 Printer-friendly view | | << Back | | Amazon.com Announces Third Quarter Sales up 41% Year over Year - Raises Financial Guidance - Expects Record Holiday Season |  | SEATTLE--(BUSINESS WIRE)--Oct. 23, 2007--Amazon.com, Inc.
(NASDAQ:AMZN) today announced financial results for its third quarter
ended September 30, 2007.
Operating cash flow was $1.0 billion for the trailing twelve
months, compared with $587 million for the trailing twelve months
ended September 30, 2006. Free cash flow was $800 million for the
trailing twelve months, an increase of 118% compared with $366 million
for the trailing twelve months ended September 30, 2006.
Common shares outstanding plus shares underlying stock-based
awards outstanding totaled 435 million on September 30, 2007,
unchanged from a year ago.
Net sales increased 41% to $3.26 billion in the third quarter,
compared with $2.31 billion in third quarter 2006. Excluding the $75
million favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, net sales grew 38% compared
with third quarter 2006.
Operating income increased 207% to $123 million in the third
quarter, compared with $40 million in third quarter 2006.
Net income increased 313% to $80 million in the third quarter, or
$0.19 per diluted share, compared with net income of $19 million, or
$0.05 per diluted share in third quarter 2006.
"Customers continue to respond to our low prices, our free
shipping, and the benefits of Amazon Prime. With our ever-increasing
selection, customers are now getting this unusual level of service
across many different product categories and with depth of selection
in each category," said Jeff Bezos, founder and CEO of Amazon.com. "In
our view, putting customers first is the only reliable way to create
lasting value for shareowners."
Highlights
North America segment sales, representing the Company's U.S.
and Canadian sites, were $1.79 billion, up 42% from third
quarter 2006.
International segment sales, representing the Company's U.K.,
German, Japanese, French and Chinese sites, were $1.47
billion, up 40% from third quarter 2006. Excluding the
favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, International net sales
growth was 33%.
Worldwide Media grew 36% to $2.09 billion in third quarter
2007, compared to $1.54 billion in third quarter 2006.
Worldwide Electronics & Other General Merchandise grew 54% to
$1.08 billion in third quarter 2007 and increased to 33% of
worldwide net sales compared with 30% in third quarter 2006.
The Company sold 2.5 million copies of Harry Potter and the
Deathly Hallows worldwide, making it Amazon's largest new
product release.
The Company launched a public beta of Amazon MP3, a digital
music store with Earth's biggest selection of a la carte
DRM-free MP3 music downloads. Amazon MP3 has over two million
songs from more than 180,000 artists represented by over
20,000 major and independent labels.
Amazon Europe launched a Shoes store and a Baby store on the
amazon.co.uk and amazon.de websites, offering customers tens
of thousands of items from hundreds of leading brands.
Amazon Europe launched a Home & Kitchen store on the amazon.fr
website, offering customers thousands of items from well-known
electrical appliance and kitchenware brands.
Amazon.co.jp opened an Apparel & Shoes store offering more
than 30,000 items from more than 100 well-known brands.
Fulfillment by Amazon launched in beta on the amazon.co.uk,
amazon.de and amazon.co.jp websites, giving small and
medium-sized businesses access to Amazon's fulfillment,
customer service, and underlying website technology.
Over 290,000 developers have registered to use Amazon Web
Services (AWS), up 25,000 from the prior quarter. AWS also
launched a limited beta version of the Amazon Flexible
Payments Service (FPS). Amazon FPS is the first payments
service designed from the ground up specifically for
developers, and provides unprecedented flexibility in the
movement of money through a set of web services APIs.
AWS recently introduced several new compute instance types for
the Amazon Elastic Compute Cloud, which provide up to eight
times more memory, CPU, and storage, enabling developers to
support an even broader set of applications.
Amazon Simple Storage Service (S3) continues to be rapidly
adopted by developers, and objects in storage have doubled to
more than ten billion during the last six months. In addition,
we have instituted a Service Level Agreement for Amazon S3
that guarantees operational performance levels.
Financial Guidance
The following forward-looking statements reflect Amazon.com's
expectations as of October 23, 2007. 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 2007 Guidance
Net sales are expected to be between $5.1 billion and $5.45
billion, or to grow between 28% and 37% compared with fourth
quarter 2006.
Operating income is expected to be between $221 million and
$291 million, or grow between 12% and 48% compared with fourth
quarter 2006. This guidance includes $54 million primarily for
stock-based compensation and amortization of intangible
assets, and it assumes, among other things, that no additional
intangible assets are recorded and that there are no further
revisions to stock-based compensation estimates.
Full Year 2007 Expectations
Net sales are expected to be between $14.263 billion and
$14.613 billion, or to grow between 33% and 36% compared with
2006.
Operating income is expected to be between $605 million and
$675 million, or grow between 56% and 74% compared with 2006.
This guidance includes $191 million primarily for stock-based
compensation and amortization of intangible assets, and it
assumes, among other things, that no additional intangible
assets are recorded and that there are no further revisions to
stock-based compensation estimates.
A conference call will be webcast live today at 2 p.m. PT/5 p.m.
ET, and will be available for at least three months 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,
the extent to which we owe income taxes, competition, management of
growth, potential fluctuations in operating results, international
growth and expansion, the outcomes of legal proceedings and claims,
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, and risks of fulfillment throughput and productivity.
Other risks and uncertainties include, among others, risks related to
new products, services and technologies, system interruptions,
significant indebtedness, government regulation and taxation, payments
and fraud. 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, 2006, and
all subsequent filings.
About Amazon.com
Amazon.com, Inc., (Nasdaq: AMZN), 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, Inc. 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, toys and baby, and home and garden.
Amazon and its affiliates operate websites, including
www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp,
www.amazon.fr, www.amazon.ca, and the Joyo Amazon websites at
www.joyo.cn and www.amazon.cn.
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 millions)
(unaudited)
Three Months Nine Months Twelve Months
Ended Ended Ended
September 30, September 30, September 30,
-------------- --------------- ----------------
2007 2006 2007 2006 2007 2006
------- ------ ------- ------- -------- -------
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD $1,004 $ 683 $1,022 $1,013 $ 693 $ 600
OPERATING ACTIVITIES:
Net income 80 19 269 93 367 292
Adjustments to
reconcile net income
to net cash from
operating activities:
Depreciation of
fixed assets,
including internal-
use software and
website
development, and
other amortization 61 63 183 146 242 182
Stock-based
compensation 51 30 130 71 161 87
Other operating
expense, net 3 2 6 9 8 13
Losses (gains) on
sales of marketable
securities, net - (3) 1 (2) 1 (4)
Remeasurements and
other 3 - 12 (7) 12 (10)
Deferred income
taxes (2) 7 (1) 15 6 (31)
Excess tax benefit
on stock awards (34) (9) (93) (38) (157) (43)
Changes in operating
assets and
liabilities:
Inventories (223) (218) (72) (155) (199) (269)
Accounts receivable,
net and other (73) (53) (17) 13 (134) (77)
Accounts payable 304 252 (216) (187) 372 312
Accrued expenses and
other 58 36 29 (6) 276 130
Additions to
unearned revenue 56 39 165 131 240 192
Amortization of
previously unearned
revenue (47) (35) (139) (125) (194) (187)
------- ------ ------- ------- -------- -------
Net cash provided
by (used in)
operating
activities 237 130 257 (42) 1,001 587
INVESTING ACTIVITIES:
Purchases of fixed
assets, including
internal-use software
and website
development (69) (62) (151) (166) (201) (221)
Acquisitions, net of
cash acquired, and
other (24) (2) (47) (30) (48) (30)
Sales and maturities
of marketable
securities and other
investments 210 438 1,156 975 2,025 1,159
Purchases of
marketable securities
and other investments (83) (227) (777) (589) (2,118) (947)
------- ------ ------- ------- -------- -------
Net cash provided
by (used in)
investing
activities 34 147 181 190 (342) (39)
FINANCING ACTIVITIES:
Proceeds from
exercises of stock
options 35 4 79 17 97 36
Excess tax benefit on
stock awards 34 9 93 38 157 43
Common stock
repurchased - (252) (248) (252) (248) (252)
Proceeds from long-
term debt and other 33 13 21 81 31 81
Repayments of long-
term debt and capital
lease obligations (29) (42) (63) (376) (63) (376)
------- ------ ------- ------- -------- -------
Net cash provided
by (used in)
financing
activities 73 (268) (118) (492) (26) (468)
Foreign-currency
effect on cash and
cash equivalents 18 1 24 24 40 13
------- ------ ------- ------- -------- -------
Net increase
(decrease) in
cash and cash
equivalents 362 10 344 (320) 673 93
------- ------ ------- ------- -------- -------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD $1,366 $ 693 $1,366 $ 693 $ 1,366 $ 693
======= ====== ======= ======= ======== =======
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 22 $ 22 $ 67 $ 85 $ 67 $ 85
Cash paid for income
taxes 4 5 14 13 15 15
Fixed assets acquired
under capital leases
and other financing
arrangements 22 41 43 62 50 68
AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
Net sales $3,262 $2,307 $9,163 $6,725
Cost of sales 2,500 1,758 6,980 5,119
------- ------- ------- -------
Gross profit 762 549 2,183 1,606
Operating expenses (1):
Fulfillment 296 217 815 599
Marketing 74 64 211 171
Technology and content 209 172 596 485
General and administrative 57 54 171 150
Other operating expense, net 3 2 6 9
------- ------- ------- -------
Total operating expenses 639 509 1,799 1,414
------- ------- ------- -------
Income from operations 123 40 384 192
Interest income 23 14 62 41
Interest expense (19) (21) (57) (58)
Other income (expense), net (1) 4 (2) 4
Remeasurements and other (2) 1 (8) 10
------- ------- ------- -------
Total non-operating income
(expense) 1 (2) (5) (3)
------- ------- ------- -------
Income before income taxes 124 38 379 189
Provision for income taxes 44 19 110 96
------- ------- ------- -------
Net income $ 80 $ 19 $ 269 $ 93
======= ======= ======= =======
Basic earnings per share $ 0.19 $ 0.05 $ 0.65 $ 0.22
======= ======= ======= =======
Diluted earnings per share $ 0.19 $ 0.05 $ 0.64 $ 0.22
======= ======= ======= =======
Weighted average shares used in
computation of earnings per share:
Basic 414 417 412 417
======= ======= ======= =======
Diluted 425 424 423 425
======= ======= ======= =======
(1) Includes stock-based compensation
as follows:
Fulfillment $ 11 $ 8 $ 27 $ 18
Marketing 2 1 6 3
Technology and content 28 16 72 38
General and administrative 10 5 25 12
AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------- ----------------
2007 2006 2007 2006
------- -------- ------- --------
North America
Net sales $1,788 $1,257 $5,012 $3,661
Cost of sales 1,328 914 3,679 2,668
------- -------- ------- --------
Gross profit 460 343 1,333 993
Direct segment operating expenses
(1) 381 321 1,087 885
------- -------- ------- --------
Segment operating income $ 79 $ 22 $ 246 $ 108
======= ======== ======= ========
International
Net sales $1,474 $1,050 $4,151 $3,064
Cost of sales 1,172 844 3,301 2,451
------- -------- ------- --------
Gross profit 302 206 850 613
Direct segment operating expenses
(1) 204 156 576 449
------- -------- ------- --------
Segment operating income $ 98 $ 50 $ 274 $ 164
======= ======== ======= ========
Consolidated
Net sales $3,262 $2,307 $9,163 $6,725
Cost of sales 2,500 1,758 6,980 5,119
------- -------- ------- --------
Gross profit 762 549 2,183 1,606
Direct segment operating expenses 585 477 1,663 1,334
------- -------- ------- --------
Segment operating income 177 72 520 272
Stock-based compensation (51) (30) (130) (71)
Other operating expense, net (3) (2) (6) (9)
------- -------- ------- --------
Income from operations 123 40 384 192
Total non-operating income
(expense) 1 (2) (5) (3)
Provision for income taxes (44) (19) (110) (96)
------- -------- ------- --------
Net income $ 80 $ 19 $ 269 $ 93
======= ======== ======= ========
Segment Highlights:
Y/Y net sales growth:
North America 42% 21% 37% 21%
International 40 29 35 23
Consolidated 41 24 36 22
Y/Y gross profit growth:
North America 34% 17% 34% 17%
International 47 21 39 17
Consolidated 39 18 36 17
Y/Y segment operating income
growth:
North America 263% (67%) 128% (47%)
International 94 (8) 67 (8)
Consolidated 145 (40) 91 (29)
Net sales mix:
North America 55% 54% 55% 54%
International 45 46 45 46
__________________________
(1) A significant majority of our costs for "Technology and
content" are incurred in the United States and most of these costs
are allocated to our North America segment.
AMAZON.COM, INC.
Supplemental Net Sales Information
(in millions)
(unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
--------------- ---------------
2007 2006 2007 2006
------- ------- ------- -------
North America
Media $1,081 $ 785 $2,995 $2,330
Electronics and other general
merchandise 631 409 1,801 1,148
Other 76 63 216 183
------- ------- ------- -------
Total North America 1,788 1,257 5,012 3,661
International
Media 1,010 757 2,919 2,237
Electronics and other general
merchandise 448 290 1,195 815
Other 16 3 37 12
------- ------- ------- -------
Total International 1,474 1,050 4,151 3,064
Consolidated
Media 2,091 1,542 5,914 4,567
Electronics and other general
merchandise 1,079 699 2,996 1,963
Other 92 66 253 195
------- ------- ------- -------
Total Consolidated $3,262 $2,307 $9,163 $6,725
======= ======= ======= =======
Y/Y Net Sales Growth:
North America:
Media 38% 15% 28% 16%
Electronics and other general
merchandise 54 35 57 33
Other 22 17 18 22
Total North America 42 21 37 21
International:
Media 33% 20% 30% 17%
Electronics and other general
merchandise 54 55 47 44
Other 410 144 216 286
Total International 40 29 35 23
Consolidated:
Media 36% 17% 29% 16%
Electronics and other general
merchandise 54 43 53 38
Other 41 20 30 27
Total Consolidated 41 24 36 22
Y/Y Net Sales Growth Excluding Effect
of Exchange Rates:
International:
Media 27% 19% 25% 21%
Electronics and other general
merchandise 45 51 38 48
Other 379 135 194 296
Total International 33 26 29 27
Consolidated:
Media 32% 17% 27% 18%
Electronics and other general
merchandise 51 41 49 39
Other 39 20 29 27
Total Consolidated 38 23 33 24
Consolidated Net Sales Mix:
Media 64% 67% 64% 68%
Electronics and other general
merchandise 33 30 33 29
Other 3 3 3 3
AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)
September 30, December 31, September 30,
2007 2006 2006
------------- ------------ -------------
ASSETS (unaudited) (unaudited)
Current assets:
Cash and cash equivalents
$ 1,366 $ 1,022 $ 693
Marketable securities
543 997 526
Inventories
970 877 736
Accounts receivable, net
and other 474 399 281
Deferred tax assets
71 78 79
------------- ------------ -------------
Total current assets 3,424 3,373 2,315
Fixed assets, net 491 457 449
Deferred tax assets 231 199 180
Goodwill 218 195 194
Other assets 254 139 130
------------- ------------ -------------
Total assets $ 4,618 $ 4,363 $ 3,268
============= ============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$ 1,674 $ 1,816 $ 1,196
Accrued expenses and other 645 716 521
------------- ------------ -------------
Total current liabilities 2,319 2,532 1,717
Long-term debt 1,273 1,247 1,234
Other long-term liabilities 265 153 121
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par
value:
Authorized shares -- 500
Issued and outstanding
shares -- none - - -
Common stock, $0.01 par
value:
Authorized shares --
5,000
Issued shares -- 429, 422
and 419
Outstanding shares --
415, 414 and 411 4 4 4
Treasury stock, at cost (500) (252) (252)
Additional paid-in capital 2,827 2,517 2,377
Accumulated other
comprehensive income
(loss) 11 (1) 1
Accumulated deficit (1,581) (1,837) (1,934)
------------- ------------ -------------
Total stockholders'
equity 761 431 196
------------- ------------ -------------
Total liabilities and
stockholders' equity $ 4,618 $ 4,363 $ 3,268
============= ============ =============
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)
Y/Y%
Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Change
Cash Flows and
Shares
Operating cash
flow -- trailing
twelve months
(TTM) $ 587 $ 702 $ 726 $ 895 $ 1,001 70%
Purchases of
fixed assets
(incl. internal-
use software &
website
development) --
TTM $ 221 $ 216 $ 205 $ 195 $ 201 (9%)
Free cash flow
(operating cash
flow less
purchases of
fixed assets) --
TTM $ 366 $ 486 $ 521 $ 700 $ 800 118%
Common shares and
stock-based
awards
outstanding 435 436 430 435 435 (0%)
Common shares
outstanding 411 414 409 413 415 1%
Stock-based
awards
outstanding 24 22 21 22 20 (15%)
Stock-based
awards
outstanding -- %
of common shares
outstanding 5.8% 5.3% 5.1% 5.3% 4.9% N/A
Results of
Operations
Worldwide (WW)
net sales $ 2,307 $ 3,986 $ 3,015 $ 2,886 $ 3,262 41%
WW net sales --
Y/Y growth,
excluding F/X 23% 30% 29% 33% 38% N/A
WW net sales --
TTM $ 9,701 $10,711 $11,447 $12,193 $13,149 36%
WW net sales --
TTM Y/Y growth,
excluding F/X 23% 26% 27% 29% 32% N/A
Gross profit $ 549 $ 850 $ 719 $ 701 $ 762 39%
Gross margin -- %
of WW net sales 23.8% 21.3% 23.8% 24.3% 23.4% N/A
Gross profit --
TTM $ 2,273 $ 2,456 $ 2,628 $ 2,820 $ 3,032 33%
Gross margin --
TTM % of WW net
sales 23.4% 22.9% 23.0% 23.1% 23.1% N/A
Operating income $ 40 $ 197 $ 145 $ 116 $ 123 207%
Operating margin
-- % of WW net
sales 1.7% 4.9% 4.8% 4.0% 3.8% N/A
Operating income
-- TTM (1) $ 357 $ 389 $ 429 $ 498 $ 581 63%
Operating margin
-- TTM % of WW
net sales 3.7% 3.6% 3.7% 4.1% 4.4% N/A
Net income $ 19 $ 98 $ 111 $ 78 $ 80 313%
Net income per
diluted share $ 0.05 $ 0.23 $ 0.26 $ 0.19 $ 0.19 312%
Net income -- TTM
(2) $ 292 $ 190 $ 249 $ 306 $ 367 26%
Net income per
diluted share --
TTM (2) $ 0.69 $ 0.45 $ 0.59 $ 0.72 $ 0.87 27%
Segments
North America
Segment:
Net sales $ 1,257 $ 2,208 $ 1,622 $ 1,601 $ 1,788 42%
Net sales --
Y/Y growth,
excluding F/X 21% 31% 30% 38% 42% N/A
Net sales --
TTM $ 5,343 $ 5,869 $ 6,244 $ 6,687 $ 7,219 35%
Gross profit $ 343 $ 532 $ 439 $ 434 $ 460 34%
Gross margin --
% of North
America net
sales 27.3% 24.1% 27.1% 27.1% 25.7% N/A
Gross profit --
TTM $ 1,411 $ 1,525 $ 1,623 $ 1,747 $ 1,864 32%
Gross margin --
TTM % of North
America net
sales 26.4% 26.0% 26.0% 26.1% 25.8% N/A
Operating
income $ 22 $ 123 $ 86 $ 82 $ 79 263%
Operating
margin -- % of
North America
net sales 1.7% 5.5% 5.3% 5.1% 4.4% N/A
Operating
income -- TTM
(1) $ 200 $ 230 $ 254 $ 312 $ 369 84%
Operating
margin -- TTM
% of North
America net
sales 3.8% 3.9% 4.1% 4.7% 5.1% N/A
International
Segment:
Net sales $ 1,050 $ 1,778 $ 1,393 $ 1,285 $ 1,474 40%
Net sales --
Y/Y growth,
excluding F/X 26% 28% 27% 26% 33% N/A
Net sales --
TTM $ 4,358 $ 4,842 $ 5,203 $ 5,506 $ 5,930 36%
Net sales --
TTM % of WW
net sales 45% 45% 45% 45% 45% N/A
Gross profit $ 206 $ 318 $ 280 $ 267 $ 302 47%
Gross margin --
% of
International
net sales 19.6% 17.9% 20.1% 20.8% 20.5% N/A
Gross profit --
TTM $ 862 $ 931 $ 1,005 $ 1,072 $ 1,168 36%
Gross margin --
TTM % of
International
net sales 19.8% 19.2% 19.3% 19.5% 19.7% N/A
Operating
income $ 50 $ 106 $ 93 $ 83 $ 98 94%
Operating
margin -- % of
International
net sales 4.8% 6.0% 6.7% 6.4% 6.6% N/A
Operating
income -- TTM $ 256 $ 270 $ 306 $ 333 $ 380 48%
Operating
margin -- TTM
% of
International
net sales 5.9% 5.6% 5.9% 6.0% 6.4% N/A
Consolidated
Segments:
Operating
expenses $ 477 $ 621 $ 540 $ 536 $ 585 23%
Operating
expenses --
TTM $ 1,816 $ 1,956 $ 2,068 $ 2,175 $ 2,283 26%
Operating
income $ 72 $ 229 $ 179 $ 165 $ 177 145%
Operating
margin -- % of
consolidated
sales 3.1% 5.7% 6.0% 5.7% 5.4% N/A
Operating
income -- TTM
(1) $ 457 $ 500 $ 560 $ 645 $ 749 64%
Operating
margin -- TTM
% of
consolidated
net sales 4.7% 4.7% 4.9% 5.3% 5.7% N/A
Supplemental
North America
Segment Net
Sales:
Media $ 785 $ 1,251 $ 990 $ 923 $ 1,081 38%
Media -- Y/Y
growth,
excluding F/X 14% 21% 21% 26% 37% N/A
Media -- TTM $ 3,361 $ 3,582 $ 3,757 $ 3,949 $ 4,245 26%
Electronics and
other general
merchandise $ 409 $ 876 $ 564 $ 606 $ 631 54%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 35% 51% 51% 66% 54% N/A
Electronics and
other general
merchandise --
TTM $ 1,727 $ 2,024 $ 2,214 $ 2,456 $ 2,678 55%
Electronics and
other general
merchandise --
TTM % of North
America net
sales 32% 34% 35% 37% 37% N/A
Other $ 63 $ 81 $ 68 $ 72 $ 76 22%
Other -- TTM $ 255 $ 263 $ 273 $ 282 $ 296 16%
Supplemental
International
Segment Net
Sales:
Media $ 757 $ 1,247 $ 1,000 $ 910 $ 1,010 33%
Media -- Y/Y
growth,
excluding F/X 19% 21% 24% 23% 27% N/A
Media -- TTM $ 3,205 $ 3,485 $ 3,722 $ 3,914 $ 4,167 30%
Electronics and
other general
merchandise $ 290 $ 523 $ 383 $ 364 $ 448 54%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 51% 50% 34% 34% 45% N/A
Electronics and
other general
merchandise --
TTM $ 1,136 $ 1,337 $ 1,455 $ 1,560 $ 1,717 51%
Electronics and
other general
merchandise --
TTM % of
International
net sales 26% 28% 28% 28% 29% N/A
Other $ 3 $ 8 $ 10 $ 11 $ 16 410%
Other -- TTM $ 17 $ 20 $ 26 $ 33 $ 46 172%
Supplemental
Worldwide Net
Sales:
Media $ 1,542 $ 2,498 $ 1,990 $ 1,833 $ 2,091 36%
Media -- Y/Y
growth,
excluding F/X 17% 21% 23% 25% 32% N/A
Media -- TTM $ 6,566 $ 7,067 $ 7,479 $ 7,863 $ 8,412 28%
Electronics and
other general
merchandise $ 699 $ 1,399 $ 947 $ 970 $ 1,079 54%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 41% 51% 44% 53% 51% N/A
Electronics and
other general
merchandise --
TTM $ 2,863 $ 3,361 $ 3,669 $ 4,015 $ 4,395 53%
Electronics and
other general
merchandise --
TTM % of WW
net sales 30% 31% 32% 33% 33% N/A
Other $ 66 $ 89 $ 78 $ 83 $ 92 41%
Other -- TTM $ 272 $ 283 $ 299 $ 315 $ 342 26%
Balance Sheet
Cash and
marketable
securities $ 1,219 $ 2,019 $ 1,420 $ 1,665 $ 1,909 56%
Inventory, net --
ending $ 736 $ 877 $ 754 $ 735 $ 970 32%
Inventory --
average
inventory % of
TTM net sales 5.8% 6.0% 6.0% 5.9% 6.2% N/A
Inventory
turnover,
average -- TTM 13.2 12.7 12.9 12.9 12.4 (6%)
Fixed assets, net $ 449 $ 457 $ 442 $ 443 $ 491 9%
Accounts payable
days -- ending 63 53 47 54 62 (2%)
Other
Employees (full-
time and part-
time; excludes
contractors &
temporary
personnel) 13,300 13,900 14,000 14,400 15,800 18%
Note: The attached "Financial and Operational Summary" is an
integral part of this Supplemental Financial Information and
Business Metrics.
(1) In Q2 2006, a fee dispute with Toysrus.com reduced our
operating income by $20 million.
(2) Q4 2005 net income includes a tax benefit of $90 million related
to determining that certain of our deferred tax assets are
realizable.
Amazon.com, Inc.
Financial and Operational Summary
(Unaudited)
Quarterly Results of Operations (comparisons are with the
equivalent period of the prior year, unless otherwise stated)
Net Sales
Generally, revenue is recorded gross for sales of our own
inventory and net for sales by third parties.
Amounts paid in advance for subscription services, including
amounts received for Amazon Prime, online DVD rentals, and
other membership programs, are deferred and recognized as
revenue over the subscription term.
Shipping revenue was $171 million, up 45% from $118 million.
Cost of Sales
Cost of sales consists of the purchase price of consumer
products sold by us, inbound and outbound shipping charges,
packaging supplies, amortization of our DVD rental library and
costs incurred in operating and staffing our fulfillment and
customer service centers on behalf of other businesses.
Payment processing and related transaction costs, including
those associated with our third-party seller transactions, are
classified in "Fulfillment" on our consolidated statements of
operations.
Outbound shipping costs totaled $260 million, up 43% from $182
million. Net shipping cost was $89 million or 2.7% of net
sales, up 39% from a net shipping cost of $64 million or 2.8%
of net sales.
We offer free shipping and subscriptions to Amazon Prime,
which result in a net cost to us in delivery of products.
Operating Expenses
Depreciation expense for fixed assets, including amortization
of internal-use software and website development, was $65
million, up from $62 million.
Depreciation is recorded on a straight-line basis over the
estimated useful lives of the assets (generally two years or
less for assets such as internal-use software and our DVD
rental library, two or three years for our technology
infrastructure, five years for furniture and fixtures, and ten
years for heavy equipment).
We utilize the accelerated method, rather than a straight-line
method, for recognizing stock-based compensation expense.
Under this method, over 50% of the compensation cost would be
expensed in the first year of a four-year vesting term.
Stock-based compensation was $51 million, compared to $30
million.
Operating expenses with and without stock-based compensation
are as follows:
Three Months Ended Three Months Ended
September 30, 2007 September 30, 2006
--------------------------- --------------------------
As Stock-Based As Stock-Based
Reported Compensation Net Reported Compensation Net
--------------------------- --------------------------
Operating
Expenses:
Fulfillment $ 296 $ (11) $285 $ 217 $ (8) $209
Marketing 74 (2) 72 64 (1) 63
Technology and
content 209 (28) 181 172 (16) 156
General and
administrative 57 (10) 47 54 (5) 49
Other operating
expense 3 - 3 2 - 2
-------- ------------ ----- -------- ----------------
Total
operating
expenses $ 639 $ (51) $588 $ 509 $ (30) $479
======== ============ ===== ======== ================
Year-over-year
Percentage
Growth:
Fulfillment 37% 37% 27% 26%
Marketing 16 15 45 49
Technology and
content 22 16 42 45
General and
administrative 4 (4) 69 87
Percent of Net
Sales:
Fulfillment 9.1% 8.7% 9.4% 9.1%
Marketing 2.3 2.2 2.8 2.7
Technology and
content 6.4 5.6 7.4 6.8
General and
administrative 1.7 1.4 2.4 2.1
Fulfillment
Certain of our fulfillment-related costs that are incurred on
behalf of other businesses are classified as cost of sales
rather than fulfillment.
The increase in fulfillment costs in absolute dollars relates
to variable costs corresponding with sales volume and
inventory levels; our mix of product sales; payment processing
and related transaction costs, including mix of payment
methods and costs from our guarantee from certain third-party
seller transactions; and costs from expanding fulfillment
capacity.
Additionally, because payment processing costs associated with
third-party seller transactions are based on the gross
purchase price of underlying transactions, and payment
processing and related transaction costs are higher as a
percentage of revenue versus our retail sales, our third-party
sales have higher fulfillment costs as a percentage of net
sales.
We expanded our fulfillment capacity during the nine months
ended September 30, 2007 and throughout 2006 through gains in
efficiencies as well as increases in leased warehouse space.
This expansion is designed to accommodate greater selection
and in-stock inventory levels and meet anticipated shipment
volumes from sales of our own products as well as sales by
third parties for which we provide the fulfillment.
Technology and Content
Technology and content expenses consist principally of payroll
and related expenses for employees involved in application
development, category expansion, editorial content, buying,
merchandising selection, and systems support, as well as costs
associated with the systems and technology infrastructure.
We continue to invest in several areas of technology and
content, including seller platforms, web services, and digital
initiatives, as well as expansion of new and existing product
categories. We are also investing in technology infrastructure
so that we can continue to enhance the customer experience and
improve our process efficiency. The growth rate of our
technology and content spending decreased in Q3 2007 and the
nine months ended September 30, 2007, compared to the
comparable prior period. We intend to continue investing in
areas of technology and content as we continue to add
employees to our staff and add technology infrastructure.
Certain costs relating to development of internal-use
software, including development of software to upgrade and
enhance our websites and processes supporting our business,
are capitalized and depreciated over two years.
Q3 2007 Q3 2006
---------- ----------
(in millions)
Capitalized costs of internal-use software and
website development $ 35 $ 34
Amortization of previously capitalized amounts (30) (23)
---------- ----------
Net capitalization $ 5 $ 11
========== ==========
Stockholders' Equity and Stock-Based Awards
We granted restricted stock unit awards of 0.4 million shares
in Q3 2007 with a per share weighted average fair value of
$84.06.
As of September 30, 2007, there were 20.2 million shares
underlying outstanding stock awards, consisting of 17.7
million shares underlying restricted stock units and 2.5
million shares underlying stock options with a $18.29
weighted-average exercise price.
As of September 30, 2007 and 2006, outstanding common shares
plus shares underlying outstanding stock-based awards were 435
million. This total includes all stock-based awards
outstanding, without regard for estimated forfeitures,
consisting of vested and unvested awards and in-the-money and
out-of-the-money stock options.
The increase in stock-based compensation is primarily
attributable to an increase in total stock compensation value
granted to our employees.
In August 2006, our Board of Directors authorized a 24-month
program to repurchase up to an aggregate of $500 million of
our common stock, from which we repurchased 8.2 million shares
for $252 million in 2006 and 6.3 million shares for $248
million in Q1 2007.
In April 2007, our Board of Directors authorized a new
24-month program to repurchase up to an aggregate of $500
million of our common stock.
Other Expense, net
Other expense, net consists primarily of gains or losses on
marketable securities, foreign-currency transaction gains and
losses, and other miscellaneous gains and losses.
Foreign-currency transaction gains (losses) primarily relate
to the interest payable on our 6.875% PEACS, as well as
foreign-currency gains and losses on cross-currency
investments. Since interest payments on our 6.875% PEACS are
settled in Euros, the balance of interest payable is subject
to gains or losses resulting from changes in exchange rates
between the U.S. Dollar and Euro between reporting dates and
payment.
The remeasurement of our 6.875% PEACS and intercompany
balances can result in significant gains and losses associated
with the effect of movements in currency exchange rates.
Income Taxes
Our tax provision for interim periods is determined using an
estimate of our annual effective tax rate. Each quarter we
update our estimate of the annual effective tax rate, and if
our estimated tax rate changes we make a cumulative
adjustment. There is a potential for significant volatility of
our 2007 effective tax rate due to several factors, including
from variability in accurately predicting our taxable income
and the taxable jurisdictions to which it relates. The 2007
effective annual tax rate is estimated to be lower than the
35% statutory rate, primarily due to anticipated earnings of
our subsidiaries outside of the U.S. in jurisdictions where
our effective tax rate is lower than in the U.S.
The effective tax rate in 2006 was higher than the 35%
statutory rate resulting from establishing our European
headquarters in Luxembourg, which we expect will benefit our
effective tax rate over time. Associated with the
establishment of our European headquarters, we transferred
certain of our operating assets in 2005 and 2006 from the U.S.
to international locations.
We file U.S. federal income tax returns as well as income tax
returns in various states and foreign jurisdictions. We are
under examination, or may be subject to examination, by the
Internal Revenue Service ("IRS") for calendar years 2004
through 2006. Additionally, any net operating losses that were
generated in prior years and utilized in these years may also
be subject to examination by the IRS. We are under
examination, or may be subject to examination, in the
following major jurisdictions for the years specified:
Pennsylvania for 2002 through 2006, Kentucky for 2003 through
2006, Delaware for 2004 through 2006, France for 2003 through
2006, Germany for 1998 through 2006, Luxembourg for 2003
through 2006, and the United Kingdom for 1999 through 2006. In
addition, in February 2007, Japanese tax authorities assessed
income tax, including penalties and interest, of approximately
$90 million against one of our U.S. subsidiaries for the years
2003 through 2005. We believe that these claims are without
merit and are disputing the assessment. Further proceedings on
the assessment will be stayed during negotiations between U.S.
and Japanese authorities over the double taxation issues the
assessment raises, and we have provided bank guarantees to
suspend enforcement of the assessment. We also may be subject
to income tax examination by Japanese tax authorities for
2006.
We have U.S. federal net operating losses that are classified
as deferred tax assets and are being utilized to reduce our
taxes payable to nominal levels.
Foreign Exchange
The effect on our consolidated statements of operations from
year-over-year changes in exchange rates versus the U.S.
Dollar throughout the period is as follows (in millions except
per share data):
Three Months Ended September 30,
-------------------------------------------------------
2007 2006
--------------------------- ---------------------------
At Prior Exchange At Prior Exchange
Year Rate As Year Rate As
Rates(1) Effect(2) Reported Rates(1) Effect(2) Reported
-------- --------- -------- -------- --------- --------
Net sales $ 3,187 $ 75 $ 3,262 $ 2,287 $ 20 $ 2,307
Gross profit 747 15 762 545 4 549
Operating
expenses 628 11 639 506 3 509
Income from
operations 118 5 123 39 1 40
Net interest
expense
(income) and
other (3) (3) - (3) 3 - 3
Remeasurements
and other
income
(expense) (4) (1) (1) (2) 2 (1) 1
Net income 78 2 80 19 - 19
Diluted
earnings per
share $ 0.18 $ 0.01 $ 0.19 $ 0.05 $ - $ 0.05
(1) Represents the outcome that would have resulted had currency
exchange rates in the current period been the same as those in effect
in the comparable prior year period for operating results, and if we
did not incur the variability associated with remeasurements for our
6.875% PEACS and intercompany balances.
(2) Represents the increase or decrease in reported amounts resulting
from changes in exchange rates from those in effect in the comparable
prior year period for operating results, and if we did not incur the
variability associated with remeasurements for our 6.875% PEACS and
intercompany balances.
(3) Includes foreign-currency gains and losses on cross-currency
investments.
(4) Includes foreign-currency gains and losses on remeasurement of
6.875% PEACS and intercompany balances.
Earnings per Share
Basic earnings per share is calculated using our
weighted-average outstanding common shares. Diluted earnings
per share is calculated using our weighted-average outstanding
common shares including the dilutive effect of stock awards as
calculated under the treasury stock method.
Our convertible debt instruments are excluded from the
calculation of diluted earnings per share as their effect
under the if-converted method is anti-dilutive.
Cash Flows and Balance Sheet
Tax benefits resulting from stock-based compensation
deductions in excess of amounts reported for financial
reporting purposes were $34 million in Q3 2007 and $157
million for the trailing twelve months ended September 30,
2007, compared to $9 million in Q3 2006 and $43 million for
the trailing twelve months ended September 30, 2006.
Our cash, cash equivalents and marketable securities of $1.91
billion, at fair value, primarily consist of cash, investment
grade securities and AAA-rated money market mutual funds.
Included are amounts held in foreign currencies of $585
million, primarily in Euros, British Pounds and Japanese Yen.
Other assets include, among other things, $179 million of
marketable securities restricted for longer than one year, $35
million of intangible assets, net, $19 million of certain
equity investments, and $5 million of deferred issuance costs
on long-term debt. Marketable securities restricted for longer
than one year relate to amounts pledged or otherwise
restricted as collateral for standby letters of credit,
guarantees, debt, and real estate leases.
Accrued expenses and other current liabilities include, among
other things, liabilities for gift certificates of $178
million, professional fees, marketing activities, workforce
costs - including accrued payroll, vacation and other
benefits--and unearned revenue of $86 million, which is
recorded when payments are received in advance of performing
our service obligations and is recognized over the service
period. Non-current unearned revenue was $15 million.
Our long-term debt is summarized as follows:
September 30,
2007
--------------
(in millions)
4.75% Convertible Subordinated Notes due February
2009 (1) $ 899
6.875% PEACS due February 2010 (2) 342
Other long-term debt 32
--------------
1,273
Less current portion of long-term debt -
--------------
$ 1,273
==============
(1) The 4.75% Convertible Subordinated Notes are convertible into
our common stock at the holders' option at a conversion price of
$78.0275 per share. Total common stock issuable upon conversion
of our outstanding 4.75% Convertible Subordinated Notes is 11.5
million shares, which is excluded from our calculation of
earnings per share as its effect is anti-dilutive. We have the
right to redeem the 4.75% Convertible Subordinated Notes, in
whole or in part, by paying the principal and a redemption
premium, plus any accrued and unpaid interest. At September 30,
2007, the redemption premium, which decreases by 47.5 basis
points on February 1 of each year until maturity, was 0.95%.
(2) The 6.875% Premium Adjustable Convertible Securities ("6.875%
PEACS") are convertible into our common stock at the holders'
option at a conversion price of EUR 84.883 per share ($121.11 per
share, based on the exchange rate as of September 30, 2007).
Total common stock issuable upon conversion of our outstanding
6.875% PEACS is 2.8 million shares, which is excluded from our
calculation of earnings per share as its effect is anti-
dilutive. The U.S. Dollar equivalent principal, interest, and
conversion price fluctuate based on the Euro/U.S. Dollar exchange
ratio. We have the right to redeem the 6.875% PEACS, in whole or
in part, by paying the principal plus any accrued and unpaid
interest.
Other long-term liabilities include tax contingencies,
long-term capital lease obligations, and other long-term
obligations.
We acquired certain companies during the nine months ended
September 30, 2007, for an aggregate purchase price of $33
million, including cash payments of $24 million and future
cash payments of $9 million. We also made principal payments
of $13 million on acquired debt in connection with one of
these acquisitions. Additional consideration for these
acquisitions is contingent upon continued employment. This
amount is expensed as compensation over the employment period
and not included in the purchase price. Acquired intangibles
totaled $24 million and have estimated useful lives of between
two and ten years. The excess of purchase price over the fair
value of the net assets acquired was $20 million and is
classified as "Goodwill" on our consolidated balance sheets.
The purchase price allocation for each acquisition is
preliminary and subject to revision, and any change to the
fair value of net assets acquired will lead to a corresponding
change to the purchase price allocable to goodwill. The
results of operations of the acquired companies have been
included in our consolidated results from each closing date
forward. The effect of these acquisitions on consolidated net
sales and operating income for the nine months ended September
30, 2007, was not significant.
Certain Definitions and Other
We present segment information for 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 expense, 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) and subscriptions through North America-focused
websites such as www.amazon.com, www.shopbop.com,
www.endless.com and www.amazon.ca; from our Amazon Prime
membership program; and from non-retail activities such as
North America-focused Amazon Enterprise Solutions program, and
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) and subscriptions through internationally focused
websites such as www.amazon.co.uk, www.amazon.de,
www.amazon.co.jp, www.amazon.fr, and Joyo Amazon websites at
www.joyo.cn and www.amazon.cn; from our Amazon Prime
membership program; from our International DVD rental service;
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
DVD rentals and 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, camera and photo, toys and baby, tools, home and
garden, apparel, shoes, sports and outdoors, kitchen and
housewares, gourmet food, grocery, jewelry and watches, health
and personal care and beauty. The Other category consists of
non-retail activities, such as the Amazon Enterprise Solutions
program, Amazon Web Services and miscellaneous marketing and
promotional activities, such as our co-branded credit card
programs.
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.
Operating cycle is number of days of sales in inventory plus
number of days of sales in accounts receivable minus accounts
payable days. Accounts payable days are calculated as the
quotient of accounts payable to cost of sales, multiplied by
the number of days in the period. Inventory turns are
calculated as the quotient of annualized cost of sales to
average inventory over five quarter ends.
Return on invested capital is trailing-twelve-month free cash
flow divided by average total assets less current liabilities
over five quarter ends.
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, and our Merchants@
and Syndicated Stores programs, but exclude certain customers,
including DVD rental customers, customers associated with
certain of our acquisitions (including Joyo Amazon customers),
Amazon Enterprise Solutions program customers, Amazon.com
Payments customers and the customers of select companies with
whom we have a technology alliance or marketing and
promotional relationship. Customers are 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 Marketplace, and Merchants@ platforms, but exclude
Amazon Enterprise Solutions sellers. Sellers are considered
active when they have received an order during the preceding
twelve-month period.
References to registered developers mean cumulative registered
developer accounts, which are established when potential
developers enroll with Amazon Web Services and receive a
developer access key.
References to units mean units sold (net of returns and
cancellations) by us and by 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
sold do not include Joyo Amazon units, Amazon.com gift
certificates or DVD rentals.
CONTACT: Amazon.com Public Relations
Patty Smith, 206-266-7180
or
Amazon.com Investor Relations
Kim Nelson, 206/266-2171
ir@amazon.com
www.amazon.com/ir
SOURCE: Amazon.com, Inc.
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