -----------  -----------
  Total current assets            1,251,254    1,820,809    1,561,192

Fixed assets, net                   221,674      224,285      215,871
Goodwill                             70,811       69,121       69,121
Other assets                         53,115       47,818       41,926
                                 -----------  -----------  -----------
  Total assets                  $ 1,596,854  $ 2,162,033  $ 1,888,110
                                 ===========  ===========  ===========

LIABILITIES AND STOCKHOLDERS'
 DEFICIT
Current liabilities:
 Accounts payable               $   445,098  $   819,811  $   585,124
 Accrued expenses and other
  current liabilities               232,231      317,730      249,843
 Unearned revenue                    38,733       37,844       39,487
 Interest payable                    45,179       73,100       39,498
 Current portion of long-term
  debt and other                      8,143        4,216        2,402
                                 -----------  -----------  -----------
  Total current liabilities         769,384    1,252,701      916,354

Long-term debt and other          2,074,306    1,945,439    1,762,614

Commitments and contingencies

Stockholders' deficit:
 Preferred stock, $0.01 par
  value:
     Authorized shares --
      500,000
     Issued and outstanding
      shares -- none                      -            -            -
 Common stock, $0.01 par value:
     Authorized shares --
      5,000,000
     Issued and outstanding
      shares -- 396,730,
      403,354, and 406,711            3,967        4,034        4,067
 Additional paid-in capital       1,790,835    1,899,398    1,964,342
 Deferred stock-based
  compensation                       (4,201)      (2,850)      (1,872)
 Accumulated other comprehensive
  income                             25,708       37,739       29,417
 Accumulated deficit             (3,063,145)  (2,974,428)  (2,786,812)
                                 -----------  -----------  -----------
  Total stockholders' deficit    (1,246,836)  (1,036,107)    (790,858)
                                 -----------  -----------  -----------
      Total liabilities and
       stockholders' deficit    $ 1,596,854  $ 2,162,033  $ 1,888,110
                                 ===========  ===========  ===========

Note:  The attached "Financial and Operational Highlights" are an
 integral part of the press release financial statements.


                           AMAZON.COM, INC.
        Supplemental Financial Information and Business Metrics
                 (in millions, except per share data)
                              (unaudited)

----------------------- ------- ------- ------- ------- ------- ------
                                                                Y/Y %
                        Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Change
                        ------- ------- ------- ------- ------- ------
Cash Flows and Shares

Operating cash flow --
 trailing twelve months
 (TTM)                  $  285  $  284  $  392  $  393  $  410     44%

Purchases of fixed
 assets (including
 internal-use software
 and website
 development) -- TTM    $   40  $   44  $   46  $   49  $   56     39%

Free cash flow
 (operating cash flow
 less purchases of
 fixed assets) -- TTM   $  245  $  239  $  346  $  344  $  354     45%

Common shares and
 stock-based awards
 outstanding               433     433     433     432     434      0%
Common shares
 outstanding               397     400     403     405     407      3%
Stock-based awards
 outstanding                36      33      29      27      27   (25%)
Stock-based awards
 outstanding -- % of
 common shares
 outstanding               9.2%    8.1%    7.3%    6.8%    6.7%   N/A

Results of Operations

Worldwide (WW) net
 sales                  $1,100  $1,134  $1,946  $1,530  $1,387     26%
WW net sales -- Y/Y
 growth, excluding the
 effect of foreign
 exchange rates           29.7%   29.8%   29.4%   33.2%   21.9%   N/A
WW net sales --  TTM    $4,463  $4,747  $5,264  $5,710  $5,998     34%
WW net sales shipped
 outside the U.S. --
 TTM % of net sales       39.1%   40.5%   43.4%   45.7%   44.5%   N/A

Gross profit            $  274  $  286  $  427  $  361  $  341     25%
Gross margin --
 % of WW net sales        24.9%   25.2%   21.9%   23.6%   24.6%   N/A
Gross profit -- TTM     $1,096  $1,165  $1,257  $1,347  $1,415     29%
Gross margin -- TTM
 % of WW net sales        24.6%   24.6%   23.9%   23.6%   23.6%   N/A

Fulfillment costs --
 % of WW net sales         9.8%    9.4%    8.2%    8.3%    8.8%   N/A
Fulfillment costs --
 TTM % of WW net sales     9.6%    9.4%    9.1%    8.8%    8.6%   N/A

Consolidated direct
 segment operating
 expenses               $  207  $  212  $  274  $  244  $  240     16%
Consolidated direct
 segment operating
 expenses -- TTM        $  832  $  855  $  896  $  937  $  970     17%

Consolidated segment
 operating income       $   67  $   74  $  153  $  117  $  101     50%
Consolidated segment
 operating margin --
 % of WW net sales         6.1%    6.5%    7.9%    7.6%    7.3%   N/A
Consolidated segment
 operating income --
 TTM                    $  264  $  310  $  361  $  411  $  444     68%
Consolidated segment
 operating margin --
 TTM % of WW net sales     5.9%    6.5%    6.9%    7.2%    7.4%   N/A

GAAP operating income   $   42  $   52  $  138  $  110  $   86    106%
GAAP operating margin
 -- % of WW net sales      3.8%    4.6%    7.1%    7.2%    6.2%   N/A
GAAP operating income
 -- TTM                 $  142  $  204  $  271  $  342  $  386    172%
GAAP operating margin
 -- TTM % of WW net
 sales                     3.2%    4.3%    5.1%    6.0%    6.4%   N/A

Pro forma net income    $   42  $   48  $  125  $   97  $   75     77%
Diluted pro forma net
 income per share       $ 0.10  $ 0.11  $ 0.29  $ 0.23  $ 0.18     80%
Pro forma net income
 -- TTM                 $  158  $  206  $  256  $  313  $  345    118%

GAAP net income (loss)  $  (43) $   16  $   73  $  111  $   76    N/A
GAAP net income (loss)
 per share              $(0.11) $ 0.04  $ 0.17  $ 0.26  $ 0.18    N/A
GAAP net income (loss)
 -- TTM                 $  (86) $  (35) $   35  $  157  $  276    N/A

North America segment:
  Net sales             $  703  $  709  $1,142  $  847  $  792     13%
  Net sales -- TTM      $2,961  $3,083  $3,258  $3,401  $3,490     18%
  Gross profit          $  190  $  201  $  289  $  226  $  220     16%
  Gross margin --
   % of North American
   net sales              27.1%   28.4%   25.3%   26.7%   27.7%   N/A
  Gross profit -- TTM   $  774  $  821  $  867  $  906  $  935     21%
  Gross margin -- TTM
   % of North America
   net sales              26.2%   26.6%   26.6%   26.6%   26.8%   N/A
  Operating income      $   55  $   63  $  114  $   76  $   66     21%
  Operating margin --
   % of North America
   net sales               7.8%    8.8%   10.0%    8.9%    8.3%   N/A
  Operating income --
   TTM                  $  215  $  251  $  283  $  307  $  318     48%
  Operating margin --
   TTM % of North
   America net sales       7.3%    8.1%    8.7%    9.0%    9.1%   N/A

----------------------- ------- ------- ------- ------- ------- ------

Note: The attached "Financial and Operational Highlights" are an
integral part of this Supplemental Financial Information and Business
Metrics


                           AMAZON.COM, INC.
        Supplemental Financial Information and Business Metrics
               (in millions, except inventory turnover,
               accounts payable days, and employee data)
                              (unaudited)

----------------------- ------- ------- ------- ------- ------- ------
                                                                Y/Y %
                        Q2 2003 Q3 2003 Q4 2003 Q1 2004 Q2 2004 Change
                        ------- ------- ------- ------- ------- ------
International segment:
  Net sales             $  397  $  425  $  804  $  684  $  595     50%
  Net sales -- Y/Y
   growth, excluding
   the effect of
   foreign exchange
   rates                  56.9%   50.4%   53.6%   57.9%   38.1%   N/A
  Net sales -- TTM      $1,502  $1,663  $2,005  $2,310  $2,508     67%
  Gross profit          $   84  $   85  $  138  $  135  $  121     45%
  Gross margin --
   % of International
   net sales              21.1%   19.9%   17.2%   19.8%   20.4%   N/A
  Gross profit -- TTM   $  322  $  345  $  391  $  442  $  479     49%
  Gross margin --
   TTM % of
   International
   net sales              21.4%   20.7%   19.5%   19.1%   19.1%   N/A
  Operating income      $   13  $   11  $   39  $   41  $   35    177%
  Operating margin --
   % of International
   net sales               3.2%    2.6%    4.8%    6.1%    5.9%   N/A
  Operating income --
   TTM                  $   49  $   59  $   78  $  104  $  126    156%
  Operating margin --
   TTM % of
   International net
   sales                   3.3%    3.6%    3.9%    4.5%    5.0%   N/A

Supplemental Worldwide
 Net Sales:
  Media                 $  865  $  877  $1,434  $1,175  $1,037     20%
  Media -- TTM          $3,503  $3,695  $4,049  $4,351  $4,523     29%
  Electronics and other
   general merchandise  $  209  $  230  $  473  $  331  $  325     56%
  Electronics and other
   general merchandise
   -- TTM               $  868  $  951  $1,103  $1,244  $1,360     57%
  Other                 $   26  $   27  $   39  $   24  $   25    (4%)
  Other -- TTM          $   93  $  101  $  112  $  116  $  115     24%

Supplemental North
 America Segment Net
 Sales:
  Media                 $  499  $  502  $  751  $  599  $  542      9%
  Media -- TTM          $2,101  $2,167  $2,269  $2,351  $2,394     14%
  Electronics and other
   general merchandise  $  177  $  180  $  353  $  224  $  226     27%
  Electronics and other
   general merchandise
   -- TTM               $  769  $  816  $  879  $  935  $  983     28%
  Other                 $   26  $   27  $   38  $   24  $   25    (6%)
  Other -- TTM          $   91  $  100  $  110  $  115  $  113     24%

Supplemental
 International Segment
 Net Sales:
  Media                 $  366  $  375  $  683  $  576  $  496     35%
  Media -- TTM          $1,402  $1,527  $1,779  $2,000  $2,129     52%
  Electronics and other
   general merchandise  $   31  $   50  $  121  $  107  $   99    218%
  Electronics and other
   general merchandise
   -- TTM               $   99  $  135  $  225  $  309  $  377    281%
  Other                 $    0  $    0  $    0  $    0  $    1    177%
  Other -- TTM          $    1  $    1  $    1  $    1  $    2     26%


Balance Sheet

Cash and marketable
 securities             $  989  $1,065  $1,395  $  998  $1,151     16%

Inventory, net --
 ending                 $  178  $  242  $  294  $  282  $  284     60%
Inventory -- average
 inventory % of TTM
 net sales                 3.7%    4.0%    4.1%    4.1%    4.3%   N/A
Inventory turnover,
 average -- TTM           20.2    18.9    18.4    18.7    17.9   (12%)

Fixed assets, net       $  222  $  221  $  224  $  217  $  216    (3%)

Accounts payable days
 -- ending                  49      54      50      44      51      4%

Other

Employees (full-time
 and part-time;
 excludes contractors
 & temporary personnel)  7,600   7,900   7,800   8,100   8,200      8%
-----------------------  ------  ------  ------  ------  ------ ------

Note: The attached "Financial and Operational Highlights" are an
integral part of this Supplemental Financial Information and Business
Metrics
                           AMAZON.COM, INC.
                 Financial and Operational Highlights
                              (unaudited)

Quarterly Results of Operations (comparisons are with the equivalent period of the prior year, unless otherwise stated)

    Net Sales

    --  In the second quarter 2003 we sold over 1.4 million units
        worldwide of Harry Potter and the Order of the Phoenix.

    --  Shipping revenue, which excludes amounts earned from
        third-party sellers, was $84 million, up 5% from $80 million.

    Cost of Sales

    --  Cost of sales consists of the purchase price of consumer
        products sold by us, inbound and outbound shipping charges to
        us, packaging supplies, and certain costs associated with our
        service revenues.

    --  Outbound shipping-related costs totaled $119 million, up from
        $106 million. Net shipping cost was $34 million, up from a net
        cost of $26 million, resulting primarily from our free
        shipping offers. We view free shipping as an effective
        marketing tool and intend to continue offering it
        indefinitely.

    Direct Segment Operating Expenses

    --  Second quarter direct segment operating expenses as a
        percentage of net sales:
                                        2004              2003
                                        ----              ----
    Fulfillment                          8.8%              9.8%
    Marketing                            2.3%              2.3%
    Technology and content               4.2%              4.7%
    General and administrative           2.0%              2.0%
   --  Depreciation was $18 million in second quarter 2004 and $70
        million over the trailing twelve months.

    Fulfillment

    --  Fulfillment 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.

    --  Costs incurred in operating and staffing our fulfillment and
        customer service centers on behalf of other businesses, such
        as Toysrus.com and Target, are classified as cost of sales
        rather than fulfillment.

    --  Credit card fees associated with third-party seller
        transactions are based on the gross purchase price of
        underlying transactions, and therefore represent a larger
        percentage of our recorded commission revenue than credit card
        fees on our retail sales. Accordingly, this negatively affects
        fulfillment costs as a percentage of net sales.

    --  We announced the opening of a new European fulfillment center
        in Scotland, which is scheduled to begin operations in the
        second half of 2004. The center is approximately 300,000
        square feet and over time will employ approximately 300
        associates.

    Technology and content

    --  Our spending in technology and content has increased as we are
        adding computer scientists and software engineers to continue
        to improve our process efficiency and enhance the customer
        experience on our websites. We expect absolute dollars spent
        in technology and content to increase over time.

    General and administrative

    --  The increase in general and administrative expense is
        primarily due to increases in legal fees. We expect general
        and administrative costs to increase in absolute dollars over
        time.

    Stock-Based Compensation

    --  Stock-based compensation consisted of $9 million expense for
        stock awards under variable accounting and $13 million for
        stock awards under fixed accounting plus matching stock
        contributions under our 401(k) program. Payroll tax expense
        resulting from exercises of stock-based awards is not
        classified in "Stock-based compensation".

    --  We granted 2 million stock awards, primarily restricted stock
        units, during the quarter at a per share weighted average fair
        value of $47.

    --  Stock-based awards generally fully vest over service periods
        of between three and six years.

    --  At June 30, 2004, there were 28 million stock awards
        outstanding, consisting of 21 million stock options with a $13
        weighted average exercise price, 6 million restricted stock
        units and 0.5 million shares of restricted stock (included in
        common stock outstanding).

    --  Since 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 on an accelerated basis 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, 2004, 1 million outstanding stock awards,
        primarily options, were subject to variable accounting. Stock
        option grants after December 31, 2002, are subject to variable
        accounting treatment. Variable accounting treatment results in
        expense or contra-expense recognition using the cumulative
        expense method, calculated based on the quoted price of our
        common stock and vesting schedules of underlying awards. For
        example, since the closing price of our common stock on June
        30, 2004 ($54.40), was greater than the closing price on March
        31, 2004 ($43.28), we recorded an expense associated with
        variable accounting treatment for the second quarter of 2004.

    Other Operating Expense (Income)

    --  Included in "Other operating expense (income)" are
        restructuring-related expenses and amortization of other
        intangibles.

    --  Our first quarter 2001 operational restructuring plan is
        complete; however, we may periodically adjust our
        restructuring-related estimates, such as lease obligations, in
        the future if necessary.

    --  During the second quarter we determined that some of the
        office space previously vacated as part of our 2001
        restructuring, which we had been unable to sublease due to
        poor real estate market conditions, was necessary for our
        future needs. This resulted in a gain of $7 million for the
        second quarter. Future lease payments for this office space
        will be expensed over the lease period and classified to the
        corresponding operating expense categories on the consolidated
        statements of operations.

    --  We estimate, based on currently available information, the
        remaining net cash outflows associated with
        restructuring-related leases and other commitments will be $2
        million in 2004, and $17 million thereafter. Amounts due
        within twelve 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 $25 million (we have
        signed sublease agreements for $14 million).

    --  Cash payments resulting from our 2001 operational
        restructuring were $1 million, compared with $4 million in
        second quarter 2003.

    --  We plan to streamline our organizational structure in France
        and reduce our operating costs. We anticipate the costs
        associated with these efforts will be approximately $5
        million; however, the reorganization is subject to regulatory
        review, which may impact the severance terms. We anticipate
        the number of employees affected and severance terms will be
        finalized in third quarter 2004 and corresponding costs will
        be recorded at that time and classified in "Other operating
        expense (income)".

    Other Income (Expense), Net

    --  Other expense in second quarter 2004 was primarily
        miscellaneous foreign, state and other income taxes.

    Remeasurements and Other

    --  Remeasurements includes foreign-currency gains on
        remeasurement of 6.875% PEACS from Euros to U.S. Dollars of $8
        million, compared with a loss of $38 million in second quarter
        2003.

    --  Other includes a $7 million loss from remeasurement of
        intercompany balances, which are to be repaid amongst
        subsidiaries.

    --  Other also includes a gain of $14 million related to the sale
        of an equity investment, classified within "Investing
        Activities" on our statement of cash flows.

    Income Taxes

    --  At June 30, 2004, we had net operating loss carryforwards
        (NOLs) of approximately $2.8 billion, primarily related to
        U.S. federal taxes. Utilization of NOLs, which begin to expire
        at various times starting in 2010, may be subject to certain
        limitations. Approximately $1.8 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 tax benefits will
        be credited to stockholders' equity rather than results of
        operations.

    Net Income (Loss)

    --  We do not believe that our reported net income for the second
        quarter 2004 should be viewed, on its own, as a material
        positive event or should be considered predictive of future
        results. For example, we are unable to forecast the effect on
        our future reported results of certain items, including the
        effect that fluctuations in foreign currency rates will have
        on the remeasurement of our 6.875% PEACS and intercompany
        balances. Additionally, we are unable to forecast the effect
        on stock-based compensation of changes in the quoted price of
        our common stock due to variable accounting treatment. The
        remeasurement of our 6.875% PEACS represented significant
        gains during the quarter and may result in significant charges
        or gains in future periods.

    Foreign Exchange

    --  As our financial reporting currency is the U.S. Dollar, our
        total sales, profit, and operating and free cash flow have
        benefited significantly the past eight quarters from weakness
        in the U.S. Dollar in comparison to the currencies of our
        international websites. We believe it is important to evaluate
        our growth rates after the effect of currency changes.

    -- The effect of changes in exchange rates in the second quarter
       is as follows (in millions):
       Effect of exchange rate on:           2004              2003
                                             ----              ----
       Net Sales                            $  47            $   55
       Gross Profit                            10                12
       Operating Income                         4                 3
       Net Interest Expense & Other            (1)               (2)
       Remeasurements & Other(1)                3               (35)
       Net Income (Loss)                        6               (34)
       Earnings Per Share                   $0.02            $(0.09)

      (1) Includes foreign-currency gains (losses) on remeasurement of
      6.875% PEACS and intercompany balances, and realized
      currency-related gains associated with sales of Euro-denominated
      investments held by a U.S. functional-currency subsidiary.

      These amounts represent the impact on reported results that is
      due to year-over-year changes in exchange rates. Absent
      year-over-year changes in exchange rates, reported amounts would
      have been lower (higher) by these amounts.


    Cash Flows and Balance Sheet

    --  Operating 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
        exchange rates. For example, in 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 $1.15
        billion, at fair value, primarily consist of cash, commercial
        paper and short-term securities, U.S. Treasury notes and
        bonds, certificates of deposit, and asset-backed and agency
        securities. Included is amounts held in foreign currencies of
        $645 million, primarily in Euros and British Pounds.

    --  We have pledged $80 million of our marketable securities as
        collateral for property leases and other contractual
        obligations, compared with $87 million as of December 31,
        2003.

    --  "Other assets" includes, among other things, deferred issuance
        costs on long-term debt, intangibles and other equity
        investments.

    --  "Unearned revenue" is recorded when payments are received from
        third parties in advance of our 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 benefits.

    --  "Long-term debt and other" primarily includes the following
        (in millions):

                               Principal      Interest    Principal
                              at Maturity       Rate       Due Date
                              -----------     --------    ----------
   Convertible
    Subordinated Notes        $ 900 (1) (2)   4.750%     February 2009
   PEACS                        841 (3)       6.875%     February 2010
                               ----
                            $ 1,741 (4)
                            =======
   -----------------
   (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
   102.375% of the principal, which decreases every February by 47.5
   basis points until maturity, plus any accrued and unpaid interest.
   (2) During the previous twelve-month period we redeemed an
   aggregate principal amount of $350 million: $150 million in
   February 2004 and $200 million in November 2003.
   (3) EUR 690 million principal amount, convertible at the holders'
   option into our common stock at EUR 84.883 per share ($103.50 per
   share based on the exchange rate as of June 30, 2004). We have the
   right to redeem the PEACS, in whole or in part, by paying the
   principal amount, plus any accrued and unpaid interest. We do not
   hedge any portion of the PEACS. The U.S. Dollar equivalent
   principal, interest and conversion price fluctuates based on the
   Euro/U.S. Dollar exchange ratio.
   (4) The "if converted" number of shares associated with each of
   our convertible debt instruments (approximately 20 million total
   shares) are excluded from diluted shares as their effect is
   anti-dilutive.


    Certain 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 and other operating expenses (income), each of
        which is not allocated to segment results. 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 (including from third-party
        sellers) through www.amazon.com and www.amazon.ca; from North
        America focused Syndicated Stores, such as www.cdnow.com; from
        our mail-order tool catalog; 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 (including from third-party
        sellers) through www.amazon.co.uk, www.amazon.de,
        www.amazon.fr and www.amazon.co.jp; 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 provide supplemental sales 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, tools, home and garden, apparel, sports and
        outdoors, gourmet food, jewelry, health and personal care and
        beauty. The Other category consists of non-retail activities,
        such as the Merchant.com program and miscellaneous marketing
        and promotional activities.

    --  Operating cycle is number of days of sales in inventory plus
        number of days of sales in accounts receivable minus accounts
        payable days. Inventory turnover is the quotient of annualized
        cost of sales to average inventory. Accounts payable days is
        calculated as the quotient of accounts payable to cost of
        sales, multiplied by the number of days in the period.

    --  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 websites. 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 relationship. A customer is considered active upon
        placing an order.

    --  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 through catalogs and 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.



    CONTACT: Amazon.com
             Investor Relations:
             Tim Stone, 206-266-2171
             ir@amazon.com
             www.amazon.com/ir
             or
             Public Relations:
             Patty Smith, 206-266-7180

    SOURCE: Amazon.com

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