 Printer-friendly view | | << Back | | Amazon.com Announces Fourth Quarter Sales up 34%; Media Grows 25%; Electronics and Other General Merchandise Grows 55% |  | SEATTLE--(BUSINESS WIRE)--Feb. 1, 2007--Amazon.com, Inc.
(NASDAQ:AMZN) today announced financial results for its fourth quarter
and year ended December 31, 2006.
Operating cash flow was $702 million in 2006, compared with $733
million in 2005. Free cash flow decreased 8% to $486 million in 2006,
compared with $529 million in 2005.
Common shares outstanding plus shares underlying stock-based
awards outstanding totaled 436 million on December 31, 2006, compared
with 438 million a year ago. During the year, the Company repurchased
8 million shares, or $252 million under its previously announced
authorization to repurchase up to $500 million of the Company's common
stock.
Net sales increased 34% to $3.99 billion in the fourth quarter,
compared with $2.98 billion in fourth quarter 2005. Excluding the $122
million favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, net sales grew 30% compared
with fourth quarter 2005.
Operating income increased 20% to $197 million in the fourth
quarter, compared with $165 million in fourth quarter 2005. Excluding
the $8 million favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, operating income grew 14%
compared with fourth quarter 2005.
Net income was $98 million in the fourth quarter, or $0.23 per
diluted share, compared with net income of $199 million, or $0.47 per
diluted share in fourth quarter 2005. Fourth quarter 2006 income tax
expense increased $130 million, to $91 million or $0.22 per diluted
share, compared with a tax benefit of $38 million, or $0.09 per
diluted share, in fourth quarter 2005. The prior year tax benefit was
primarily related to determining certain deferred tax assets were
realizable.
"We had a record holiday season with accelerating revenue growth
and significant sequential improvement in operating leverage," said
Jeff Bezos, founder and CEO of Amazon.com. "Amazon Prime members spent
more with us across categories as they took advantage of unlimited
free two-day shipping."
Amazon Prime, Amazon.com's first-ever membership program, was
introduced in February 2005. For a flat membership fee of $79 per
year, Amazon Prime members get unlimited, express two-day shipping for
free, with no minimum purchase requirement on over a million eligible
items sold by Amazon.com. Members can order as late as 6:30 p.m. ET
and still get their order the next day for only $3.99 per item, and
they can share the benefits of Amazon Prime with up to four family
members living in their household. Sign up for Amazon Prime at
www.amazon.com/prime.
Full Year 2006
Net sales increased 26% to $10.71 billion in 2006, compared with
$8.49 billion in 2005.
Operating income declined 10% to $389 million in 2006, compared
with $432 million in 2005, due mainly to increased spending on
technology and content.
Net income was $190 million in 2006, or $0.45 per diluted share,
compared with net income of $359 million, or $0.84 per diluted share,
in 2005. Income tax expense increased $92 million to $187 million, or
$0.44 per diluted share, compared with income tax expense of $95
million, or $0.22 per diluted share, in 2005.
Highlights
- Trailing-twelve-month free cash flow increased $119 million
compared with third quarter 2006, a sequential improvement of
33%, and trailing-twelve-month operating cash flow improved
$115 million compared with the same period.
- North America segment sales, representing the Company's U.S.
and Canadian sites, were $2.21 billion, up 31% from fourth
quarter 2005.
- International segment sales, representing the Company's U.K.,
German, Japanese, French and Chinese sites, were $1.78
billion, up 37% from fourth quarter 2005. Excluding the
favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, International net sales
growth was 28%.
- Worldwide Electronics & Other General Merchandise grew 55% to
$1.40 billion in fourth quarter 2006, and increased to 35% of
worldwide net sales compared with 30% in fourth quarter 2005.
- For the first time, non-Media dollar growth exceeded Media
dollar growth, even though Media grew 25% in the quarter.
- The Company announced the beta launch of endless.com, its new
shoe and handbag website, which features the unusual business
practice of free overnight shipping (next business day) on all
items. Additionally, customers enjoy free return shipping, a
365-day return policy, a 110 percent price guarantee and an
innovative navigation and search experience. As a special
promotion in February, endless customers will receive
overnight shipping for *negative* five dollars.
- Over 220,000 developers have registered to use Amazon Web
Services, up greater than 55% year-over-year.
- Amazon Enterprise Solutions Europe built and launched a new
state-of-the-art multi-channel e-commerce platform for
Mothercare PLC, a leading U.K. retailer for parents, using the
proven technology and expertise of Amazon to provide the
e-commerce engine behind the website, in-store and call center
applications.
Financial Guidance
The following forward-looking statements reflect Amazon.com's
expectations as of February 1, 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.
First Quarter 2007 Guidance
- Net sales are expected to be between $2.85 billion and $3.00
billion, or to grow between 25% and 32% compared with first
quarter 2006.
- Operating income is expected to be between $82 million and
$122 million, or between (22%) decline and 16% growth,
compared with first quarter 2006. This guidance includes $38
million 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 $13.00 billion and $13.70
billion, or to grow between 21% and 28% compared with 2006.
- Operating income is expected to be between $355 million and
$505 million, or between (9%) decline and 30% growth, compared
with 2006. This guidance includes $165 million 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,
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, payments risks, and risks of
fulfillment throughput and productivity. Other risks and uncertainties
include, among others, risk of future losses, significant
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, 2005, 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 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 millions)
(unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
---------------- -----------------
2006 2005 2006 2005
-------- ------- -------- --------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 693 $ 600 $ 1,013 $ 1,303
OPERATING ACTIVITIES:
Net income 98 199 190 359
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 59 36 205 121
Stock-based compensation 30 16 101 87
Other operating expense 2 4 10 7
Gains on sales of marketable
securities, net - (1) (2) (1)
Remeasurements and other - (3) (6) (37)
Deferred income taxes 8 (46) 22 70
Excess tax benefit on stock
awards (64) (5) (102) (7)
Cumulative effect of change in
accounting principle - - - (26)
Changes in operating assets and
liabilities:
Inventories (127) (114) (282) (104)
Accounts receivable, net and
other current assets (116) (91) (103) (84)
Accounts payable 588 499 402 274
Accrued expenses and other
liabilities 246 136 241 67
Additions to unearned revenue 75 61 206 156
Amortization of previously
unearned revenue (55) (61) (180) (149)
-------- ------- -------- --------
Net cash provided by operating
activities 744 630 702 733
INVESTING ACTIVITIES:
Purchases of fixed assets,
including internal-use software
and website development (50) (55) (216) (204)
Acquisitions, net of cash acquired (2) - (32) (24)
Sales and maturities of marketable
securities and other investments 869 183 1,845 836
Purchases of marketable securities
and other investments (1,340) (358) (1,930) (1,386)
-------- ------- -------- --------
Net cash used in investing
activities (523) (230) (333) (778)
FINANCING ACTIVITIES:
Proceeds from exercises of stock
options 18 19 35 59
Excess tax benefit on stock awards 64 5 102 7
Common stock repurchased - - (252) -
Proceeds from long-term debt and
other 17 - 98 11
Repayments of long-term debt and
capital lease obligations (7) - (383) (270)
-------- ------- -------- --------
Net cash provided by (used in)
financing activities 92 24 (400) (193)
Foreign-currency effect on cash
and cash equivalents 16 (11) 40 (52)
-------- ------- -------- --------
Net increase (decrease) in
cash and cash equivalents 329 413 9 (290)
-------- ------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 1,022 $1,013 $ 1,022 $ 1,013
======== ======= ======== ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 1 $ - $ 86 $ 105
Cash paid for income taxes 1 1 15 12
AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ----------------
2006 2005 2006 2005
------- ------- ----------------
Net sales $3,986 $2,977 $10,711 $8,490
Cost of sales 3,136 2,310 8,255 6,451
------- ------- -------- -------
Gross profit 850 667 2,456 2,039
Operating expenses (1):
Fulfillment 337 249 937 745
Marketing 92 68 263 198
Technology and content 177 132 662 451
General and administrative 45 49 195 166
Other operating expense 2 4 10 47
------- ------- -------- -------
Total operating expenses 653 502 2,067 1,607
------- ------- -------- -------
Income from operations 197 165 389 432
Interest income 18 14 59 44
Interest expense (19) (22) (78) (92)
Other income (expense), net (8) - (4) 2
Remeasurements and other 1 4 11 42
------- ------- -------- -------
Total non-operating expense (8) (4) (12) (4)
------- ------- -------- -------
Income before income taxes 189 161 377 428
Provision (benefit) for income taxes 91 (38) 187 95
------- ------- -------- -------
Income before cumulative effect of
change in accounting principle 98 199 190 333
Cumulative effect of change in
accounting principle - - - 26
------- ------- -------- -------
Net income $ 98 $ 199 $ 190 $ 359
======= ======= ======== =======
Basic earnings per share:
Prior to cumulative effect of change
in accounting principle $ 0.24 $ 0.48 $ 0.46 $ 0.81
Cumulative effect of change in
accounting principle - - - 0.06
------- ------- -------- -------
$ 0.24 $ 0.48 $ 0.46 $ 0.87
======= ======= ======== =======
Diluted earnings per share:
Prior to cumulative effect of change
in accounting principle $ 0.23 $ 0.47 $ 0.45 $ 0.78
Cumulative effect of change in
accounting principle - - - 0.06
------- ------- -------- -------
$ 0.23 $ 0.47 $ 0.45 $ 0.84
======= ======= ======== =======
Weighted average shares used in
computation of earnings per share:
Basic 413 415 416 412
======= ======= ======== =======
Diluted 422 426 424 426
======= ======= ======== =======
(1) Includes stock-based compensation
as follows:
Fulfillment $ 6 $ 3 $ 24 $ 16
Marketing 2 1 4 6
Technology and content 15 9 54 45
General and administrative 7 3 19 20
AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)
Three Months Twelve Months
Ended Ended
December 31, December 31,
--------------- ----------------
2006 2005 2006 2005
------- ------- -------- -------
North America
Net sales $2,208 $1,683 $ 5,869 $4,711
Cost of sales 1,676 1,265 4,344 3,444
------- ------- -------- -------
Gross profit 532 418 1,525 1,267
Direct segment operating expenses(1) 409 326 1,295 971
------- ------- -------- -------
Segment operating income $ 123 $ 92 $ 230 $ 296
======= ======= ======== =======
International
Net sales $1,778 $1,294 $ 4,842 $3,779
Cost of sales 1,460 1,045 3,911 3,007
------- ------- -------- -------
Gross profit 318 249 931 772
Direct segment operating expenses(1) 212 156 661 502
------- ------- -------- -------
Segment operating income $ 106 $ 93 $ 270 $ 270
======= ======= ======== =======
Consolidated
Net sales $3,986 $2,977 $10,711 $8,490
Cost of sales 3,136 2,310 8,255 6,451
------- ------- -------- -------
Gross profit 850 667 2,456 2,039
Direct segment operating expenses 621 482 1,956 1,473
------- ------- -------- -------
Segment operating income 229 185 500 566
Stock-based compensation (30) (16) (101) (87)
Other operating expense (2) (4) (10) (47)
------- ------- -------- -------
Income from operations 197 165 389 432
Total non-operating expense, net (8) (4) (12) (4)
Benefit (provision) for income taxes (91) 38 (187) (95)
Cumulative effect of change in
accounting principle - - - 26
------- ------- -------- -------
Net income $ 98 $ 199 $ 190 $ 359
======= ======= ======== =======
Segment Highlights:
Y/Y net sales growth:
North America 31% 21% 25% 22%
International 37 13 28 23
Consolidated 34 17 26 23
Y/Y gross profit growth:
North America 27% 18% 20% 24%
International 28 31 21 33
Consolidated 27 23 20 27
Y/Y segment operating income growth:
North America 33% (24%) (22%) (8%)
International 15 67 0 59
Consolidated 24 4 (12) 16
Net sales mix:
North America 55% 57% 55% 55%
International 45 43 45 45
(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 Twelve Months
Ended Ended
December 31, December 31,
--------------- ----------------
2006 2005 2006 2005
------- ------- -------- -------
North America
Media $1,251 $1,030 $ 3,582 $3,046
Electronics and other general
merchandise 876 580 2,024 1,443
Other 81 73 263 222
------- ------- -------- -------
Total North America 2,208 1,683 5,869 4,711
International
Media 1,247 968 3,485 2,885
Electronics and other general
merchandise 523 321 1,337 886
Other 8 5 20 8
------- ------- -------- -------
Total International 1,778 1,294 4,842 3,779
Consolidated
Media 2,498 1,998 7,067 5,931
Electronics and other general
merchandise 1,399 901 3,361 2,329
Other 89 78 283 230
------- ------- -------- -------
Total Consolidated $3,986 $2,977 $10,711 $8,490
======= ======= ======== =======
Y/Y Net Sales Growth:
North America:
Media 21% 16% 18% 18%
Electronics and other general
merchandise 51 29 40 28
Other 11 25 18 71
Total North America 31 21 25 22
International:
Media 29% 6% 21% 15%
Electronics and other general
merchandise 63 36 51 59
Other 68 565 151 234
Total International 37 13 28 23
Consolidated:
Media 25% 11% 19% 16%
Electronics and other general
merchandise 55 31 44 38
Other 14 32 23 74
Total Consolidated 34 17 26 23
Y/Y Net Sales Growth Excluding Effect
of Exchange Rates:
International:
Media 21% 16% 21% 17%
Electronics and other general
merchandise 50 49 49 62
Other 55 614 147 247
Total International 28 23 28 25
Consolidated:
Media 21% 16% 19% 17%
Electronics and other general
merchandise 51 36 43 39
Other 14 33 23 74
Total Consolidated 30 22 26 24
Consolidated Net Sales Mix:
Media 63% 67% 66% 70%
Electronics and other general
merchandise 35 30 31 27
Other 2 3 3 3
AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)
December 31, December 31,
2006 2005
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,022 $ 1,013
Marketable securities 997 987
Inventories 877 566
Accounts receivable, net and other 399 274
Deferred tax assets 78 89
------------ ------------
Total current assets 3,373 2,929
Fixed assets, net 457 348
Deferred tax assets 199 223
Goodwill 195 159
Other assets 139 37
------------ ------------
Total assets $ 4,363 $ 3,696
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,816 $ 1,366
Accrued expenses and other 716 533
------------ ------------
Total current liabilities 2,532 1,899
Long-term debt 1,247 1,480
Other long-term liabilities 153 71
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 and outstanding shares -- 414
and 416 4 4
Treasury stock, at cost (252) -
Additional paid-in capital 2,517 2,263
Accumulated other comprehensive income
(loss) (1) 6
Accumulated deficit (1,837) (2,027)
------------ ------------
Total stockholders' equity 431 246
------------ ------------
Total liabilities and stockholders'
equity $ 4,363 $ 3,696
============ ============
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)
Y/Y %
Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Change
-------- -------- -------- -------- -------- ------
Cash Flows and
Shares
Operating cash
flow -- trailing
twelve months
(TTM)(1) $ 733 $ 724 $ 610 $ 587 $ 702 (4%)
Purchases of
fixed assets
(incl. internal-
use software &
website
development) --
TTM $ 204 $ 223 $ 235 $ 221 $ 216 6%
Free cash flow
(operating cash
flow less
purchases of
fixed assets) --
TTM(1) $ 529 $ 501 $ 375 $ 366 $ 486 (8%)
Common shares and
stock-based
awards
outstanding 438 438 443 435 436 (1%)
Common shares
outstanding 416 417 419 411 414 (1%)
Stock-based
awards
outstanding 22 21 24 24 22 1%
Stock-based
awards
outstanding -- %
of common shares
outstanding 5.2% 4.9% 5.8% 5.8% 5.3% N/A
Results of
Operations
Worldwide (WW)
net sales $ 2,977 $ 2,279 $ 2,139 $ 2,307 $ 3,986 34%
WW net sales --
Y/Y growth,
excluding F/X 22% 25% 23% 23% 30% N/A
WW net sales --
TTM $ 8,490 $ 8,867 $ 9,253 $ 9,701 $10,711 26%
WW net sales --
TTM Y/Y growth,
excluding F/X 24% 24% 24% 23% 26% N/A
Gross profit $ 667 $ 547 $ 509 $ 549 $ 850 27%
Gross margin -- %
of WW net sales 22.4% 24.0% 23.8% 23.8% 21.3% N/A
Gross profit --
TTM $ 2,039 $ 2,128 $ 2,187 $ 2,273 $ 2,456 20%
Gross margin --
TTM % of WW net
sales 24.0% 24.0% 23.6% 23.4% 22.9% N/A
Operating
income(3) $ 165 $ 106 $ 47 $ 40 $ 197 20%
Operating margin
-- % of WW net
sales 5.5% 4.6% 2.2% 1.7% 4.9% N/A
Operating income
-- TTM(3) $ 432 $ 430 $ 372 $ 357 $ 389 (10%)
Operating margin
-- TTM % of WW
net sales 5.1% 4.8% 4.0% 3.7% 3.6% N/A
Net income(1)(2) $ 199 $ 51 $ 22 $ 19 $ 98 (51%)
Net income per
diluted
share(1)(2) $ 0.47 $ 0.12 $ 0.05 $ 0.05 $ 0.23 (50%)
Net income --
TTM(1)(2) $ 359 $ 332 $ 302 $ 292 $ 190 (47%)
Net income per
diluted share --
TTM(1)(2) $ 0.84 $ 0.78 $ 0.71 $ 0.69 $ 0.45 (47%)
Segments
North America
Segment:
Net sales $ 1,683 $ 1,247 $ 1,157 $ 1,257 $ 2,208 31%
Net sales --
Y/Y growth,
excluding F/X 21% 21% 20% 21% 31% N/A
Net sales --
TTM $ 4,711 $ 4,931 $ 5,128 $ 5,343 $ 5,869 25%
Gross profit $ 418 $ 341 $ 309 $ 343 $ 532 27%
Gross margin --
% of North
America net
sales 24.8% 27.3% 26.7% 27.3% 24.1% N/A
Gross profit --
TTM $ 1,267 $ 1,329 $ 1,361 $ 1,411 $ 1,525 20%
Gross margin --
TTM % of North
America net
sales 26.9% 27.0% 26.5% 26.4% 26.0% N/A
Operating
income (3) $ 92 $ 62 $ 25 $ 22 $ 123 33%
Operating
margin -- % of
North America
net sales 5.5% 5.0% 2.1% 1.7% 5.5% N/A
Operating
income -- TTM
(3) $ 296 $ 292 $ 245 $ 200 $ 230 (22%)
Operating
margin -- TTM
% of North
America net
sales 6.3% 5.9% 4.8% 3.8% 3.9% N/A
International
Segment:
Net sales $ 1,294 $ 1,032 $ 982 $ 1,050 $ 1,778 37%
Net sales --
Y/Y growth,
excluding F/X 23% 29% 27% 26% 28% N/A
Net sales --
TTM $ 3,779 $ 3,936 $ 4,125 $ 4,358 $ 4,842 28%
Net sales --
TTM % of WW
net sales 45% 44% 45% 45% 45% N/A
Gross profit $ 249 $ 206 $ 200 $ 206 $ 318 28%
Gross margin --
% of
International
net sales 19.3% 20.0% 20.4% 19.6% 17.9% N/A
Gross profit --
TTM $ 772 $ 799 $ 827 $ 862 $ 931 21%
Gross margin --
TTM % of
International
net sales 20.4% 20.3% 20.0% 19.8% 19.2% N/A
Operating
income $ 93 $ 58 $ 55 $ 50 $ 106 15%
Operating
margin -- % of
International
net sales 7.1% 5.6% 5.6% 4.8% 6.0% N/A
Operating
income -- TTM $ 270 $ 265 $ 260 $ 256 $ 270 0%
Operating
margin -- TTM
% of
International
net sales 7.1% 6.7% 6.3% 5.9% 5.6% N/A
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except inventory turnover, accounts payable days, and
employee data)
(unaudited)
Y/Y %
Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Change
-------- -------- -------- -------- -------- ------
Segments
(continued)
Consolidated
Segments:
Operating
expenses $ 482 $ 427 $ 429 $ 477 $ 621 29%
Operating
expenses --
TTM $ 1,473 $ 1,570 $ 1,681 $ 1,816 $ 1,956 33%
Operating
income (3) $ 185 $ 120 $ 80 $ 72 $ 229 24%
Operating
margin -- % of
consolidated
sales 6.2% 5.3% 3.7% 3.1% 5.7% N/A
Operating
income -- TTM
(3) $ 566 $ 558 $ 506 $ 457 $ 500 (12%)
Operating
margin -- TTM
% of
consolidated
net sales 6.7% 6.3% 5.5% 4.7% 4.7% N/A
Supplemental
North America
Segment Net
Sales:
Media $ 1,030 $ 815 $ 730 $ 785 $ 1,251 21%
Media -- Y/Y
growth,
excluding F/X 16% 17% 15% 14% 21% NA
Media -- TTM $ 3,046 $ 3,163 $ 3,260 $ 3,361 $ 3,582 18%
Electronics and
other general
merchandise $ 580 $ 374 $ 365 $ 409 $ 876 51%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 29% 33% 32% 35% 51% NA
Electronics and
other general
merchandise --
TTM $ 1,443 $ 1,534 $ 1,622 $ 1,727 $ 2,024 40%
Electronics and
other general
merchandise --
TTM % of North
America net
sales 31% 31% 32% 32% 34% N/A
Other $ 73 $ 58 $ 62 $ 63 $ 81 11%
Other -- TTM $ 222 $ 234 $ 246 $ 255 $ 263 18%
Supplemental
International
Segment Net
Sales:
Media $ 968 $ 763 $ 718 $ 757 $ 1,247 29%
Media -- Y/Y
growth,
excluding F/X 16% 24% 20% 19% 21% N/A
Media -- TTM $ 2,885 $ 2,972 $ 3,077 $ 3,205 $ 3,485 21%
Electronics and
other general
merchandise $ 321 $ 265 $ 259 $ 290 $ 523 63%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 49% 45% 48% 51% 50% NA
Electronics and
other general
merchandise --
TTM $ 886 $ 952 $ 1,033 $ 1,136 $ 1,337 51%
Electronics and
other general
merchandise --
TTM % of
International
net sales 23% 24% 25% 26% 28% N/A
Other $ 5 $ 4 $ 5 $ 3 $ 8 68%
Other -- TTM $ 8 $ 11 $ 15 $ 17 $ 20 151%
Supplemental
Worldwide Net
Sales:
Media $ 1,998 $ 1,578 $ 1,448 $ 1,542 $ 2,498 25%
Media -- Y/Y
growth,
excluding F/X 16% 20% 18% 17% 21% NA
Media -- TTM $ 5,931 $ 6,135 $ 6,337 $ 6,566 $ 7,067 19%
Electronics and
other general
merchandise $ 901 $ 639 $ 624 $ 699 $ 1,399 55%
Electronics and
other general
merchandise --
Y/Y growth,
excluding F/X 36% 38% 38% 41% 51% NA
Electronics and
other general
merchandise --
TTM $ 2,329 $ 2,486 $ 2,655 $ 2,863 $ 3,361 44%
Electronics and
other general
merchandise --
TTM % of WW
net sales 27% 28% 29% 30% 31% N/A
Other $ 78 $ 62 $ 67 $ 66 $ 89 14%
Other -- TTM $ 230 $ 245 $ 261 $ 272 $ 283 23%
Balance Sheet
Cash and
marketable
securities $ 2,000 $ 1,334 $ 1,419 $ 1,219 $ 2,019 1%
Inventory, net --
ending $ 566 $ 538 $ 521 $ 736 $ 877 55%
Inventory --
average
inventory % of
TTM net sales 5.4% 5.3% 5.3% 5.8% 6.0% N/A
Inventory
turnover,
average -- TTM 14.1 14.4 14.3 13.2 12.7 (10%)
Fixed assets, net $ 348 $ 361 $ 405 $ 449 $ 457 31%
Accounts payable
days -- ending 54 48 53 63 53 (2%)
Other
Employees (full-
time and part-
time; excludes
contractors &
temporary
personnel) 12,000 12,400 12,700 13,300 13,900 16%
Note: The attached "Financial and Operational Summary" is an integral
part of this Supplemental Financial Information and Business
Metrics.
(1) The Company settled a patent lawsuit on terms including a one-time
payment of $40 million in Q3 2005. This negatively impacts TTM
operating cash flow and free cash flow by $40 million for all periods
that include Q3 2005. The settlement negatively affected Q3 2005
operating income by $40 million, and Q3 2005 net income by $20
million after tax.
(2) Q4 2005 net income includes a tax benefit of $90 million related
to determining that certain of our deferred tax assets are
realizable.
(3) In Q2 2006, a fee dispute with Toysrus.com reduced our operating
income by $20 million.
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 from Amazon Prime, online DVD rentals and
other membership programs, are deferred and recognized as
revenue over the subscription term.
- Shipping revenue was $192 million, up 2% from $188 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 $317 million, up 13% from $280
million. Net shipping cost was $125 million, up 37% from a net
shipping cost of $91 million, or 3.1% of net sales in each
period.
- One way we offer lower prices is through free-shipping offers
that result in a net cost to us in delivery of products, as
well as through membership in Amazon Prime.
Operating Expenses
- Depreciation expense for fixed assets, including amortization
of internal-use software and website development, was $59
million, up from $35 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 typical four-year vesting
term.
- Stock-based compensation was $30 million, compared to $16
million. In Q4 2005 we recorded a $10 million benefit
representing the cumulative effect of slightly increasing the
rate of forfeitures expected over the life of issued stock
awards based on our historical experience.
- Operating expenses with and without stock-based compensation
are as follows:
Three Months Ended Three Months Ended
December 31, 2006 December 31, 2005
--------------------------- ---------------------------
As Stock-Based As Stock-Based
Reported Compensation Net Reported Compensation Net
-------- ------------------ ---------------------------
(in millions)
Operating
Expenses:
Fulfillment $337 $ (6) $331 $249 $ (3) $246
Marketing 92 (2) 90 68 (1) 67
Technology
and content 177 (15) 162 132 (9) 123
General and
adminis-
trative 45 (7) 38 49 (3) 46
Other
operating
expenses 2 - 2 4 - 4
-------- ------------ ----- -------- ------------ -----
Total
operating
expenses $653 $(30) $623 $502 $(16) $486
-------- ------------ ----- -------- ------------ -----
Year-over-year
Percentage
Growth:
Fulfillment 35% 34 % 20 % 21%
Marketing 35 35 13 15
Technology
and content 34 32 58 69
General and
adminis-
trative (7) (16) 37 42
Percent of Net
Sales:
Fulfillment 8.5% 8.3 % 8.4 % 8.3%
Marketing 2.3 2.3 2.3 2.2
Technology
and content 4.5 4.1 4.5 4.1
General and
adminis-
trative 1.1 1.0 1.6 1.5
Fulfillment
- Certain of our fulfillment-related costs that are incurred on
behalf of other sellers 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 in 2006 and 2005 through
gains in efficiencies as well as increases in leased warehouse
space. This expansion is designed to accommodate greater
selection and in-stock 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 telecommunications
infrastructure.
- In 2005 and 2006, we have added computer scientists, software
engineers, and other employees to support our technology and
content initiatives. These initiatives include seller
platforms, web services, and digital, as well expansion of new
and existing product categories. Additionally, we increased
spending on technology infrastructure so that we can continue
to enhance the customer experience and improve our process
efficiency.
- We intend to continue investing in areas of technology and
content as we continue to add employees to our staff.
- 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.
Q4 2006 Q4 2005
---------- ----------
(in millions)
Capitalized costs of internal-use software and
website development $ 31 $ 25
Amortization of previously capitalized amounts (26) (15)
---------- ----------
Net capitalization $ 5 $ 10
---------- ----------
Stock-Based Awards
- We granted restricted stock unit awards of 1 million shares in
the quarter and 9 million shares in 2006.
- As of December 31, 2006, there were 22 million shares
underlying outstanding stock awards, consisting of 7 million
shares underlying stock options with a $17 weighted-average
exercise price and 15 million shares underlying restricted
stock units.
- As of December 31, 2006, outstanding common shares plus shares
underlying outstanding stock-based awards were 436 million,
down 1% from 438 million as of December 31, 2005. 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.
Other Operating Expense
- Other operating expense primarily includes costs related to
intangibles amortization.
Other Income (Expense)
- Other income (expense) 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.
Remeasurements and Other
- 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 provision for income taxes was $91 million in Q4 - and our
annual effective tax rate was 50%.
- The effective tax rate 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. These transfers resulted in taxable income and
exposure to additional taxable income assertions by taxing
jurisdictions.
- We expect our 2007 effective tax rate to be approximately 35%
or less. However, our effective tax rate is subject to
significant variation due to several factors, including
accurately predicting our taxable income and the taxable
jurisdictions to which it relates.
- A majority of our tax provision is non-cash. We have net
operating losses that are classified as deferred tax assets
and are being utilized to reduce our taxable income to nominal
levels. As such, cash paid for income taxes in 2006 was $15
million compared with $12 million in 2005. We endeavor to
optimize our global taxes on a cash basis, rather than on a
financial reporting basis.
- We are subject to income taxes in the U.S. and numerous
foreign jurisdictions. Significant judgment is required in
evaluating our tax positions and determining our provision for
income taxes. During the ordinary course of business, there
are many transactions for which the ultimate tax determination
is uncertain. We establish reserves for tax-related
uncertainties based on estimates of whether, and the extent to
which, additional taxes will be due. These reserves are
established when we believe that certain positions might be
challenged despite our belief that our tax return positions
are fully supportable. We adjust these reserves in light of
changing facts and circumstances, such as the outcome of tax
audits. The provision for income taxes includes the impact of
reserve provisions and changes to reserves that are considered
appropriate. As of December 31, 2006, the Company has provided
tax reserves of approximately $75 million for U.S. and foreign
income taxes, which primarily relate to restructuring of
certain foreign operations and intercompany pricing between
our subsidiaries.
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:
Q4 2006 Q4 2005
-------------------------- --------------------------
At At
Prior Exchange Prior Exchange
Year Rate Year Rate
Rates Effect As Rates Effect As
(1) (2) Reported (1) (2) Reported
------- -------- --------- ------- -------- ---------
Net sales $3,864 $ 122 $ 3,986 $3,098 $ (121) $ 2,977
Gross profit 829 21 850 690 (23) 667
Operating
expenses 640 13 653 514 (12) 502
Income from
operations 189 8 197 177 (12) 165
Net interest
expense and
other (3) 2 7 9 11 (3) 8
Remeasurements
and other
income (4) 1 - 1 1 3 4
Net income 97 1 98 207 (8) 199
Diluted earnings
per share $ 0.23 $ - $ 0.23 $ 0.49 $ (0.02) $ 0.47
(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.
Cash Flows and Balance Sheet
- Prior to our adoption of SFAS 123(R), cash retained as a
result of excess tax deductions relating to stock-based
compensation was presented in operating cash flows. SFAS
123(R) requires benefits relating to excess stock-based
compensation deductions to be presented as financing cash
flows. Amounts presented for operating cash flows and free
cash flows for 2006 are negatively affected in comparison to
prior results; however, the underlying economic substance is
not affected by this change in reporting classification. Tax
benefits resulting from stock-based compensation deductions in
excess of amounts reported for financial reporting
purposes--which negatively impacted operating cash flow - were
$102 million in 2006 compared to $7 million in 2005.
- Fixed assets acquired under capital leases were $69 million in
2006 compared to $6 million in 2005. If all of our capital
leases were classified as operating leases, the detriment to
cash flows from operating activities would have been $21
million in 2006 compared to $2 million in 2005.
- Our cash, cash equivalents and marketable securities of $2.02
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 $623
million, primarily in Euros, British Pounds and Japanese Yen.
- Other assets include, among other things, $86 million of
marketable securities restricted for longer than one year, $7
million of deferred issuance costs on long-term debt, $19
million of certain equity investments, and $21 million of
other intangibles, net. Marketable securities restricted for
longer than one year relate to collateralization of debt for
our international operations - such amounts at December 31,
2005, were insignificant.
- Accrued expenses and other current liabilities include, among
other things, liabilities for gift certificates of $183
million, professional fees, marketing activities, workforce
costs - including accrued payroll, vacation and other
benefits--and unearned revenue of $78 million, which is
recorded when payments are received or due in advance of
performing our service obligations and is amortized over the
service period. At December 31, 2005, accrued expenses and
other current liabilities included liabilities for gift
certificates of $131 million and unearned revenue of $48
million.
- Long-term debt primarily includes the following (in millions):
Principal Interest Principal
at Maturity Rate Due Date
--------------- -------- -------------
Convertible Subordinated Notes $ 900 (1) 4.750% February 2009
Premium Adjustable Convertible February 2010
Securities ("PEACS") 317 (2)(4) 6.875%
---------
$ 1,217 (3)
=========
(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
101.425% of the principal as of December 31, 2006, which decreases
every February 1 by 47.5 basis points until maturity, plus any
accrued and unpaid interest.
(2) EUR 240 million principal amount, convertible at the holders'
option into our common stock at EUR 84.883 per share ($112 per share
based on the Euro/U.S. dollar exchange rate as of December 31, 2006).
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 fluctuate based on the Euro/U.S. dollar
exchange ratio.
(3) The "if converted" number of shares associated with our
convertible debt instruments (approximately 14 million total shares)
is excluded from diluted shares as they are antidilutive.
(4) As previously announced, in Q1 2006 we redeemed EUR 250 million -
or $300 million at the Euro to U.S. dollar exchange rate on the
redemption date--in principal amount of our PEACS at par.
- Other long-term liabilities include tax contingencies,
long-term capital lease obligations, and other long-term
obligations. For further discussion of long-term tax
contingencies, see our discussion of "Income Taxes" above.
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 www.joyo.com; 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 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 trailing twelve month 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.com 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 units associated with certain of our
acquisitions (including Joyo.com units), Amazon.com gift
certificates or DVD rentals.
CONTACT: Amazon.com Investor Relations
Kim Nelson, 206/266-2171,
ir@amazon.com
www.amazon.com/ir
or
Amazon.com Public Relations
Patty Smith, 206/266-7180
SOURCE: Amazon.com
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