ANNOUNCES 76% FREE CASH FLOW GROWTH AND 29% SALES GROWTH - EXPECTS RECORD
HOLIDAY SEASON WITH EXPANDED SELECTION, LOWER PRICES, AND FREE SHIPPING
WIRE)--October 21, 2004--Amazon.com, Inc. (NASDAQ: AMZN) today
announced financial results for its third quarter ended September 30,
cash flow was $490 million for the trailing twelve months, compared with
$284 million for the trailing twelve months ended September 30, 2003.
Free cash flow grew 76% to $420 million for the trailing twelve months,
compared with $239 million for the 2003 period.
outstanding plus shares underlying stock-based awards outstanding totaled
434 million at September 30, 2004, compared with 433 million a year ago.
were $1.46 billion in the third quarter, compared with $1.13 billion in
third quarter 2003, an increase of 29%. Net sales, excluding the $57 million
benefit from changes in foreign exchange rates, grew 24% compared with
income was $81 million in the third quarter, compared with $52 million
in third quarter 2003. Consolidated segment operating income grew 29%
to $95 million in the third quarter, compared with $74 million in the
third quarter 2003. Excluding the $4 million benefit from changes in foreign
exchange rates, consolidated segment operating income grew 23% compared
with third quarter 2003.
was $54 million in the third quarter, or $0.13 per diluted share, compared
with net income of $16 million, or $0.04 per diluted share, in third quarter
2003. Pro forma net income in the third quarter grew 52% to $73 million,
or $0.17 per diluted share, compared with $48 million, or $0.11 per diluted
share, in third quarter 2003.
decision to put dollars into lower prices and free shipping instead of
TV advertising continues to be embraced by customers," said Jeff
Bezos, founder and CEO of Amazon.com. "Customer adoption of free
shipping hit another record high this quarter."
continues to lower shipping and product prices for its worldwide customers.
Customers shopping at www.amazon.co.uk now qualify for free shipping on
orders of £19 or more, down from the prior threshold of £25.
Measures" for additional information.
America segment sales, representing the Company's U.S. and Canadian
sites, were $816 million, up 15% compared with third quarter 2003. Segment
operating income declined $5 million to $57 million, compared with third
quarter 2003. Increased adoption of free shipping contributed to an
increase of $7 million in net shipping loss compared with the third
quarter of 2003.
segment sales, representing the Company's U.K., German, French, Japanese,
and Chinese sites, were $646 million, up 52% compared with third quarter
2003, and accounted for 44% of worldwide net sales. Excluding the benefit
from exchange rates, net sales growth was 39%. Segment operating income
grew $26 million to $38 million, compared with third quarter 2003.
& Other General Merchandise sales grew 55% to $1.47 billion for
the trailing twelve months, representing 23% of worldwide net sales.
For the first time, North America Electronics & Other General Merchandise
sales were over $1 billion on a trailing-twelve-month basis.
a subsidiary of Amazon.com, launched a search engine at www.a9.com,
to make Internet search more effective. The "search engine with
a memory" helps users manage and organize their search results,
and discover additional information sources such as the Internet Movie
Database and Amazon.com's Search Inside the Book results.
Wars Trilogy was the top-selling DVD worldwide, and the U.K. site
received a record 85,000 pre-orders.
introduced Toy stores at both its German and Japanese websites. Customers
now have their choice of over 20,000 toys, games, and hobby products,
and enjoy discounts up to 30%.
Web Services released Amazon E-Commerce Service 4.0 (ECS 4.0), offering
software developers and website owners unprecedented access to Amazon's
technology platform and product data. Additionally, the Alexa Web Information
Service (AWIS) gives first-ever access to the vast database of website
information and usage data compiled by Alexa Internet (www.alexa.com).
Access to both ECS 4.0 and AWIS is available at www.amazon.com/webservices,
where over 65,000 individuals have registered and downloaded the free
Amazon Web Services Software Developers Kit.
second U.K. fulfillment center in Scotland is fully operational and
prepared to help meet holiday demand from European customers.
acquired Joyo.com Limited, a British Virgin Islands Company, which operates
the Joyo.com website in cooperation with Chinese subsidiaries and affiliates.
The Joyo.com website is the largest online retailer of books, music,
and videos in China, and is Amazon.com's seventh global website.
forward-looking statements reflect Amazon.com's expectations as of October
21, 2004. Results may be materially affected by many factors, such as
fluctuations in foreign exchange rates, changes in global economic conditions
and consumer spending, world events, the rate of growth of the Internet
and online commerce, and the various factors detailed below.
Net sales are expected to be between $2.295 billion and $2.545 billion,
or grow between 18% and 31%, compared with fourth quarter 2003.
Consolidated segment operating income is expected to be between $162
million and $222 million, or grow between 6% and 45%, compared with
fourth quarter 2003.
Operating income is expected to be between $137 million and $197 million,
assuming, among other things, that the Company does not record any further
revisions to its restructuring-related estimates and that the closing
price of Amazon.com common stock on December 31, 2004, is identical
to the closing price of $40.86 on September 30, 2004.
Year 2004 Guidance
Net sales are expected to be between $6.675 billion and $6.925 billion,
or grow between 27% and 32%, compared with 2003.
Consolidated segment operating income is expected to be between $475
million and $535 million, or grow between 31% and 48%, compared with
Operating income is expected to be between $415 million and $475 million,
assuming, among other things, that the Company does not record any further
revisions to its restructuring-related estimates and that the closing
price of Amazon.com common stock on December 31, 2004, is identical
to the closing price of $40.86 on September 30, 2004.
Year 2005 Expectations
Net sales are expected to be between $7.40 billion and $8.15 billion.
Consolidated segment operating income is expected to be between $500
million and $625 million.
Operating income is expected to be between $400 million and $525 million,
excluding any impact from SFAS No. 123R, and assuming, among other things,
that the Company does not record any further revisions to its restructuring-related
estimates and that the closing price of Amazon.com common stock on December
31, 2005, is identical to the closing price of $40.86 on September 30,
conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and
will be available at least through December 31, 2004, at www.amazon.com/ir.
This call will contain forward-looking statements and other material information
regarding the Company's financial and operating results.
forward-looking statements are inherently difficult to predict. Actual
results could differ materially for a variety of reasons, including, in
addition to the factors discussed above, the amount that Amazon.com invests
in new business opportunities and the timing of those investments; the
mix of products sold to customers; the mix of net sales derived from products
as compared with services; competition; management of growth; potential
fluctuations in operating results; fulfillment center optimization; risks
of inventory management; seasonality; the degree to which the Company
enters into, maintains and develops commercial agreements, acquisitions
and strategic transactions; international growth and expansion; and risks
of fulfillment throughput and productivity. Other risks and uncertainties
include, among others, risk of future losses, significant amount of indebtedness,
system interruptions, consumer trends, limited operating history, government
regulation and taxation, fraud, and new business areas. More information
about factors that potentially could affect Amazon.com's financial results
is included in Amazon.com's filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the year ended December 31,
2003, and all subsequent filings.
measures are defined by the Securities and Exchange Commission as non-GAAP
cash flow is net cash provided by (used in) operating activities, including
cash outflows for interest and excluding proceeds from the exercise of
stock-based employee awards. Free cash flow is operating cash flow less
cash outflows for purchases of fixed assets, including internal-use software
and website development. A tabular reconciliation of differences from
the comparable GAAP measure—operating cash flow—is included
in the attached "Supplemental Financial Information and Business
Segment Operating Income
segment operating income is the sum of segment operating income of our individual
segments and excludes the following line items on the Company's statements
Stock-based compensation and
Other operating expense (income).
tabular reconciliation of differences from the comparable GAAP measure—operating
income—is included in the attached "Pro Forma Statements of
net income excludes the following line items on the Company's statements
Other operating expense (income), and
Remeasurements and other.
tabular reconciliation of differences from the comparable GAAP measure—net
income (loss)—is included in the attached "Pro Forma Statements
information regarding these non-GAAP financial measures, see Exhibit 99.2
to our Form 8-K filed contemporaneously with the issuance of this release.
(NASDAQ: AMZN), a Fortune 500 company based in Seattle, opened its virtual
doors on the World Wide Web in July 1995 and today offers Earth's Biggest
Selection. Amazon.com seeks to be Earth's most customer-centric company,
where customers can find and discover anything they might want to buy
online, and endeavors to offer customers the lowest possible prices. Amazon.com
and third-party sellers offer millions of unique new, refurbished, and
used items in categories such as health and personal care, jewelry and
watches, gourmet food, sports and outdoors, apparel and accessories, books,
music, DVDs, electronics and office, toys and baby, and home and garden.
and its affiliates operate seven websites: www.amazon.com, www.amazon.co.uk,
www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com.
As used herein,
"Amazon.com," "we," "our" and similar terms
include Amazon.com, Inc. and its subsidiaries, unless the context indicates
Financial and Operational Highlights
Results of Operations (comparisons are with the equivalent period
of the prior year, unless otherwise stated)
revenue, which excludes amounts earned from third-party sellers, was
$87 million, up 13% from $77 million.
of sales consists of the purchase price of consumer products sold
by us, inbound and outbound shipping charges to us, packaging supplies,
and costs incurred in operating and staffing our fulfillment and customer
service centers on behalf of other businesses, such as Toysrus.com
shipping-related costs totaled $128 million, up from $104 million.
Net shipping loss was $41 million, up from a net loss of $27 million,
resulting primarily from our free-shipping offers. We view free-shipping
offers as an effective worldwide marketing tool and intend to continue
offering them indefinitely.
Segment Operating Expense
quarter direct segment operating expenses as a percentage of net sales
were as follows:
was $19 million in third quarter 2004 and $72 million over the trailing
costs include those costs incurred in operating and staffing our fulfillment
and customer service centers, credit card fees, and bad debt costs,
including costs associated with our guarantee for certain third-party
seller transactions. Fulfillment costs also include amounts paid to
third parties, who assist us in fulfillment and customer service operations.
card fees associated with third-party seller transactions are based
on the gross purchase price of underlying transactions, and therefore
represent a larger percentage of our recorded revenue than credit
card fees on our retail sales. Bad debt costs, including costs associated
with our guarantee program, are also higher as a percentage of recorded
revenue versus our retail sales. Accordingly, fulfillment costs as
a percentage of net sales are higher for third-party seller transactions
than for our retail sales.
new fulfillment center in Scotland began fulfilling customer orders
in the third quarter and is now fully operational. The center is approximately
300,000 square feet and currently employs over 200 permanent associates.
costs decreased as a percentage of sales from the prior year, but
increased in absolute dollars due to variable costs corresponding
with sales volume, our mix of product sales, credit card fees, and
bad debt costs, including costs associated with our guarantee for
certain third-party seller transactions. We expect absolute amounts
spent in fulfillment to increase over time.
spending in technology and content has increased as we are adding
computer scientists and software engineers to enhance the customer
experience on our websites and those websites powered by us, and improve
our process efficiency. Additionally, we continue to invest in several
areas of technology, including seller platform, A9.com, web services,
and additional development centers. We intend to continue investing
in these and other initiatives and expect absolute dollars spent in
technology and content to increase over time as we continue to add
computer scientists and software engineers to our staff.
majority of these costs are incurred in the U.S. and most of them
are allocated to our North America segment.
all costs related to the development of internal-use software other
than those incurred during the application development stage. Costs
incurred during the application development stage are capitalized
and amortized over the estimated useful life of the software, generally
two years. For the three months ended September 30, 2004 and 2003,
we capitalized $12 million and $9 million of internal-use software
costs, which was offset by amortization of previously capitalized
amounts of $8 million and $6 million.
efforts include targeted online marketing channels, such as our Associates
and Syndicated Stores programs, portal advertising, e-mail campaigns,
sponsored search, and other initiatives. Since our marketing expenses
are largely variable, we expect absolute amounts spent in marketing
to increase over time. To the extent there is increased or decreased
competition for these traffic sources, or to the extent our mix of
these channels shifts, we would expect to see a corresponding change
in our marketing expense. While costs associated with free shipping
are not included in marketing expense, we view our free-shipping offers
as an effective worldwide marketing tool and intend to continue offering
and Administrative costs increased primarily due to increases in professional
fees. We expect absolute dollars spent in general and administrative
to increase over time.
October 2002, we have awarded restricted stock units as our primary
form of stock-based compensation. Restricted stock units, under fixed
accounting, are generally measured at fair value on the date of grant
based on the number of shares granted and the quoted price of our
common stock. Such value is recognized as an expense on an accelerated
basis over the corresponding service period. To the extent that restricted
stock units are forfeited prior to vesting, the corresponding previously
recognized expense is reversed as an offset to stock-based compensation.
awards generally fully vest over service periods of between three
and six years.
compensation was $9 million for the quarter, consisting of $6 million
in contra-expense for stock awards under variable accounting, and
$15 million for stock awards under fixed accounting plus matching
stock contributions under our 401(k) program. Payroll tax expense
resulting from exercises of stock-based awards is not classified in
"Stock-based compensation," but is allocated to the corresponding
operating expense categories on the statement of operations.
0.7 million stock awards, primarily restricted stock units, during
the quarter at a per-share weighted average fair value of $40.12.
Year-to-date we have granted 2.7 million stock awards, primarily restricted
stock units, at a per-share average fair value of $44.59.
30, 2004, there were 27 million stock awards outstanding, consisting
of 20 million stock options with a $12.90 weighted average exercise
price, 6 million restricted stock units, and 0.5 million shares of
restricted stock (included in common stock outstanding).
30, 2004, 1.4 million outstanding stock awards, primarily options,
were subject to variable accounting. Stock option grants after December
31, 2002, are subject to variable accounting treatment. Variable accounting
treatment results in expense or contra-expense recognition using the
cumulative expense method, calculated based on the quoted price of
our common stock and vesting schedules of underlying awards. For example,
since the closing price of our common stock on September 30, 2004,
$40.86, was lower than the closing price on June 30, 2004, $54.40,
we recorded a contra-expense associated with variable accounting treatment
for the third quarter of 2004.
Operating Expense (Income)
in "Other operating expense (income)" are restructuring-related expenses
or credits and amortization of other intangibles. Amortization of
other intangibles was $0.3 million and $1 million for the three months
ended September 30, 2004 and 2003.
first quarter 2001 operational restructuring plan is complete; however,
we may periodically adjust our restructuring-related estimates, such
as lease obligations, in the future if necessary.
payments resulting from our 2001 operational restructuring were $2
million, compared with $3 million in 2003.
our organizational structure in France to reduce our operating costs.
The severance terms associated with these efforts were finalized in
the third quarter, and corresponding costs of $4 million were recorded.
We expect payment to occur in the fourth quarter of 2004.
based on currently available information, the remaining net cash outflows
associated with restructuring-related leases and other commitments
will be $5 million in 2004, and $16 million thereafter. Amounts due
within twelve months are included within "Accrued expenses and other
current liabilities" and the remaining amounts within "Long-term debt
and other" on our balance sheet. These amounts are net of anticipated
sublease income of $25 million (we have signed sublease agreements
for $13 million).
Income (Expense), Net
expense in third quarter 2004 was primarily foreign, state, and other
includes foreign-currency losses on remeasurement of 6.875% PEACS
from Euros to U.S. Dollars of $17 million, compared with a loss of
includes a $7 million gain from the remeasurement of foreign-currency
intercompany balances, which are to be repaid amongst subsidiaries,
and a $4 million gain on sales of Euro-denominated investments.
30, 2004, we had net operating loss carryforwards (NOLs) of approximately
$2.8 billion, primarily related to U.S. federal taxes. Utilization
of NOLs, which begin to expire at various times starting in 2010,
may be subject to certain limitations. Approximately $1.0 billion
of our NOLs are attributable to continuing operations, and the related
tax benefits, if realized, will be credited to results of operations
for both financial reporting and tax reporting purposes. The remainder,
approximately $1.8 billion, relates to tax deductible stock-based
compensation in excess of amounts recognized for financial reporting
purposes, and the related tax benefits, if realized, will be credited
to stockholders' equity rather than to results of operations for financial
that our reported net income for the third quarter 2004 should not
be viewed, on its own, as a material positive event and is not necessarily
predictive of future results for a variety of reasons. For example,
we are unable to forecast the effect on our future reported results
of certain items, including the effect that fluctuations in foreign
currency rates will have on the remeasurement of our 6.875% PEACS
and intercompany balances. The remeasurement of our 6.875% PEACS represented
a significant charge during the quarter and may result in significant
charges or gains in future periods.
we are unable to forecast the effect of stock-based compensation,
which is based in part on the quoted price of our common stock in
accordance with variable accounting treatment. In the third quarter
of 2004 variable accounting treatment resulted in a credit to our
operating results of $6 million due to a decline in price of our common
stock. Comparisons to prior year quarter and year-to-date periods
show improvement in operating income of $16 million and $46 million
resulting from the effects of changing stock prices on variable accounting
treatment. Variable accounting has resulted in significant expense
and contra-expense in past periods and will continue to be unpredictable
As our financial reporting currency is the U.S. Dollar, our total
sales, profit, and operating and free cash flow have benefited significantly
the past nine quarters from weakness in the U.S. Dollar in comparison
to the currencies of our international websites. We believe it is
important to evaluate our growth rates after the effect of currency
The effect of changes in exchange rates in the third quarter is
as follows (in millions): (1)
Includes foreign-currency gains (losses) on remeasurement of 6.875%
PEACS and intercompany balances, and realized currency-related gains
associated with sales of Euro-denominated investments held by a U.S.
These amounts represent the impact on reported results that is due
to year-over-year changes in exchange rates. Absent year-over-year
changes in exchange rates, reported amounts would have been lower
(higher) by these amounts.
Flows and Balance Sheet
cash flows and free cash flows can be volatile and are sensitive to
many factors, including changes in working capital. Working capital
at any specific point in time is subject to many variables, including
world events, seasonality, the timing of expense payments, discounts
offered by vendors, vendor payment terms, and fluctuations in foreign
cash, cash equivalents, and marketable securities of $1.18 billion,
at fair value, primarily consist of cash, commercial paper and short-term
securities, U.S. Treasury notes and bonds, asset-backed, and agency
securities and certificates of deposit. Included is amounts held in
foreign currencies of $693 million, primarily in Euros, British Pounds,
pledged $76 million of our marketable securities as collateral for property
leases and other contractual obligations, compared with $87 million
as of December 31, 2003.
7, 2004 we acquired all outstanding shares of Joyo.com Limited, a British
Virgin Islands Company, which operates the Joyo.com website in cooperation
with Chinese subsidiaries and affiliates. The Joyo.com website is the
largest online retailer of books, music, and videos in China, and is
Amazon.com's seventh global website. Results of operations for Joyo.com
have been included in our consolidated results from the date of acquisition
forward. Results were not significant in the third quarter, and are
not expected to be significant in the fourth quarter. The purchase price
was $74 million, composed of $72 million in cash, the assumption of
employee stock options, and transaction-related costs. We recorded $68
million in goodwill related to the acquisition.
assets" includes, among other things, deferred issuance costs on long-term
debt, other equity investments, and intangibles.
revenue" is recorded when payments are received from third parties in
advance of our providing the associated service.
expenses and other current liabilities" includes, among other things,
liabilities for gift certificates, marketing activities, and workforce
costs, including accrued payroll, vacation, and other benefits.
debt and other" primarily includes the following (in millions):
Convertible at the holders' option into our common stock at $78.0275
per share. We have the right to redeem the Convertible Subordinated
Notes, in whole or in part, at a redemption price of 102.375% of the
principal, which decreases every February by 47.5 basis points until
maturity, plus any accrued and unpaid interest.
(2) During the previous twelve-month period we redeemed an aggregate
principal amount of $350 million: $150 million in February 2004 and
$200 million in November 2003.
(3) PrEmium Adjustable Convertible Securities.
(4) €690 million principal amount, convertible at the holders'
option into our common stock at €84.883 per share ($105.56 per
share based on the exchange rate as of September 30, 2004). We have
the right to redeem the PEACS, in whole or in part, by paying the principal
amount, plus any accrued and unpaid interest. We do not hedge any portion
of the PEACS. The U.S. Dollar equivalent principal, interest, and conversion
price fluctuates based on the Euro/U.S. Dollar exchange ratio. Due to
fluctuations in this exchange ratio, our principal debt obligation since
issuance in February 2000 has increased by $178 million as of September
(5) The "if converted" number of shares associated with our
convertible debt instruments (approximately 20 million total shares)
are excluded from diluted shares as their effect is anti-dilutive.
Definitions and Other
segment information along two lines: North America and International.
We measure operating results of our segments using an internal performance
measure of direct segment operating expenses that excludes stock-based
compensation and other operating expenses (income), each of which is
not allocated to segment results. Other centrally incurred operating
costs are fully allocated to segment results. Our operating results,
particularly for the International segment, are affected by movements
in foreign exchange rates.
America segment consists of amounts earned from retail sales of consumer
products (including from third-party sellers) through www.amazon.com
and www.amazon.ca; from North America focused Syndicated Stores, such
as www.cdnow.com; from our mail-order tool catalog; and from non-retail
activities such as North America focused Merchant.com, marketing, and
promotional agreements. This segment includes export sales from www.amazon.com
segment consists of amounts earned from retail sales of consumer products
(including from third-party sellers) through www.amazon.co.uk , www.amazon.de,
www.amazon.co.jp, www.amazon.fr, and, since September 7, 2004, www.joyo.com;
from internationally focused Syndicated Stores; and from non-retail
activities such as internationally focused marketing and promotional
agreements. This segment includes export sales from these internationally
based sites (including export sales from these sites to customers in
the U.S. and Canada), but excludes export sales from www.amazon.com
supplemental sales information within each segment for three categories:
"Media," "Electronics and other general merchandise," and "Other." Media
consists of amounts earned from retail sales from all sellers of books,
music, DVD/video, magazine subscriptions, software, video games, and
video game consoles. Electronics and other general merchandise consists
of amounts earned from retail sales from all sellers of items not included
in Media, such as electronics and office, toys and baby, tools, home
and garden, apparel, sports and outdoors, gourmet food, jewelry, health
and personal care, beauty, and musical instruments. The Other category
consists of non-retail activities, such as the Merchant.com program
and miscellaneous marketing and promotional activities.
cycle is number of days of sales in inventory plus number of days of
sales in accounts receivable minus accounts payable days. Inventory
turnover is the quotient of trailing-twelve-months cost of sales to
average inventory. Accounts payable days is calculated as the quotient
of accounts payable to cost of sales, multiplied by the number of days
in the period.
to customers mean customer accounts, which are unique e-mail addresses,
established either when a customer's initial order is shipped or when
a customer orders from certain third-party sellers on our websites.
Customer accounts include customers of Amazon Marketplace, Auctions
and zShops, and our Merchants@ and Syndicated Stores programs, but exclude
Joyo.com customers, Merchant.com program customers, Amazon.com Payments
customers, our catalog customers, and the customers of select companies
with whom we have a technology alliance or marketing and promotional
relationship. A customer is considered active when they have placed
an order during the preceding twelve-month period.
to sellers or merchants mean active seller accounts, which are established
when a seller receives an order from a customer account. Seller accounts
include sellers in Amazon's Marketplace, Auctions, zShops, and Merchants@
platforms, but exclude Merchant.com sellers. A seller is considered
active when they have received an order during the preceding twelve-month
to units mean units sold (net of returns and cancellations) by us and
third-party sellers at Amazon.com domains worldwide—such as www.amazon.com,
www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr,
and www.amazon.ca—and at Syndicated Stores domains, as
well as Amazon.com-owned items sold through catalogs and at non-Amazon.com
domains, such as books, music, and DVD/video items ordered from Amazon.com's
store at www.target.com. Units do not include Joyo.com units
sold or Amazon.com gift certificates.
Investor Relations Amazon.com
Tim Stone, 206/266-2171, firstname.lastname@example.org
Patty Smith, 206/266-7180 www.amazon.com/ir