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Amazon.com Announces 76% Free Cash Flow Growth and 29% Sales Growth -- Expects Record Holiday Season with Expanded Selection, Lower Prices, and Free Shipping

SEATTLE--(BUSINESS WIRE)--Oct. 21, 2004--Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its third quarter ended September 30, 2004.

Operating cash flow was $490 million for the trailing twelve months, compared with $284 million for the trailing twelve months ended September 30, 2003. Free cash flow grew 76% to $420 million for the trailing twelve months, compared with $239 million for the 2003 period.

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

Net sales were $1.46 billion in the third quarter, compared with $1.13 billion in third quarter 2003, an increase of 29%. Net sales, excluding the $57 million benefit from changes in foreign exchange rates, grew 24% compared with 2003.

Operating income was $81 million in the third quarter, compared with $52 million in third quarter 2003. Consolidated segment operating income grew 29% to $95 million in the third quarter, compared with $74 million in the third quarter 2003. Excluding the $4 million benefit from changes in foreign exchange rates, consolidated segment operating income grew 23% compared with third quarter 2003.

Net income was $54 million in the third quarter, or $0.13 per diluted share, compared with net income of $16 million, or $0.04 per diluted share, in third quarter 2003. Pro forma net income in the third quarter grew 52% to $73 million, or $0.17 per diluted share, compared with $48 million, or $0.11 per diluted share, in third quarter 2003.

"Our decision to put dollars into lower prices and free shipping instead of TV advertising continues to be embraced by customers," said Jeff Bezos, founder and CEO of Amazon.com. "Customer adoption of free shipping hit another record high this quarter."

Amazon.com continues to lower shipping and product prices for its worldwide customers. Customers shopping at www.amazon.co.uk now qualify for free shipping on orders of GBP 19 or more, down from the prior threshold of GBP 25.

    See "Financial Measures" for additional information.

    Highlights

    --  North America segment sales, representing the Company's U.S.
        and Canadian sites, were $816 million, up 15% compared with
        third quarter 2003. Segment operating income declined $5
        million to $57 million, compared with third quarter 2003.
        Increased adoption of free shipping contributed to an increase
        of $7 million in net shipping loss compared with the third
        quarter of 2003.

    --  International segment sales, representing the Company's U.K.,
        German, French, Japanese, and Chinese sites, were $646
        million, up 52% compared with third quarter 2003, and
        accounted for 44% of worldwide net sales. Excluding the
        benefit from exchange rates, net sales growth was 39%. Segment
        operating income grew $26 million to $38 million, compared
        with third quarter 2003.

    --  Electronics & Other General Merchandise sales grew 55% to
        $1.47 billion for the trailing twelve months, representing 23%
        of worldwide net sales. For the first time, North America
        Electronics & Other General Merchandise sales were over $1
        billion on a trailing-twelve-month basis.

    --  A9.com, a subsidiary of Amazon.com, launched a search engine
        at www.a9.com, to make Internet search more effective. The
        "search engine with a memory" helps users manage and organize
        their search results, and discover additional information
        sources such as the Internet Movie Database and Amazon.com's
        Search Inside the Book results.

    --  Star Wars Trilogy was the top-selling DVD worldwide, and the
        U.K. site received a record 85,000 pre-orders.

    --  The Company introduced Toy stores at both its German and
        Japanese websites. Customers now have their choice of over
        20,000 toys, games, and hobby products, and enjoy discounts up
        to 30%.

    --  Amazon Web Services released Amazon E-Commerce Service 4.0
        (ECS 4.0), offering software developers and website owners
        unprecedented access to Amazon's technology platform and
        product data. Additionally, the Alexa Web Information Service
        (AWIS) gives first-ever access to the vast database of website
        information and usage data compiled by Alexa Internet
        (www.alexa.com). Access to both ECS 4.0 and AWIS is available
        at www.amazon.com/webservices, where over 65,000 individuals
        have registered and downloaded the free Amazon Web Services
        Software Developers Kit.

    --  Amazon.com's second U.K. fulfillment center in Scotland is
        fully operational and prepared to help meet holiday demand
        from European customers.

    --  The Company acquired Joyo.com Limited, a British Virgin
        Islands Company, which operates the Joyo.com website in
        cooperation with Chinese subsidiaries and affiliates. The
        Joyo.com website is the largest online retailer of books,
        music, and videos in China, and is Amazon.com's seventh global
        website.

    Financial Guidance

The following forward-looking statements reflect Amazon.com's expectations as of October 21, 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 rate of growth of the Internet and online commerce, and the various factors detailed below.

    Fourth Quarter 2004 Guidance

    --  Net sales are expected to be between $2.295 billion and $2.545
        billion, or grow between 18% and 31%, compared with fourth
        quarter 2003.

    --  Consolidated segment operating income is expected to be
        between $162 million and $222 million, or grow between 6% and
        45%, compared with fourth quarter 2003.

    --  Operating income is expected to be between $137 million and
        $197 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 $40.86 on September 30, 2004.

    Full Year 2004 Guidance

    --  Net sales are expected to be between $6.675 billion and $6.925
        billion, or grow between 27% and 32%, compared with 2003.

    --  Consolidated segment operating income is expected to be
        between $475 million and $535 million, or grow between 31% and
        48%, compared with 2003.

    --  Operating income is expected to be between $415 million and
        $475 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 $40.86 on September 30, 2004.

    Full Year 2005 Expectations

    --  Net sales are expected to be between $7.40 billion and $8.15
        billion.

    --  Consolidated segment operating income is expected to be
        between $500 million and $625 million.

    --  Operating income is expected to be between $400 million and
        $525 million, excluding any impact from SFAS No. 123R, and
        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, 2005, is identical to the closing price of $40.86
        on September 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 December 31, 2004, at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results.

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; management of growth; potential fluctuations in operating results; fulfillment center optimization; risks of inventory management; seasonality; the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions; 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, system interruptions, consumer trends, 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 (NASDAQ:AMZN), 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 Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer customers the lowest possible prices. Amazon.com and third-party 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, toys and baby, and home and garden.

Amazon.com and its affiliates operate seven websites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com.

As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com, Inc. and its subsidiaries, unless the context indicates otherwise.



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

                           Three Months Ended     Nine Months Ended
                             September 30,          September 30,
                          -------------------- -----------------------
                            2003       2004       2003        2004
                           --------- ---------  ---------- -----------

CASH AND CASH EQUIVALENTS,
 BEGINNING OF PERIOD      $641,728  $ 701,150  $ 738,254  $ 1,102,273

OPERATING ACTIVITIES:
Net income (loss)           15,563     54,147    (37,872)     241,763
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   18,338     19,083     57,091       54,893
  Stock-based compensation  20,936      9,274     72,712       38,073
  Other operating expense
   (income)                    786      4,505      2,611       (3,187)
  Losses (gains) on sales of
   marketable securities,
   net                        (141)       220     (9,393)        (790)
  Remeasurements and other  11,142      5,441     93,592      (31,221)
  Non-cash interest expense
   and other                 1,343      1,140     12,752        3,402
Changes in operating
 assets and liabilities:
  Inventories              (62,147)   (69,626)   (34,001)     (61,172)
  Accounts receivable, net
   and other current
   assets                  (14,844)   (22,868)    18,303      (15,842)
  Accounts payable          49,535     95,529   (131,584)    (137,853)
  Accrued expenses and
   other current
   liabilities              (5,109)     8,668    (99,312)     (58,240)
  Additions to unearned
   revenue                  29,932     33,707     78,652       84,469
  Amortization of
   previously unearned
   revenue                 (27,816)   (27,029)   (85,719)     (76,154)
  Interest payable            (701)     4,454    (26,773)     (29,148)
                           --------  ---------  ---------  -----------
Net cash provided by (used
 in) operating activities   36,817    116,645    (88,941)       8,993

INVESTING ACTIVITIES:
Sales and maturities of
 marketable securities and
 other investments          21,988    395,087    581,011    1,007,411
Purchases of marketable
 securities                (71,880)  (380,651)  (414,194)  (1,136,032)
Purchases of fixed
 assets, including
 internal-use software
 and website development   (15,192)   (28,722)   (28,727)     (52,378)
Proceeds from sale of
 subsidiary and other        5,072          -      5,072            -
Acquisition, net of cash
 acquired                        -    (71,195)         -      (71,195)
                           --------  ---------  ---------  -----------
Net cash provided by (used
 in) investing activities  (60,012)   (85,481)   143,162     (252,194)

FINANCING ACTIVITIES:
Proceeds from exercises of
 stock options and other    41,235      7,727    132,832       42,618
Repayments of long-term debt,
 capital lease obligations,
 and other                  (3,437)      (550)  (287,576)    (156,842)
                           --------  ---------  ---------  -----------
Net cash provided by (used
 in) financing activities   37,798      7,177   (154,744)    (114,224)

Foreign-currency effect on
 cash and cash equivalents  10,087      6,117     28,687          760
                           --------  ---------  ---------  -----------
Net increase (decrease) in
 cash and cash equivalents  24,690     44,458    (71,836)    (356,665)
                           --------  ---------  ---------  -----------

CASH AND CASH EQUIVALENTS,
 END OF PERIOD            $666,418  $ 745,608  $ 666,418  $   745,608
                           ========  =========  =========  ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired
 under capital
 leases and other
 financing arrangements   $  1,572  $     135  $   2,648  $       658
Cash paid for interest      30,019     21,497    116,835      107,565
Cash paid for income
 taxes                       1,019      1,651      1,628        2,659



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

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 327,564  $   666,418

OPERATING ACTIVITIES:
Net income (loss)                                (35,221)     314,917
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                                   76,955       73,360
  Stock-based compensation                       108,392       53,112
  Other operating expense
   (income)                                        4,624       (3,046)
  Losses (gains) on sales of marketable
   securities, net                               (11,260)        (995)
  Remeasurements and other                       134,888        5,284
  Non-cash interest expense
   and other                                      19,902        3,568
Changes in operating
 assets and liabilities:
  Inventories                                    (82,369)    (103,957)
  Accounts receivable, net and other current
   assets                                         16,775      (33,840)
  Accounts payable                               131,254      161,463
  Accrued expenses and
   other current
   liabilities                                   (57,366)      15,332
  Additions to unearned
   revenue                                        98,415      107,458
  Amortization of
   previously unearned
   revenue                                      (123,444)    (102,175)
  Interest payable                                 2,093         (525)
                                                ---------  -----------
Net cash provided by (used in) operating
 activities                                      283,638      489,956

INVESTING ACTIVITIES:
Sales and maturities of marketable securities
 and other investments                           733,768    1,239,584
Purchases of marketable
 securities                                     (587,714)  (1,257,480)
Purchases of fixed
 assets, including
 internal-use software
 and website development                         (44,243)     (69,614)
Proceeds from sale of
 subsidiary and other                              5,072            -
Acquisition, net of cash
 acquired                                              -      (71,195)
                                                ---------  -----------
Net cash provided by (used in) investing
 activities                                      106,883     (158,705)

FINANCING ACTIVITIES:
Proceeds from exercises of stock options and
 other                                           198,208       73,108
Repayments of long-term debt, capital lease
 obligations, and other                         (290,250)    (364,574)
                                                ---------  -----------
Net cash provided by (used in) financing
 activities                                      (92,042)    (291,466)

Foreign-currency effect on cash and cash
 equivalents                                      40,375       39,405
                                                ---------  -----------
Net increase (decrease) in cash and cash
 equivalents                                     338,854       79,190
                                                ---------  -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD       $ 666,418  $   745,608
                                                =========  ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired
 under capital
 leases and other
 financing arrangements                        $   3,374  $       687
Cash paid for interest                           117,477      110,677
Cash paid for income
 taxes                                             1,613        2,856

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       Nine Months Ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                           2003        2004        2003        2004
                        ----------- ----------  ----------- ----------

Net sales              $1,134,456  $1,462,475  $3,317,927  $4,380,165
Cost of sales             848,635   1,106,824   2,487,596   3,322,634
                        ----------  ----------  ----------  ----------
Gross profit              285,821     355,651     830,331   1,057,531

Operating expenses:
  Fulfillment             107,057     135,521     318,217     385,943
  Marketing                28,943      34,347      82,496      99,822
  Technology and
   content                 53,775      64,823     155,998     178,374
  General and
   administrative          22,393      25,907      65,318      80,523
  Stock-based
   compensation (1)        20,936       9,274      72,712      38,073
  Other operating
   expense (income)           786       4,505       2,611      (3,187)
                        ----------  ----------  ----------  ----------
        Total operating
         expenses         233,890     274,377     697,352     779,548
                        ----------  ----------  ----------  ----------

Income from operations     51,931      81,274     132,979     277,983

Interest income             4,324       7,553      16,625      18,419
Interest expense          (29,802)    (26,307)   (100,680)    (80,093)
Other income (expense),
 net                          252      (2,932)      6,796      (5,767)
Remeasurements and
 other                    (11,142)     (5,441)    (93,592)     31,221
                        ----------  ----------  ----------  ----------
        Total non-
         operating
         expense, net     (36,368)    (27,127)   (170,851)    (36,220)
                        ----------  ----------  ----------  ----------

Net income (loss)      $   15,563  $   54,147  $  (37,872) $  241,763
                        ==========  ==========  ==========  ==========

Basic earnings (loss)
 per share             $     0.04  $     0.13  $    (0.10) $     0.60
                        ==========  ==========  ==========  ==========

Diluted earnings (loss)
 per share             $     0.04  $     0.13  $    (0.10) $     0.57
                        ==========  ==========  ==========  ==========

Weighted average shares
 used in computation of
 earnings (loss) per
 share:
  Basic                   397,912     406,647     393,477     405,153
                        ==========  ==========  ==========  ==========
  Diluted                 422,802     424,777     393,477     423,924
                        ==========  ==========  ==========  ==========

(1) Components of
     stock-based
     compensation:
      Fulfillment      $    4,374  $    2,001  $   16,221  $    6,294
      Marketing             1,582          67       4,167       2,770
      Technology and
       content             12,013       4,408      39,807      20,541
      General and
       administrative       2,967       2,798      12,517       8,468
                        ----------  ----------  ----------  ----------
                       $   20,936  $    9,274  $   72,712  $   38,073
                        ==========  ==========  ==========  ==========

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
                                        September 30, 2003
                                -----------------------------------

                                As Reported Adjustments Pro Forma
                                     (1)
                                -----------------------------------

Net sales                       $1,134,456   $      -   $1,134,456
Cost of sales                      848,635          -      848,635
                                 ----------   --------   ----------
Gross profit                       285,821          -      285,821

Operating expenses:
 Fulfillment                       107,057          -      107,057
 Marketing                          28,943          -       28,943
 Technology and content             53,775          -       53,775
 General and administrative         22,393          -       22,393
 Stock-based compensation           20,936    (20,936)           -
 Other operating expense               786       (786)           -
                                 ----------   --------   ----------
       Total operating expenses    233,890    (21,722)     212,168
                                 ----------   --------   ----------

Income from operations              51,931     21,722       73,653 (2)

Interest income                      4,324          -        4,324
Interest expense                   (29,802)         -      (29,802)
Other income (expense), net            252          -          252
Remeasurements and other           (11,142)    11,142            -
                                 ----------   --------   ----------
       Total non-operating
        expense, net               (36,368)    11,142      (25,226)
                                 ----------   --------   ----------

Net income                      $   15,563   $ 32,864   $   48,427
                                 ==========   ========   ==========

Basic earnings per share        $     0.04   $   0.08   $     0.12
                                 ==========   ========   ==========

Diluted earnings per share      $     0.04   $   0.07   $     0.11
                                 ==========   ========   ==========

Weighted average shares used in computation
 of earnings
 per share:
  Basic                            397,912                397,912
                                 ==========             ==========
  Diluted                          422,802                422,802
                                 ==========             ==========

Net cash provided by operating
 activities                                            $   36,817
Purchases of fixed assets, including
 internal-use software
 and website development                                  (15,192)
                                                        ----------
Free cash flow                                         $   21,625
                                                        ==========

Net cash used in investing
 activities                                            $  (60,012)
                                                        ==========

Net cash provided by financing
 activities                                            $   37,798
                                                        ==========



                                         Three Months Ended
                                         September 30, 2004
                                 ----------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $1,462,475   $      -  $1,462,475
Cost of sales                     1,106,824          -   1,106,824
                                  ----------   --------  ----------
Gross profit                        355,651          -     355,651

Operating expenses:
 Fulfillment                        135,521          -     135,521
 Marketing                           34,347          -      34,347
 Technology and content              64,823          -      64,823
 General and administrative          25,907          -      25,907
 Stock-based compensation             9,274     (9,274)          -
 Other operating expense              4,505     (4,505)          -
                                  ----------   --------  ----------
       Total operating expenses     274,377    (13,779)    260,598
                                  ----------   --------  ----------

Income from operations               81,274     13,779      95,053 (2)

Interest income                       7,553          -       7,553
Interest expense                    (26,307)         -     (26,307)
Other income (expense), net          (2,932)         -      (2,932)
Remeasurements and other             (5,441)     5,441           -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                (27,127)     5,441     (21,686)
                                  ----------   --------  ----------

Net income                       $   54,147   $ 19,220  $   73,367
                                  ==========   ========  ==========

Basic earnings per share         $     0.13   $   0.05  $     0.18
                                  ==========   ========  ==========

Diluted earnings per share       $     0.13   $   0.04  $     0.17
                                  ==========   ========  ==========

Weighted average shares used
 in computation of earnings
 per share:
  Basic                              406,647               406,647
                                   ==========            ==========
  Diluted                            424,777               424,777
                                   ==========            ==========

Net cash provided by operating
 activities                                             $  116,645
Purchases of fixed assets, including
 internal-use software
 and website development                                   (28,722)
                                                         ----------
Free cash flow                                          $   87,923
                                                         ==========

Net cash used in investing
 activities                                             $  (85,481)
                                                         ==========

Net cash provided by financing
 activities                                             $    7,177
                                                         ==========

(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)

                                         Nine Months Ended
                                        September 30, 2003
                                -----------------------------------

                                As Reported Adjustments Pro Forma
                                     (1)
                                -----------------------------------

Net sales                       $3,317,927   $      -   $3,317,927
Cost of sales                    2,487,596          -    2,487,596
                                 ----------   --------   ----------
Gross profit                       830,331          -      830,331

Operating expenses:
 Fulfillment                       318,217          -      318,217
 Marketing                          82,496          -       82,496
 Technology and content            155,998          -      155,998
 General and administrative         65,318          -       65,318
 Stock-based compensation           72,712    (72,712)           -
 Other operating expense
  (income)                           2,611     (2,611)           -
                                 ----------   --------   ----------
       Total operating expenses    697,352    (75,323)     622,029
                                 ----------   --------   ----------

Income from operations             132,979     75,323      208,302 (2)

Interest income                     16,625          -       16,625
Interest expense                  (100,680)         -     (100,680)
Other income (expense), net          6,796          -        6,796
Remeasurements and other           (93,592)    93,592            -
                                 ----------   --------   ----------
       Total non-operating
        expense, net              (170,851)    93,592      (77,259)
                                 ----------   --------   ----------

Net income (loss)               $  (37,872)  $168,915   $  131,043
                                 ==========   ========   ==========

Basic earnings (loss) per share $    (0.10)  $   0.43   $     0.33
                                 ==========   ========   ==========

Diluted earnings (loss) per
 share                          $    (0.10)  $   0.41   $     0.31
                                 ==========   ========   ==========

Weighted average shares used
 in computation of
 earnings (loss)
 per share:
  Basic                            393,477                393,477
                                 ==========             ==========
  Diluted                          393,477                418,359
                                 ==========             ==========

Net cash provided by (used in) operating
 activities                                            $  (88,941)
Purchases of fixed assets, including
 internal-use software
 and website development                                  (28,727)
                                                        ----------
Free cash flow                                         $ (117,668)
                                                        ==========

Net cash provided by (used in) investing
 activities                                            $  143,162
                                                        ==========

Net cash used in financing
 activities                                            $ (154,744)
                                                        ==========



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

                                           Nine Months Ended
                                           September 30, 2004
                                 ----------------------------------

                                 As Reported Adjustments Pro Forma
                                      (1)
                                 ----------------------------------

Net sales                        $4,380,165   $      -  $4,380,165
Cost of sales                     3,322,634          -   3,322,634
                                  ----------   --------  ----------
Gross profit                      1,057,531          -   1,057,531

Operating expenses:
 Fulfillment                        385,943          -     385,943
 Marketing                           99,822          -      99,822
 Technology and content             178,374          -     178,374
 General and administrative          80,523          -      80,523
 Stock-based compensation            38,073    (38,073)          -
 Other operating expense (income)    (3,187)     3,187           -
                                  ----------   --------  ----------
       Total operating expenses     779,548    (34,886)    744,662
                                  ----------   --------  ----------

Income from operations              277,983     34,886     312,869 (2)

Interest income                      18,419          -      18,419
Interest expense                    (80,093)         -     (80,093)
Other income (expense), net          (5,767)         -      (5,767)
Remeasurements and other             31,221    (31,221)          -
                                  ----------   --------  ----------
       Total non-operating
        expense, net                (36,220)   (31,221)    (67,441)
                                  ----------   --------  ----------

Net income (loss)                $  241,763   $  3,665  $  245,428
                                  ==========   ========  ==========

Basic earnings (loss) per share  $     0.60   $   0.01  $     0.61
                                  ==========   ========  ==========

Diluted earnings (loss) per share$     0.57   $   0.01  $     0.58
                                  ==========   ========  ==========

Weighted average shares used in computation
 of earnings (loss)
 per share:
  Basic                              405,153               405,153
                                   ==========            ==========
  Diluted                            423,924               423,924
                                   ==========            ==========

Net cash provided by (used in) operating
 activities                                             $    8,993
Purchases of fixed assets, including
 internal-use software
 and website development                                   (52,378)
                                                         ----------
Free cash flow                                          $  (43,385)
                                                         ==========

Net cash provided by (used in) investing
 activities                                             $ (252,194)
                                                         ==========

Net cash used in financing
 activities                                             $ (114,224)
                                                         ==========

(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       Nine Months Ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                          2003        2004           2003        2004
                        ----------  ----------  ----------  ----------
North America
Net sales              $  709,271  $  816,088  $2,116,506  $2,455,061
Cost of sales             508,150     592,747   1,538,496   1,786,133
                        ----------  ----------  ----------  ----------
Gross profit              201,121     223,341     578,010     668,928
Direct segment
 operating expenses       138,606     165,901     409,236     470,058
                        ----------  ----------  ----------  ----------
Segment operating
 income                    62,515      57,440     168,774     198,870

International
Net sales                 425,185     646,387   1,201,421   1,925,104
Cost of sales             340,485     514,077     949,100   1,536,501
                        ----------  ----------  ----------  ----------
Gross profit               84,700     132,310     252,321     388,603
Direct segment
 operating expenses        73,562      94,697     212,793     274,604
                        ----------  ----------  ----------  ----------
Segment operating
 income                    11,138      37,613      39,528     113,999

Consolidated
Net sales               1,134,456   1,462,475   3,317,927   4,380,165
Cost of sales             848,635   1,106,824   2,487,596   3,322,634
                        ----------  ----------  ----------  ----------
Gross profit              285,821     355,651     830,331   1,057,531
Direct segment
 operating expenses       212,168     260,598     622,029     744,662
                        ----------  ----------  ----------  ----------
Segment operating
 income                    73,653      95,053     208,302     312,869
Stock-based
 compensation              20,936       9,274      72,712      38,073
Other operating expense
 (income)                     786       4,505       2,611      (3,187)
                        ----------  ----------  ----------  ----------

Income from operations     51,931      81,274     132,979     277,983
Total non-operating
 expense, net             (36,368)    (27,127)   (170,851)    (36,220)
                        ----------  ----------  ----------  ----------

Net income (loss)      $   15,563  $   54,147  $  (37,872) $  241,763
                        ==========  ==========  ==========  ==========

Segment Highlights:
Y/Y net sales growth:
North America                  21%         15%         18%         16%
International                  61          52          69          60
Consolidated                   33          29          32          32
Y/Y gross profit
 growth:
North America                  30%         11%         16%         16%
International                  38          56          59          54
Consolidated                   32          24          26          27
Y/Y segment operating
 income growth:
North America                 137%        (8%)         73%         18%
International                 872         238         N/A         188
Consolidated                  168          29         167          50
Net sales mix:
North America                  63%         56%         64%         56%
International                  37          44          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       Nine Months Ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                          2003        2004        2003        2004
                        ----------  ----------  ----------  ----------
North America
Media                  $  502,271  $  563,595  $1,518,581  $1,704,084
Electronics and other
 general merchandise      180,418     228,626     526,002     678,864
Other                      26,582      23,867      71,923      72,113
                        ----------  ----------  ----------  ----------
                          709,271     816,088   2,116,506   2,455,061

International
Media                     374,989     530,314   1,096,735   1,601,900
Electronics and other
 general merchandise       49,804     115,615     103,756     321,563
Other                         392         458         930       1,641
                        ----------  ----------  ----------  ----------
                          425,185     646,387   1,201,421   1,925,104

Consolidated
Media                     877,260   1,093,909   2,615,316   3,305,984
Electronics and other
 general merchandise      230,222     344,241     629,758   1,000,427
Other                      26,974      24,325      72,853      73,754
                        ----------  ----------  ----------  ----------
                       $1,134,456  $1,462,475  $3,317,927  $4,380,165
                        ==========  ==========  ==========  ==========

Y/Y Net Sales Growth:
North America:
Media                          15%         12%         13%         12%
Electronics and other
 general merchandise           35          27          34          29
Other                          49         (10)         26           0

International:
Media                          50%         41%         63%         46%
Electronics and other
 general merchandise          259         132         197         210
Other                         (31)         17         (41)         76

Consolidated:
Media                          28%         25%         30%         26%
Electronics and other
 general merchandise           56          50          48          59
Other                          46         (10)         24           1

Consolidated Net Sales
 Mix:
Media                          77%         75%         79%         75%
Electronics and other
 general merchandise           20          24          19          23
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)

                              September 30, December 31, September 30,
                                   2003         2003          2004
                                -----------  -----------   -----------
ASSETS
Current assets:
  Cash and cash equivalents    $   666,418  $ 1,102,273   $   745,608
  Marketable securities            398,242      292,550       439,092
                                -----------  -----------   -----------
     Cash, cash equivalents,
      and marketable
      securities                 1,064,660    1,394,823     1,184,700
  Inventories                      241,667      293,917       357,320
  Accounts receivable, net and
   other current assets            103,873      132,069       150,764
                                -----------  -----------   -----------
       Total current assets      1,410,200    1,820,809     1,692,784

Fixed assets, net                  221,459      224,285       226,762
Goodwill                            69,121       69,121       137,584
Other assets                        48,905       47,818        51,538
                                -----------  -----------   -----------
       Total assets            $ 1,749,685  $ 2,162,033   $ 2,108,668
                                ===========  ===========   ===========

LIABILITIES AND STOCKHOLDERS'
 DEFICIT
Current liabilities:
  Accounts payable             $   499,189  $   819,811   $   688,297
  Accrued expenses and other
   current liabilities             236,184      317,730       269,178
  Unearned revenue                  40,843       37,844        46,144
  Interest payable                  44,476       73,100        43,952
  Current portion of long-term
   debt and other                    6,058        4,216         3,452
                                -----------  -----------   -----------
       Total current
        liabilities                826,750    1,252,701     1,051,023

Long-term debt and other         2,080,969    1,945,439     1,778,722

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 -- 400,422,
       403,354, and 407,464          4,004        4,034         4,075
  Additional paid-in capital     1,852,308    1,899,398     1,981,659
  Deferred stock-based
   compensation                     (3,525)      (2,850)       (2,529)
  Accumulated other
   comprehensive income             36,761       37,739        28,383
  Accumulated deficit           (3,047,582)  (2,974,428)   (2,732,665)
                                -----------  -----------   -----------
       Total stockholders'
        deficit                 (1,158,034)  (1,036,107)     (721,077)
                                -----------  -----------   -----------
           Total liabilities
            and stockholders'
            deficit            $ 1,749,685  $ 2,162,033   $ 2,108,668
                                ===========  ===========   ===========

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

Operating cash flow --
 trailing twelve
 months (TTM)           $  284  $  392  $  393  $  410  $  490     73%

Purchases of fixed
 assets (including
 internal-use software
 and website
 development) --  TTM   $   44  $   46  $   49  $   56  $   70     57%

Free cash flow
 (operating cash flow
 less purchases of
 fixed assets) -- TTM   $  239  $  346  $  344  $  354  $  420     76%

Common shares and
 stock-based awards                                            less
 outstanding               433     433     432     434     434 than 1%
Common shares
 outstanding               400     403     405     407     407      2%
Stock-based awards
 outstanding                33      29      27      27      27   (18%)
Stock-based awards
 outstanding -- % of
 common shares
 outstanding               8.1%    7.3%    6.8%    6.7%    6.6%   N/A

Results of Operations

Worldwide (WW) net
 sales                  $1,134  $1,946  $1,530  $1,387  $1,462     29%
WW net sales -- Y/Y
 growth, excluding the
 effect of foreign
 exchange rates           29.8%   29.4%   33.2%   21.9%   23.9%   N/A
WW net sales --  TTM    $4,747  $5,264  $5,710  $5,998  $6,326     33%
WW net sales shipped
 outside the U.S. --
 TTM % of net sales       40.5%   43.4%   45.7%   47.0%   48.2%   N/A

Gross profit            $  286  $  427  $  361  $  341  $  356     24%
Gross margin -- % of
 WW net sales             25.2%   21.9%   23.6%   24.6%   24.3%   N/A
Gross profit -- TTM     $1,165  $1,257  $1,347  $1,415  $1,484     27%
Gross margin -- TTM %
 of WW net sales          24.6%   23.9%   23.6%   23.6%   23.5%   N/A

Fulfillment costs -- %
 of WW net sales           9.4%    8.2%    8.3%    8.8%    9.3%   N/A
Fulfillment costs --
 TTM % of WW net sales     9.4%    9.1%    8.8%    8.6%    8.6%   N/A

Consolidated direct
 segment operating
 expenses               $  212  $  274  $  244  $  240  $  261     23%
Consolidated direct
 segment operating
 expenses -- TTM        $  855  $  896  $  937  $  970  $1,019     19%

Consolidated segment
 operating income       $   74  $  153  $  117  $  101  $   95     29%
Consolidated segment
 operating margin -- %
 of WW net sales           6.5%    7.9%    7.6%    7.3%    6.5%   N/A
Consolidated segment
 operating income --
 TTM                    $  310  $  361  $  411  $  444  $  466     50%
Consolidated segment
 operating margin --
 TTM % of WW net sales     6.5%    6.9%    7.2%    7.4%    7.4%   N/A

GAAP operating income   $   52  $  138  $  110  $   86  $   81     57%
GAAP operating margin
 -- % of WW net sales      4.6%    7.1%    7.2%    6.2%    5.6%   N/A
GAAP operating income
 -- TTM                 $  204  $  271  $  342  $  386  $  416    104%
GAAP operating margin
 -- TTM % of WW net
 sales                     4.3%    5.1%    6.0%    6.4%    6.6%   N/A

Pro forma net income    $   48  $  125  $   97  $   75  $   73     52%
Pro forma net income
 per diluted share      $ 0.11  $ 0.29  $ 0.23  $ 0.18  $ 0.17     55%
Pro forma net income
 -- TTM                 $  206  $  256  $  313  $  345  $  370     79%

GAAP net income         $   16  $   73  $  111  $   76  $   54    248%
GAAP net income per
 diluted share          $ 0.04  $ 0.17  $ 0.26  $ 0.18  $ 0.13    225%
GAAP net income (loss)
 -- TTM                 $  (35) $   35  $  157  $  276  $  315    N/A

North America segment:
  Net sales             $  709  $1,142  $  847  $  792  $  816     15%
  Net sales -- TTM      $3,083  $3,258  $3,401  $3,490  $3,597     17%
  Gross profit          $  201  $  289  $  226  $  220  $  223     11%
  Gross margin -- % of
   North American net
   sales                  28.4%   25.3%   26.7%   27.7%   27.4%   N/A
  Gross profit -- TTM   $  821  $  867  $  906  $  935  $  958     17%
  Gross margin -- TTM
   % of North America
   net sales              26.6%   26.6%   26.6%   26.8%   26.6%   N/A
  Operating income      $   63  $  114  $   76  $   66  $   57    (8%)
  Operating margin --
   % of North America
   net sales               8.8%   10.0%    8.9%    8.3%    7.0%   N/A
  Operating income --
   TTM                  $  251  $  283  $  307  $  318  $  313     25%
  Operating margin --
   TTM % of North
   America net sales       8.1%    8.7%    9.0%    9.1%    8.7%   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 %
                       Q3 2003 Q4 2003 Q1 2004 Q2 2004 Q3 2004 Change
                       ------- ------- ------- ------- ------- -------
International segment:
  Net sales              $  425  $  804  $  684  $  595  $  646    52%
  Net sales -- Y/Y
   growth, excluding
   the effect of
   foreign exchange
   rates                   50.4%   53.6%   57.9%   38.1%   38.9%  N/A
  Net sales -- TTM       $1,663  $2,005  $2,310  $2,508  $2,729    64%
  Gross profit           $   85  $  138  $  135  $  121  $  132    56%
  Gross margin -- % of
   International net
   sales                   19.9%   17.2%   19.8%   20.4%   20.5%  N/A
  Gross profit -- TTM    $  345  $  391  $  442  $  479  $  527    53%
  Gross margin -- TTM
   % of International
   net sales               20.7%   19.5%   19.1%   19.1%   19.3%  N/A
  Operating income       $   11  $   39  $   41  $   35  $   38   238%
  Operating margin --
   % of International
   net sales                2.6%    4.8%    6.1%    5.9%    5.8%  N/A
  Operating income --
   TTM                   $   59  $   78  $  104  $  126  $  153   158%
  Operating margin --
   TTM % of
   International net
   sales                    3.6%    3.9%    4.5%    5.0%    5.6%  N/A

Supplemental Worldwide
 Net Sales:
  Media                  $  877  $1,434  $1,175  $1,037  $1,094    25%
  Media -- TTM           $3,695  $4,049  $4,351  $4,523  $4,740    28%
  Electronics and
   other general
   merchandise           $  230  $  473  $  331  $  325  $  344    50%
  Electronics and
   other general
   merchandise -- TTM    $  951  $1,103  $1,244  $1,360  $1,474    55%
  Other                  $   27  $   39  $   24  $   25  $   24  (10%)
  Other -- TTM           $  101  $  112  $  116  $  115  $  113    11%

Supplemental North
 America Segment Net
 Sales:
  Media                  $  502  $  751  $  599  $  542  $  564    12%
  Media -- TTM           $2,167  $2,269  $2,351  $2,394  $2,455    13%
  Electronics and
   other general
   merchandise           $  180  $  353  $  224  $  226  $  229    27%
  Electronics and
   other general
   merchandise -- TTM    $  816  $  879  $  935  $  983  $1,031    26%
  Other                  $   27  $   38  $   24  $   25  $   24  (10%)
  Other -- TTM           $  100  $  110  $  115  $  113  $  111    10%

Supplemental
 International Segment
 Net Sales:
  Media                  $  375  $  683  $  576  $  496  $  530    41%
  Media -- TTM           $1,527  $1,779  $2,000  $2,129  $2,285    50%
  Electronics and
   other general
   merchandise           $   50  $  121  $  107  $   99  $  116   132%
  Electronics and
   other general
   merchandise -- TTM    $  135  $  225  $  309  $  377  $  442   228%
  Other                  $    0  $    0  $    0  $    1  $    0    17%
  Other -- TTM           $    1  $    1  $    1  $    2  $    2    48%


Balance Sheet

Cash and marketable
 securities              $1,065  $1,395  $  998  $1,151  $1,185    11%

Inventory, net --
 ending                  $  242  $  294  $  282  $  284  $  357    48%
Inventory -- average
 inventory % of TTM
 net sales                  4.0%    4.1%    4.1%    4.3%    4.6%  N/A
Inventory turnover,
 average -- TTM            18.9    18.4    18.7    17.9    16.6  (12%)

Fixed assets, net        $  221  $  224  $  217  $  216  $  227     2%

Accounts payable days
 -- ending                   54      50      44      51      57     6%

Other(a)

Employees (full-time
 and part-time;
 excludes contractors
 & temporary
 personnel)               7,900   7,800   8,100   8,200   8,800    11%

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

(a) Includes over 250 employees of Joyo.com.

                           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

    --  Shipping revenue, which excludes amounts earned from
        third-party sellers, was $87 million, up 13% from $77 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 costs incurred in operating and
        staffing our fulfillment and customer service centers on
        behalf of other businesses, such as Toysrus.com and
        Target.com.

    --  Outbound shipping-related costs totaled $128 million, up from
        $104 million. Net shipping loss was $41 million, up from a net
        loss of $27 million, resulting primarily from our
        free-shipping offers. We view free-shipping offers as an
        effective worldwide marketing tool and intend to continue
        offering them indefinitely.

    Direct Segment Operating Expense

    --  Third quarter direct segment operating expenses as a
        percentage of net sales were as follows:
                                             2004         2003

               Fulfillment                   9.3%         9.4%
               Technology and content        4.4%         4.7%
               Marketing                     2.3%         2.6%
               General and administrative    1.8%         2.0%
    --  Depreciation was $19 million in third quarter 2004 and $72
        million over the trailing twelve months.

    Fulfillment

        --  Fulfillment costs include 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.

        --  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 revenue than credit card fees
            on our retail sales. Bad debt costs, including costs
            associated with our guarantee program, are also higher as
            a percentage of recorded revenue versus our retail sales.
            Accordingly, fulfillment costs as a percentage of net
            sales are higher for third-party seller transactions than
            for our retail sales.

        --  Our new fulfillment center in Scotland began fulfilling
            customer orders in the third quarter and is now fully
            operational. The center is approximately 300,000 square
            feet and currently employs over 200 permanent associates.

        --  Fulfillment costs decreased as a percentage of sales from
            the prior year, but increased in absolute dollars due to
            variable costs corresponding with sales volume, our mix of
            product sales, credit card fees, and bad debt costs,
            including costs associated with our guarantee for certain
            third-party seller transactions. We expect absolute
            amounts spent in fulfillment to increase over time.

    Technology and Content

        --  Our spending in technology and content has increased as we
            are adding computer scientists and software engineers to
            enhance the customer experience on our websites and those
            websites powered by us, and improve our process
            efficiency. Additionally, we continue to invest in several
            areas of technology, including seller platform, A9.com,
            web services, and additional development centers. We
            intend to continue investing in these and other
            initiatives and expect absolute dollars spent in
            technology and content to increase over time as we
            continue to add computer scientists and software engineers
            to our staff.

        --  A significant majority of these costs are incurred in the
            U.S. and most of them are allocated to our North America
            segment.

        --  We expense all costs related to the development of
            internal-use software other than those incurred during the
            application development stage. Costs incurred during the
            application development stage are capitalized and
            amortized over the estimated useful life of the software,
            generally two years. For the three months ended September
            30, 2004 and 2003, we capitalized $12 million and $9
            million of internal-use software costs, which was offset
            by amortization of previously capitalized amounts of $8
            million and $6 million.

    Marketing

        --  Marketing efforts include targeted online marketing
            channels, such as our Associates and Syndicated Stores
            programs, portal advertising, e-mail campaigns, sponsored
            search, and other initiatives. Since our marketing
            expenses are largely variable, we expect absolute amounts
            spent in marketing to increase over time. To the extent
            there is increased or decreased competition for these
            traffic sources, or to the extent our mix of these
            channels shifts, we would expect to see a corresponding
            change in our marketing expense. While costs associated
            with free shipping are not included in marketing expense,
            we view our free-shipping offers as an effective worldwide
            marketing tool and intend to continue offering them
            indefinitely.

    General and Administrative

        --  General and Administrative costs increased primarily due
            to increases in professional fees. We expect absolute
            dollars spent in general and administrative to increase
            over time.

    Stock-Based Compensation

    --  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.

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

    --  Stock-based compensation was $9 million for the quarter,
        consisting of $6 million in contra-expense for stock awards
        under variable accounting, and $15 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," but is allocated to the
        corresponding operating expense categories on the statement of
        operations.

    --  We granted 0.7 million stock awards, primarily restricted
        stock units, during the quarter at a per-share weighted
        average fair value of $40.12. Year-to-date we have granted 2.7
        million stock awards, primarily restricted stock units, at a
        per-share average fair value of $44.59.

    --  At September 30, 2004, there were 27 million stock awards
        outstanding, consisting of 20 million stock options with a
        $12.90 weighted average exercise price, 6 million restricted
        stock units, and 0.5 million shares of restricted stock
        (included in common stock outstanding).

    --  At September 30, 2004, 1.4 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
        September 30, 2004, $40.86, was lower than the closing price
        on June 30, 2004, $54.40, we recorded a contra-expense
        associated with variable accounting treatment for the third
        quarter of 2004.

    Other Operating Expense (Income)

    --  Included in "Other operating expense (income)" are
        restructuring-related expenses or credits and amortization of
        other intangibles. Amortization of other intangibles was $0.3
        million and $1 million for the three months ended September
        30, 2004 and 2003.

    --  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.

    --  Cash payments resulting from our 2001 operational
        restructuring were $2 million, compared with $3 million in
        2003.

    --  We streamlined our organizational structure in France to
        reduce our operating costs. The severance terms associated
        with these efforts were finalized in the third quarter, and
        corresponding costs of $4 million were recorded. We expect
        payment to occur in the fourth quarter of 2004.

    --  We estimate, based on currently available information, the
        remaining net cash outflows associated with
        restructuring-related leases and other commitments will be $5
        million in 2004, and $16 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 $13 million).

    Other Income (Expense), Net

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

    Remeasurements and Other

    --  Remeasurements includes foreign-currency losses on
        remeasurement of 6.875% PEACS from Euros to U.S. Dollars of
        $17 million, compared with a loss of $12 million.

    --  Other includes a $7 million gain from the remeasurement of
        foreign-currency intercompany balances, which are to be repaid
        amongst subsidiaries, and a $4 million gain on sales of
        Euro-denominated investments.

    Income Taxes

    --  At September 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 $1.0 billion of our NOLs are
        attributable to continuing operations, and the related tax
        benefits, if realized, will be credited to results of
        operations for both financial reporting and tax reporting
        purposes. The remainder, approximately $1.8 billion, relates
        to tax deductible stock-based compensation in excess of
        amounts recognized for financial reporting purposes, and the
        related tax benefits, if realized, will be credited to
        stockholders' equity rather than to results of operations for
        financial reporting purposes.

    Net Income (Loss)

    --  We believe that our reported net income for the third quarter
        2004 should not be viewed, on its own, as a material positive
        event and is not necessarily predictive of future results for
        a variety of reasons. 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. The remeasurement of our 6.875% PEACS
        represented a significant charge during the quarter and may
        result in significant charges or gains in future periods.

    --  Additionally, we are unable to forecast the effect of
        stock-based compensation, which is based in part on the quoted
        price of our common stock in accordance with variable
        accounting treatment. In the third quarter of 2004 variable
        accounting treatment resulted in a credit to our operating
        results of $6 million due to a decline in price of our common
        stock. Comparisons to prior year quarter and year-to-date
        periods show improvement in operating income of $16 million
        and $46 million resulting from the effects of changing stock
        prices on variable accounting treatment. Variable accounting
        has resulted in significant expense and contra-expense in past
        periods and will continue to be unpredictable going forward.

    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 nine 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 third quarter is as
follows (in millions):

       Effect of exchange rate on:      2004       2003

       Net sales                     $    57    $    29
       Gross profit                       12          6
       Operating expenses                 (7)        (5)
       Operating income                    4          1
       Net interest expense and other     (1)        (2)
       Remeasurements and other(1)        (6)       (12)
       Net income (loss)                  (3)       (13)
       Diluted earnings (loss) per
        diluted share                $ (0.01)   $ (0.03)


      (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.

    --  Our cash, cash equivalents, and marketable securities of $1.18
        billion, at fair value, primarily consist of cash, commercial
        paper and short-term securities, U.S. Treasury notes and
        bonds, asset-backed, and agency securities and certificates of
        deposit. Included is amounts held in foreign currencies of
        $693 million, primarily in Euros, British Pounds, and Yen.

    --  We have pledged $76 million of our marketable securities as
        collateral for property leases and other contractual
        obligations, compared with $87 million as of December 31,
        2003.

    --  On September 7, 2004 we acquired all outstanding shares of
        Joyo.com Limited, a British Virgin Islands Company, which
        operates the Joyo.com website in cooperation with Chinese
        subsidiaries and affiliates. The Joyo.com website is the
        largest online retailer of books, music, and videos in China,
        and is Amazon.com's seventh global website. Results of
        operations for Joyo.com have been included in our consolidated
        results from the date of acquisition forward. Results were not
        significant in the third quarter, and are not expected to be
        significant in the fourth quarter. The purchase price was $74
        million, composed of $72 million in cash, the assumption of
        employee stock options, and transaction-related costs. We
        recorded $68 million in goodwill related to the acquisition.

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

    --  "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(3)......        858(4)          6.875%       February 2010
                          ---
                    $   1,758(5)
                    =========

    (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) PrEmium Adjustable Convertible Securities.

    (4) EUR 690 million principal amount, convertible at the holders'
        option into our common stock at EUR 84.883 per share
        ($105.56 per share based on the exchange rate as of September
        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.
        Due to fluctuations in this exchange ratio, our principal debt
        obligation since issuance in February 2000 has increased by
        $178 million as of September 30, 2004.

    (5) The "if converted" number of shares associated with 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. This segment includes export sales
        from www.amazon.com and www.amazon.ca.

    --  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.co.jp, www.amazon.fr, and, since September 7, 2004,
        www.joyo.com; from internationally focused Syndicated Stores;
        and from non-retail activities such as internationally focused
        marketing and promotional agreements. This segment includes
        export sales from these internationally based sites (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, toys
        and baby, tools, home and garden, apparel, sports and
        outdoors, gourmet food, jewelry, health and personal care,
        beauty, and musical instruments. 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
        trailing-twelve-months 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
        Joyo.com customers, 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 when they have placed an order during the
        preceding twelve-month period.

    --  References to sellers or merchants mean active seller
        accounts, which are established when a seller receives an
        order from a customer account. Seller accounts include sellers
        in Amazon's Marketplace, Auctions, zShops, and Merchants@
        platforms, but exclude Merchant.com sellers. A seller is
        considered active when they have received an order during the
        preceding twelve-month period.

    --  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.co.uk,
        www.amazon.de, www.amazon.co.jp, www.amazon.fr, and
        www.amazon.ca -- 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 Joyo.com units sold or 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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