SEATTLE--Feb. 2, 2005--Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter and year ended December 31, 2004. Operating cash flow was $567 million for 2004, compared with $392 million for 2003. Free cash flow grew 38% to $477 million for 2004, compared with $346 million for 2003. Common shares outstanding plus shares underlying stock-based awards outstanding totaled 434 million at December 31, 2004, compared with 433 million a year ago. Net sales were $2.54 billion in the fourth quarter, compared with $1.95 billion in fourth quarter 2003, an increase of 31%. Net sales, excluding the $85 million benefit from changes in foreign exchange rates, grew 26% compared with fourth quarter 2003. Operating income was $162 million in the fourth quarter, compared with $138 million in fourth quarter 2003. Consolidated segment operating income grew 16% to $177 million in the fourth quarter, compared with $153 million in the fourth quarter 2003. Excluding the $5 million benefit from changes in foreign exchange rates, consolidated segment operating income grew 13% compared with fourth quarter 2003. Net income was $347 million in the fourth quarter, or $0.82 per diluted share, compared with net income of $73 million, or $0.17 per diluted share, in fourth quarter 2003. Pro forma net income in the fourth quarter was $394 million, or $0.93 per diluted share, compared with $125 million, or $0.29 per diluted share, in fourth quarter 2003. Excluding the benefit from realizing a $244 million deferred tax asset related primarily to net operating loss carryforwards attributable to continuing operations, fourth quarter pro forma net income would have been $149 million, or $0.35 per diluted share. Today the Company also introduced "Amazon Prime," Amazon.com's first ever membership program. For a flat membership fee of $79 per year, members get unlimited, express two-day shipping for free, with no minimum purchase requirement. Members also get one-day, overnight shipping for only $3.99 per item -- order as late as 6:30PM ET. "Amazon Prime is 'all-you-can-eat' express shipping," said Jeff Bezos, founder and CEO of Amazon.com. "Though expensive for the Company in the short-term, it's a significant benefit and more convenient for customers. With Amazon Prime, there's no minimum purchase to think about, and no consolidating orders -- two-day shipping becomes an everyday experience rather than an occasional indulgence." Members can also share the benefits of Amazon Prime with up to four family members living in their household. Details can be found at www.amazon.com/prime. Full Year 2004 Net sales were $6.92 billion in 2004, compared with $5.26 billion in 2003, an increase of 31%. Net sales, excluding the $276 benefit from foreign exchange rates, grew 26% compared with 2003. Operating income was $440 million in 2004, compared with $271 million in 2003. Consolidated segment operating income grew 36% to $490 million in 2004, compared with $361 million in 2003. Excluding the $20 million benefit from foreign exchange rates, consolidated segment operating income grew 30% in 2004 compared with 2003. Net income was $588 million in 2004, or $1.39 per diluted share, compared with net income of $35 million, or $0.08 per diluted share, in 2003. Pro forma net income for 2004 was $639 million, or $1.50 per diluted share, compared with $256 million, or $0.61 per diluted share, in 2003. Excluding the benefit from realizing a $244 million deferred tax asset related primarily to net operating loss carryforwards attributable to continuing operations, 2004 pro forma net income would have been $395 million, or $0.93 per diluted share. Amazon.com also announced today that on March 7, 2005 it will redeem EUR 200 million ($261 million at the Euro to U.S. dollar exchange rate on January 31, 2005) in principal amount of its outstanding 6.875% Convertible Subordinated Notes due 2010, plus accrued and unpaid interest from and including February 16, 2005 to March 6, 2005, under its previously announced $500 million debt repurchase authorization. No premium payment is required to redeem these notes. Highlights * North America segment sales, representing the Company's U.S. and Canadian sites, were $1.39 billion, up 22% compared with fourth quarter 2003. Segment operating income increased to $122 million from $114 million, compared with fourth quarter 2003. * North America Media growth was 18% in the fourth quarter, driven in part by continued price reductions, including an increase in the discount on books over $15 from 30% to 32%, and books over $25 from 32% to 34%. * International segment sales, representing the Company's U.K., German, French, Japanese, and Chinese sites, were $1.15 billion, up 43% compared with fourth quarter 2003. Excluding the benefit from exchange rates, net sales growth was 33%. Segment operating income increased to $55 million from $39 million, compared with fourth quarter 2003. * International segment sales accounted for 44% of worldwide net sales in 2004, up from 38% in 2003. Shipments to 225 countries outside the U.S. accounted for 49% of worldwide shipments in 2004, up from 43% in 2003. * Electronics & Other General Merchandise sales grew 53% to $1.69 billion for 2004, representing 24% of worldwide net sales. During the Thanksgiving weekend, consumer electronics sales in the U.S. exceeded books sales for the first time in the Company's history, and in the December issue of the leading consumer research magazine Amazon.com was named the best place to shop for consumer electronics. * Amazon.co.uk launched a new DVD rental service with plans that start from just GBP 7.99 per month. Rental members also receive an extra 10% discount off Amazon's already low prices on all of their DVD purchases from Amazon.co.uk. * Customers worldwide have placed hundreds of thousands of preorders for the sixth installment in the Harry Potter series, Harry Potter and the Half Blood Prince, scheduled to be released on July 16, 2005. * A9.com, a subsidiary of Amazon.com, launched A9.com Yellow Pages, a new service that helps users find and discover local businesses in a completely new way, including "Block View(TM)," a powerful technology which brings the Yellow Pages to life by showing a street view of millions of businesses and their surroundings. Block View allows users to see storefronts and virtually walk up and down the streets of currently more than 10 U.S. cities using over 20 million photographs. In addition, A9.com Yellow Pages uses features on Amazon.com that allow users to review, rate, provide more information, collect lists, and get recommendations on more than 14 million businesses across the U.S. A9.com Yellow Pages are available now on the A9.com homepage at www.a9.com. * In the first two weeks following the South Asia tsunami on December 26th, Amazon.com's worldwide customers made over 200,000 donations totaling more than $15 million to the Red Cross for tsunami disaster relief. See "Financial Measures" for additional information. Financial Guidance The following forward-looking statements reflect Amazon.com's expectations as of February 2, 2005. 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 2005 Guidance * Net sales are expected to be between $1.80 billion and $1.95 billion, or grow between 18% and 27%, compared with first quarter 2004. * Operating income is expected to be between $80 million and $110 million, or decline between (28%) and 0%, compared with first quarter 2004, assuming, among other things, that the Company adopts SFAS No. 123R on January 1, 2005, stock-based compensation is $25 million, and there are no further revisions to restructuring-related estimates. Full Year 2005 Expectations * Net sales are expected to be between $8.05 billion and $8.65 billion, or grow between 16% and 25%. * Operating income is expected to be between $385 million and $510 million, or between (13%) and 16% growth, compared with 2004, assuming, among other things, that the Company adopts SFAS No. 123R on January 1, 2005, stock-based compensation is $115 million, and there are no further revisions to restructuring-related estimates. A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available at least through March 31, 2005, 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, 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, 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, 2003, and all subsequent filings. Financial Measures The following measures are defined by the Securities and Exchange Commission as non-GAAP financial measures. Free Cash Flow Operating cash flow is net cash provided by (used in) operating activities, including cash outflows for interest and excluding proceeds from the exercise of stock-based employee awards. Free cash flow is operating cash flow less cash outflows for purchases of fixed assets, including internal-use software and website development. A tabular reconciliation of differences from the comparable GAAP measure -- operating cash flow -- is included in the attached "Supplemental Financial Information and Business Metrics." Consolidated Segment Operating Income Consolidated segment operating income is the sum of segment operating income of our individual segments and excludes the following line items on the Company's statements of operations: * Stock-based compensation and * Other operating expense (income). A tabular reconciliation of differences from the comparable GAAP measure -- operating income -- is included in the attached "Pro Forma Statements of Operations." Pro Forma Net Income Pro forma net income excludes the following line items on the Company's statements of operations: * Stock-based compensation, * Other operating expense (income), and * Remeasurements and other. A tabular reconciliation of differences from the comparable GAAP measure -- net income (loss) -- is included in the attached "Pro Forma Statements of Operations." For additional information regarding these non-GAAP financial measures, see Exhibit 99.2 to our Form 8-K filed contemporaneously with the issuance of this release. About Amazon.com Amazon.com (NASDAQ:AMZN - News), a Fortune 500 company based in Seattle, opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer customers the lowest possible prices. Amazon.com and third-party sellers offer millions of unique new, refurbished, and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden. Amazon.com and its affiliates operate seven websites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com. As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com, Inc. and its subsidiaries, unless the context indicates otherwise. AMAZON.COM, INC. Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ------------------------ 2003 2004 2003 2004 ----------------------- ------------------------ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 666,418 $ 745,608 $ 738,254 $ 1,102,273 OPERATING ACTIVITIES: Net income 73,154 346,688 35,282 588,451 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of fixed assets, including internal- use software and website development, and other amortization 18,467 20,831 75,558 75,724 Stock-based compensation 15,039 19,629 87,751 57,702 Other operating expense (income) 141 (4,777) 2,752 (7,964) Losses (gains) on sales of marketable securities, net (205) 204 (9,598) (586) Remeasurements and other 36,505 32,045 130,097 824 Non-cash interest expense and other 166 1,354 12,918 4,756 Changes in operating assets and liabilities: Inventories (42,785) (107,724) (76,786) (168,896) Accounts receivable, net and other current assets (16,341) 6,883 1,616 (1,745) Accounts payable 299,316 423,944 167,732 286,091 Accrued expenses and other current liabilities 72,226 37,869 (27,982) (15,110) Deferred income taxes (311) (244,221) 931 (256,696) Additions to unearned revenue 22,989 25,467 101,641 109,936 Amortization of previously unearned revenue (26,021) (30,732) (111,740) (106,886) Interest payable 28,623 30,107 1,850 959 ---------- ---------- ---------- ----------- Net cash provided by operating activities 480,963 557,567 392,022 566,560 INVESTING ACTIVITIES: Sales and maturities of marketable securities and other investments 232,173 419,375 813,184 1,426,786 Purchases of marketable securities (121,448) (448,057) (535,642) (1,584,089) Purchases of fixed assets, including internal-use software and website development (17,236) (36,755) (45,963) (89,133) Proceeds from sale of subsidiary - - 5,072 - Acquisition, net of cash acquired - - - (71,195) ---------- ---------- ---------- ----------- Net cash provided by (used in) investing activities 93,489 (65,437) 236,651 (317,631) FINANCING ACTIVITIES: Proceeds from exercises of stock options 30,490 17,491 163,322 60,109 Repayments of long- term debt and capital lease obligations (207,732) (559) (495,308) (157,401) ---------- ---------- ---------- ----------- Net cash provided by (used in) financing activities (177,242) 16,932 (331,986) (97,292) Foreign-currency effect on cash and cash equivalents 38,645 47,930 67,332 48,690 ---------- ---------- ---------- ----------- Net increase in cash and cash equivalents 435,855 556,992 364,019 200,327 ---------- ---------- ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $1,102,273 $1,302,600 $1,102,273 $ 1,302,600 ========== ========== ========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Fixed assets acquired under capital leases and other financing arrangements $ 29 $ 202 $ 2,677 $ 860 Cash paid for interest 3,112 39 119,947 107,604 Cash paid for income taxes 197 1,392 1,825 4,051 Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ------------------------ 2003 2004 2003 2004 ----------------------- ------------------------ Net sales $1,945,772 $2,540,959 $5,263,699 $ 6,921,124 Cost of sales 1,518,935 1,996,493 4,006,531 5,319,127 ---------- ---------- ---------- ----------- Gross profit 426,837 544,466 1,257,168 1,601,997 Operating expenses: Fulfillment 158,815 204,454 477,032 590,397 Marketing 40,291 58,200 122,787 158,022 Technology and content 51,811 72,821 207,809 251,195 General and administrative 22,984 31,697 88,302 112,220 Stock-based compensation (1) 15,039 19,629 87,751 57,702 Other operating expense (income) 281 (4,777) 2,892 (7,964) ---------- ---------- ---------- ----------- Total operating expenses 289,221 382,024 986,573 1,161,572 ---------- ---------- ---------- ----------- Income from operations 137,616 162,442 270,595 440,425 Interest income 5,330 9,778 21,955 28,197 Interest expense (29,299) (27,134) (129,979) (107,227) Other income (expense), net (1,621) (5,021) 6,514 (4,701) Remeasurements and other (36,505) (32,045) (130,097) (824) ---------- ---------- ---------- ----------- Total non- operating expense, net (62,095) (54,422) (231,607) (84,555) ---------- ---------- ---------- ----------- Income before income taxes 75,521 108,020 38,988 355,870 Provision (benefit) for income taxes 2,367 (238,668) 3,706 (232,581) ---------- ---------- ---------- ----------- Net income $ 73,154 $ 346,688 $ 35,282 $ 588,451 ========== ========== ========== =========== Basic earnings per share $ 0.18 $ 0.85 $ 0.09 $ 1.45 ========== ========== ========== =========== Diluted earnings per share $ 0.17 $ 0.82 $ 0.08 $ 1.39 ========== ========== ========== =========== Weighted average shares used in computation of earnings per share: Basic 401,422 408,227 395,479 405,926 ========== ========== ========== =========== Diluted 425,214 425,034 419,352 424,757 ========== ========== ========== =========== (1) Components of stock-based compensation: Fulfillment $ 1,739 $ 3,779 $ 17,960 $ 10,073 Marketing 802 1,483 4,968 4,253 Technology and content 9,747 11,240 49,555 31,781 General and administrative 2,751 3,127 15,268 11,595 ---------- ---------- ---------- ----------- $ 15,039 $ 19,629 $ 87,751 $ 57,702 ========== ========== ========== =========== Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Pro Forma Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended December 31, 2003 ---------------------------------- As Reported Adjustments Pro Forma (1) ---------------------------------- Net sales $1,945,772 $ - $1,945,772 Cost of sales 1,518,935 - 1,518,935 ---------- -------- ---------- Gross profit 426,837 - 426,837 Operating expenses: Fulfillment 158,815 - 158,815 Marketing 40,291 - 40,291 Technology and content 51,811 - 51,811 General and administrative 22,984 - 22,984 Stock-based compensation 15,039 (15,039) - Other operating expense (income) 281 (281) - ---------- -------- ---------- Total operating expenses 289,221 (15,320) 273,901 ---------- -------- ---------- Income from operations 137,616 15,320 152,936 (2) Interest income 5,330 - 5,330 Interest expense (29,299) - (29,299) Other expense, net (1,621) - (1,621) Remeasurements and other (36,505) 36,505 - ---------- -------- ---------- Total non-operating expense, net (62,095) 36,505 (25,590) ---------- -------- ---------- Income before income taxes 75,521 51,825 127,346 Provision (benefit) for income taxes 2,367 - 2,367 ---------- -------- ---------- Net income $ 73,154 $ 51,825 $ 124,979 ========== ======== ========== Basic earnings per share $ 0.18 $ 0.13 $ 0.31 ========== ======== ========== Diluted earnings per share $ 0.17 $ 0.12 $ 0.29 ========== ======== ========== Weighted average shares used in computation of earnings per share: Basic 401,422 401,422 ========== ========== Diluted 425,214 425,214 ========== ========== Net cash provided by operating activities $ 480,963 Purchases of fixed assets, including internal-use software and website development (17,236) ---------- Free cash flow $ 463,727 ========== Net cash provided by (used in) investing activities $ 93,489 ========== Net cash provided by (used in) financing activities $ (177,242) ========== Three Months Ended December 31, 2004 ---------------------------------- As Reported Adjustments Pro Forma (1) ---------------------------------- Net sales $2,540,959 $ - $2,540,959 Cost of sales 1,996,493 - 1,996,493 ---------- -------- ---------- Gross profit 544,466 - 544,466 Operating expenses: Fulfillment 204,454 - 204,454 Marketing 58,200 - 58,200 Technology and content 72,821 - 72,821 General and administrative 31,697 - 31,697 Stock-based compensation 19,629 (19,629) - Other operating expense (income) (4,777) 4,777 - ---------- -------- ---------- Total operating expenses 382,024 (14,852) 367,172 ---------- -------- ---------- Income from operations 162,442 14,852 177,294 (2) Interest income 9,778 - 9,778 Interest expense (27,134) - (27,134) Other expense, net (5,021) - (5,021) Remeasurements and other (32,045) 32,045 - ---------- -------- ---------- Total non-operating expense, net (54,422) 32,045 (22,377) ---------- -------- ---------- Income before income taxes 108,020 46,897 154,917 Provision (benefit) for income taxes (238,668) - (238,668) ---------- -------- ---------- Net income $ 346,688 $ 46,897 $ 393,585 =========== ======== ========== Basic earnings per share $ 0.85 $ 0.11 $ 0.96 ========== ======== ========== Diluted earnings per share $ 0.82 $ 0.11 $ 0.93 ========== ======== ========== Weighted average shares used in computation of earnings per share: Basic 408,227 408,227 ========== ========== Diluted 425,034 425,034 ========== ========== Net cash provided by operating activities $ 557,567 Purchases of fixed assets, including internal-use software and website development (36,755) ---------- Free cash flow $ 520,812 ========== Net cash provided by (used in) investing activities $ (65,437) ========== Net cash provided by (used in) financing activities $ 16,932 ========== (1) In accordance with accounting principles generally accepted in the United States. (2) Consolidated segment operating income. Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Pro Forma Statements of Operations (in thousands, except per share data) (unaudited) Twelve Months Ended December 31, 2003 ---------------------------------- As Reported Adjustments Pro Forma (1) ---------------------------------- Net sales $5,263,699 $ - $5,263,699 Cost of sales 4,006,531 - 4,006,531 ---------- -------- ---------- Gross profit 1,257,168 - 1,257,168 Operating expenses: Fulfillment 477,032 - 477,032 Marketing 122,787 - 122,787 Technology and content 207,809 - 207,809 General and administrative 88,302 - 88,302 Stock-based compensation 87,751 (87,751) - Other operating expense (income) 2,892 (2,892) - ---------- -------- ---------- Total operating expenses 986,573 (90,643) 895,930 ---------- -------- ---------- Income from operations 270,595 90,643 361,238 (2) Interest income 21,955 - 21,955 Interest expense (129,979) - (129,979) Other income (expense), net 6,514 - 6,514 Remeasurements and other (130,097) 130,097 - ---------- -------- ---------- Total non-operating expense, net (231,607) 130,097 (101,510) ---------- -------- ---------- Income before income taxes 38,988 220,740 259,728 Provision (benefit) for income taxes 3,706 - 3,706 ---------- -------- ---------- Net income $ 35,282 $220,740 $ 256,022 ========== ======== ========== Basic earnings per share $ 0.09 $ 0.56 $ 0.65 ========== ======== ========== Diluted earnings per share $ 0.08 $ 0.53 $ 0.61 ========== ======== ========== Weighted average shares used in computation of earnings per share: Basic 395,479 395,479 ========== ========== Diluted 419,352 419,352 ========== ========== Net cash provided by operating activities $ 392,022 Purchases of fixed assets, including internal-use software and website development (45,963) ---------- Free cash flow $ 346,059 ========== Net cash provided by (used in) investing activities $ 236,651 ========== Net cash used in financing activities $ (331,986) ========== Twelve Months Ended December 31, 2004 ------------------------------------- As Reported Adjustments Pro Forma (1) ---------------------------------- Net sales $6,921,124 $ - $6,921,124 Cost of sales 5,319,127 - 5,319,127 ---------- -------- ---------- Gross profit 1,601,997 - 1,601,997 Operating expenses: Fulfillment 590,397 - 590,397 Marketing 158,022 - 158,022 Technology and content 251,195 - 251,195 General and administrative 112,220 - 112,220 Stock-based compensation 57,702 (57,702) - Other operating expense (income) (7,964) 7,964 - ---------- -------- ---------- Total operating expenses 1,161,572 (49,738) 1,111,834 ---------- -------- ---------- Income from operations 440,425 49,738 490,163 (2) Interest income 28,197 - 28,197 Interest expense (107,227) - (107,227) Other income (expense), net (4,701) - (4,701) Remeasurements and other (824) 824 - ---------- -------- ---------- Total non-operating expense, net (84,555) 824 (83,731) ---------- -------- ---------- Income before income taxes 355,870 50,562 406,432 Provision (benefit) for income taxes (232,581) - (232,581) ---------- -------- ---------- Net income $ 588,451 $ 50,562 $ 639,013 ========== ======== ========== Basic earnings per share $ 1.45 $ 0.12 $ 1.57 ========== ======== ========== Diluted earnings per share $ 1.39 $ 0.11 $ 1.50 ========== ======== ========== Weighted average shares used in computation of earnings per share: Basic 405,926 405,926 ========== ========== Diluted 424,757 424,757 ========== ========== Net cash provided by operating activities $ 566,560 Purchases of fixed assets, including internal-use software and website development (89,133) ---------- Free cash flow $ 477,427 ========== Net cash provided by (used in) investing activities $ (317,631) ========== Net cash used in financing activities $ (97,292) ========== (1) In accordance with accounting principles generally accepted in the United States. (2) Consolidated segment operating income. Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Segment Information (in thousands) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ----------------------- 2003 2004 2003 2004 ---------- ---------- ---------- ---------- North America Net sales $1,141,907 $1,392,283 $3,258,413 $3,847,344 Cost of sales 853,253 1,037,659 2,391,749 2,823,792 ---------- ---------- ---------- ---------- Gross profit 288,654 354,624 866,664 1,023,552 Direct segment operating expenses 174,383 232,618 583,619 702,676 ---------- ---------- ---------- ---------- Segment operating income 114,271 122,006 283,045 320,876 International Net sales 803,865 1,148,676 2,005,286 3,073,780 Cost of sales 665,682 958,834 1,614,782 2,495,335 ---------- ---------- ---------- ---------- Gross profit 138,183 189,842 390,504 578,445 Direct segment operating expenses 99,518 134,554 312,311 409,158 ---------- ---------- ---------- ---------- Segment operating income 38,665 55,288 78,193 169,287 Consolidated Net sales 1,945,772 2,540,959 5,263,699 6,921,124 Cost of sales 1,518,935 1,996,493 4,006,531 5,319,127 ---------- ---------- ---------- ---------- Gross profit 426,837 544,466 1,257,168 1,601,997 Direct segment operating expenses 273,901 367,172 895,930 1,111,834 ---------- ---------- ---------- ---------- Segment operating income 152,936 177,294 361,238 490,163 Stock-based compensation 15,039 19,629 87,751 57,702 Other operating expense (income) 281 (4,777) 2,892 (7,964) ---------- ---------- ---------- ---------- Income from operations 137,616 162,442 270,595 440,425 Total non-operating expense, net 62,095 54,422 231,607 84,555 Provision (benefit) for income taxes 2,367 (238,668) 3,706 (232,581) ---------- ---------- ---------- ---------- Net income (loss) $ 73,154 $ 346,688 $ 35,282 $ 588,451 ========== ========== ========== ========== Segment Highlights: Y/Y net sales growth: North America 18% 22% 18% 18% International 74 43 71 53 Consolidated 36 31 34 31 Y/Y gross profit growth: North America 19% 23% 17% 18% International 49 37 55 48 Consolidated 27 28 27 27 Y/Y segment operating income growth: North America 39% 7% 58% 13% International 96 43 N/A 116 Consolidated 50 16 101 36 Net sales mix: North America 59% 55% 62% 56% International 41 45 38 44 Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Supplemental Net Sales Information (in thousands) (unaudited) Three Months Ended Twelve Months Ended December 31, December 31, ----------------------- ----------------------- 2003 2004 2003 2004 ---------- ---------- ---------- ---------- North America Media $ 750,891 $ 885,354 $2,269,472 $2,589,438 Electronics and other general merchandise 352,517 448,890 878,519 1,127,754 Other 38,499 58,039 110,422 130,152 ---------- ---------- ---------- ---------- 1,141,907 1,392,283 3,258,413 3,847,344 International Media 682,741 911,011 1,779,476 2,512,911 Electronics and other general merchandise 120,850 236,927 224,606 558,490 Other 274 738 1,204 2,379 ---------- ---------- ---------- ---------- 803,865 1,148,676 2,005,286 3,073,780 Consolidated Media 1,433,632 1,796,365 4,048,948 5,102,349 Electronics and other general merchandise 473,367 685,817 1,103,125 1,686,244 Other 38,773 58,777 111,626 132,531 ---------- ---------- ---------- ---------- $1,945,772 $2,540,959 $5,263,699 $6,921,124 ========== ========== ========== ========== Y/Y Net Sales Growth: North America: Media 16% 18% 14% 14% Electronics and other general merchandise 22 27 29 28 Other 36 51 29 18 International: Media 59% 33% 61% 41% Electronics and other general merchandise 290 96 241 149 Other (24) 169 (38) 98 Consolidated: Media 33% 25% 31% 26% Electronics and other general merchandise 48 45 48 53 Other 35 52 28 19 Consolidated Net Sales Mix: Media 74% 71% 77% 74% Electronics and other general merchandise 24 27 21 24 Other 2 2 2 2 Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Consolidated Balance Sheets (in thousands, except per share data) (unaudited) December 31, 2003 2004 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 1,102,273 $ 1,302,600 Marketable securities 292,550 476,599 ----------- ----------- Cash, cash equivalents, and marketable securities 1,394,823 1,779,199 Inventories 293,917 479,709 Current deferred tax assets 596 81,388 Accounts receivable, net and other current assets 131,473 199,100 ----------- ----------- Total current assets 1,820,809 2,539,396 Fixed assets, net 224,285 246,156 Goodwill 69,121 138,999 Long-term deferred tax assets 4,142 281,757 Other assets 43,676 42,200 ----------- ----------- Total assets $ 2,162,033 $ 3,248,508 =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 819,811 $ 1,141,733 Accrued expenses and other current liabilities 317,730 361,128 Unearned revenue 37,844 41,099 Interest payable 73,100 74,059 Current portion of long-term debt and other 4,216 2,381 ----------- ----------- Total current liabilities 1,252,701 1,620,400 Long-term debt and other 1,945,439 1,855,319 Commitments and contingencies Stockholders' deficit: Preferred stock, $0.01 par value: Authorized shares -- 500,000 Issued and outstanding shares -- none - - Common stock, $0.01 par value: Authorized shares -- 5,000,000 Issued and outstanding shares -- 403,354 and 409,711 4,034 4,097 Additional paid-in capital 1,899,398 2,124,598 Deferred stock-based compensation (2,850) (2,038) Accumulated other comprehensive income 37,739 32,109 Accumulated deficit (2,974,428) (2,385,977) ----------- ----------- Total stockholders' deficit (1,036,107) (227,211) ----------- ----------- Total liabilities and stockholders' deficit $ 2,162,033 $ 3,248,508 =========== =========== Note: The attached "Financial and Operational Summary" is an integral part of the press release financial statements. AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except per share data) (unaudited) ---------------------------------------------------------------------- Y/Y % Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Change ------- ------- ------- ------- ------- ------- Cash Flows and Shares Operating cash flow -- trailing twelve months (TTM) $ 392 $ 393 $ 410 $ 490 $ 567 45% Purchase of fixed assets (incl. internal-use software & website development) -- TTM $ 46 $ 49 $ 56 $ 70 $ 89 94% Free cash flow (operating cash flow less purchases of fixed assets) -- TTM $ 346 $ 344 $ 354 $ 420 $ 477 38% Common shares and stock-based awards less outstanding 433 432 434 434 434 than 1% Common shares outstanding 403 405 407 407 410 2% Stock-based awards outstanding 29 27 27 27 25 (16%) Stock-based awards outstanding -- % of common shares outstanding 7.3% 6.8% 6.7% 6.6% 6.0% N/A Results of Operations Worldwide (WW) net sales $1,946 $1,530 $1,387 $1,462 $2,541 31% WW net sales -- Y/Y growth, excluding the effect of foreign exchange rates 29.4% 33.2% 21.9% 23.9% 26.2% N/A WW net sales -- TTM $5,264 $5,710 $5,998 $6,326 $6,921 31% Gross profit $ 427 $ 361 $ 341 $ 356 $ 544 28% Gross margin -- % of WW net sales 21.9% 23.6% 24.6% 24.3% 21.4% N/A Gross profit -- TTM $1,257 $1,347 $1,415 $1,484 $1,602 27% Gross margin -- TTM % of WW net sales 23.9% 23.6% 23.6% 23.5% 23.1% N/A Fulfillment costs -- % of WW net sales 8.2% 8.3% 8.8% 9.3% 8.0% N/A Fulfillment costs -- TTM % of WW net sales 9.1% 8.8% 8.6% 8.6% 8.5% N/A Consolidated direct segment operating expenses $ 274 $ 244 $ 240 $ 261 $ 367 34% Consolidated direct segment operating expenses -- TTM $ 896 $ 937 $ 970 $1,019 $1,112 24% Consolidated segment operating income $ 153 $ 117 $ 101 $ 95 $ 177 16% Consolidated segment operating margin -- % of WW net sales 7.9% 7.6% 7.3% 6.5% 7.0% N/A Consolidated segment operating income -- TTM $ 361 $ 411 $ 444 $ 466 $ 490 36% Consolidated segment operating margin -- TTM % of WW net sales 6.9% 7.2% 7.4% 7.4% 7.1% N/A GAAP operating income $ 138 $ 110 $ 86 $ 81 $ 162 18% GAAP operating margin -- % of WW net sales 7.1% 7.2% 6.2% 5.6% 6.4% N/A GAAP operating income -- TTM $ 271 $ 342 $ 386 $ 416 $ 440 63% GAAP operating margin -- TTM % of WW net sales 5.1% 6.0% 6.4% 6.6% 6.4% N/A Pro forma net income (1) $ 125 $ 97 $ 75 $ 73 $ 394 215% Pro forma net income per diluted share (1) $ 0.29 $ 0.23 $ 0.18 $ 0.17 $ 0.93 215% Pro forma net income -- TTM (1) $ 256 $ 313 $ 345 $ 370 $ 639 150% Pro forma net income per diluted share -- TTM (1) $ 0.61 $ 0.74 $ 0.81 $ 0.87 $ 1.50 146% GAAP net income $ 73 $ 111 $ 76 $ 54 $ 347 374% GAAP net income per diluted share $ 0.17 $ 0.26 $ 0.18 $ 0.13 $ 0.82 374% GAAP net income -- TTM $ 35 $ 157 $ 276 $ 315 $ 588 N/A GAAP net income per diluted share -- TTM $ 0.08 $ 0.37 $ 0.65 $ 0.74 $ 1.39 N/A North America segment: Net sales $1,142 $ 847 $ 792 $ 816 $1,392 22% Net sales -- TTM $3,258 $3,401 $3,490 $3,597 $3,847 18% Gross profit $ 289 $ 226 $ 220 $ 223 $ 355 23% Gross margin -- % of North American net sales 25.3% 26.7% 27.7% 27.4% 25.5% N/A Gross profit -- TTM $ 867 $ 906 $ 935 $ 958 $1,024 18% Gross margin -- TTM % of North America net sales 26.6% 26.6% 26.8% 26.6% 26.6% N/A Operating income $ 114 $ 76 $ 66 $ 57 $ 122 7% Operating margin -- % of North America net sales 10.0% 8.9% 8.3% 7.0% 8.8% N/A Operating income -- TTM $ 283 $ 307 $ 318 $ 313 $ 321 13% Operating margin -- TTM % of North America net sales 8.7% 9.0% 9.1% 8.7% 8.3% N/A ---------------------- ------ ------ ------ ------ ------ ------- Note: The attached "Financial and Operational Summary" is an integral part of this Supplemental Financial Information and Business Metrics (1) Excluding the benefit from realizing a $244 million deferred tax asset related primarily to net operating loss carryforwards attributable to continuing operations, pro forma net income would have been $149 million, or $0.35 per diluted share, for Q4, and $395 million, or $0.93 per diluted share, for 2004. AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except inventory turnover, accounts payable days, and employee data) (unaudited) ---------------------------------------------------------------------- Y/Y % Q4 2003 Q1 2004 Q2 2004 Q3 2004 Q4 2004 Change ------- ------- ------- ------- ------- ------ International segment: Net sales $ 804 $ 684 $ 595 $ 646 $1,149 43% Net sales -- Y/Y growth, excluding the effect of foreign exchange rates 53.6% 57.9% 38.1% 38.9% 32.5% N/A Net sales -- TTM $2,005 $2,310 $2,508 $2,729 $3,074 53% Gross profit $ 138 $ 135 $ 121 $ 132 $ 190 37% Gross margin -- % of International net sales 17.2% 19.8% 20.4% 20.5% 16.5% N/A Gross profit -- TTM $ 391 $ 442 $ 479 $ 527 $ 578 48% Gross margin -- TTM % of International net sales 19.5% 19.1% 19.1% 19.3% 18.8% N/A Operating income $ 39 $ 41 $ 35 $ 38 $ 55 43% Operating margin -- % of International net sales 4.8% 6.1% 5.9% 5.8% 4.8% N/A Operating income -- TTM $ 78 $ 104 $ 126 $ 153 $ 169 116% Operating margin -- TTM % of International net sales 3.9% 4.5% 5.0% 5.6% 5.5% N/A International segment -- TTM % of net sales 38.1% 40.5% 41.8% 43.1% 44.4% N/A Worldwide net sales shipped outside the U.S. -- TTM % of net sales 43.4% 45.6% 46.9% 48.2% 49.2% N/A Supplemental Worldwide Net Sales: Media $1,434 $1,175 $1,037 $1,094 $1,796 25% Media -- TTM $4,049 $4,351 $4,523 $4,740 $5,102 26% Electronics and other general merchandise $ 473 $ 331 $ 325 $ 344 $ 686 45% Electronics and other general merchandise -- TTM $1,103 $1,244 $1,360 $1,474 $1,686 53% Other $ 39 $ 24 $ 25 $ 24 $ 59 52% Other -- TTM $ 112 $ 116 $ 115 $ 113 $ 133 19% Supplemental North America Segment Net Sales: Media $ 751 $ 599 $ 542 $ 564 $ 885 18% Media -- TTM $2,269 $2,351 $2,394 $2,455 $2,589 14% Electronics and other general merchandise $ 353 $ 224 $ 226 $ 229 $ 449 27% Electronics and other general merchandise -- TTM $ 879 $ 935 $ 983 $1,031 $1,128 28% Other $ 38 $ 24 $ 25 $ 24 $ 58 51% Other -- TTM $ 110 $ 115 $ 113 $ 111 $ 130 18% Supplemental International Segment Net Sales: Media $ 683 $ 576 $ 496 $ 530 $ 911 33% Media -- TTM $1,779 $2,000 $2,129 $2,285 $2,513 41% Electronics and other general merchandise $ 121 $ 107 $ 99 $ 116 $ 237 96% Electronics and other general merchandise -- TTM $ 225 $ 309 $ 377 $ 442 $ 558 149% Other $ 0 $ 0 $ 1 $ 0 $ 1 169% Other -- TTM $ 1 $ 1 $ 2 $ 2 $ 2 98% Balance Sheet Cash and marketable securities $1,395 $ 998 $1,151 $1,185 $1,779 28% Inventory, net -- ending $ 294 $ 282 $ 284 $ 357 $ 480 63% Inventory -- average inventory % of TTM net sales 4.1% 4.1% 4.3% 4.6% 4.9% N/A Inventory turnover, average -- TTM 18.4 18.7 17.9 16.6 15.7 (15%) Fixed assets, net $ 224 $ 217 $ 216 $ 227 $ 246 10% Accounts payable days -- ending 50 44 51 57 53 6% Other Employees (full-time and part-time; excludes contractors & temporary personnel) 7,800 8,100 8,200 8,800 9,000 15% ----------------------- ------ ------ ------ ------ ------ ------ Note: The attached "Financial and Operational Summary" is an integral part of this Supplemental Financial Information and Business Metrics 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 # Shipping revenue, which excludes amounts earned from third-party sellers where Amazon does not provide fulfillment services, was $156 million, up 14% from $137 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, and costs incurred in operating and staffing our fulfillment and customer service centers on behalf of other businesses, such as Toysrus.com and Target.com. * Outbound shipping-related costs totaled $234 million, up from $193 million. Net shipping loss was $78 million, up from a net loss of $56 million, resulting primarily from our free-shipping offers. Direct Segment Operating Expenses # Fourth quarter direct segment operating expenses as a percentage of net sales were as follows: 2003 2004 ---- ---- Fulfillment 8.2% 8.0% Marketing 2.1% 2.3% Technology and content 2.7% 2.9% General and administrative 1.2% 1.2% # Depreciation was $21 million in fourth quarter 2004 and $75 million over the trailing twelve months. Fulfillment * Fulfillment costs include those costs incurred in operating and staffing our fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories; credit card fees, and bad debt costs, including costs associated with our guarantee for certain third-party seller transactions. Fulfillment costs also include amounts paid to third parties, who assist us in fulfillment and customer service operations. * Credit card fees associated with third-party seller transactions are based on the gross purchase price of underlying transactions, and therefore represent a larger percentage of our recorded revenue than credit card fees on our retail sales. Bad debt costs, including costs associated with our guarantee program, are also higher as a percentage of recorded revenue versus our retail sales. Accordingly, this negatively affects fulfillment costs as a percentage of net sales. * Fulfillment costs decreased as a percentage of sales from the prior year, but increased in absolute dollars due to variable costs corresponding with sales volume, our mix of product sales, credit card fees, and bad debt costs, including costs associated with our guarantee for certain third-party seller transactions. We expect absolute amounts spent in fulfillment to increase over time. Marketing # Marketing efforts include targeted online marketing channels, such as our Associates and Syndicated Stores programs, sponsored search, portal advertising, e-mail campaigns and other initiatives. Since our marketing expenses are largely variable, we expect absolute amounts spent in marketing to increase over time. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense. While costs associated with free shipping are not included in marketing expense, we view our free-shipping offers as an effective worldwide marketing tool and intend to continue offering them indefinitely. Technology and Content * Technology and content expenses consist principally of payroll and related expenses for employees involved in development of our websites, including editorial content, merchandising selection, systems and telecommunications support; costs associated with the systems and telecommunications infrastructure; and costs of acquired content. * Our spending in technology and content has increased as we are adding computer scientists and software engineers to enhance the customer experience on our websites and those websites powered by us, and improve our process efficiency. Additionally, we continue to invest in several areas of technology, including seller platform, A9.com, web services, additional development centers and digital initiatives. We intend to continue investing in these and other initiatives and expect absolute dollars spent in technology and content to increase over time as we continue to add computer scientists and software engineers to our staff. * A significant majority of these costs are incurred in the U.S. and most of them are allocated to our North America segment. * We expense costs related to the development of internal-use software and website development other than those incurred during the application development stage. Costs incurred during the application development stage are capitalized and amortized over the two-year estimated useful life of the software. For the three months ended December 31, 2004 and 2003, we capitalized $16 million and $9 million of internal-use software costs, which was offset by amortization of previously capitalized amounts of $8 million and $7 million. General and Administrative # General and Administrative costs increased primarily due to increases in professional and litigation costs. We expect absolute dollars spent in general and administrative to increase over time. Stock-Based Compensation * Since October 2002, we have awarded restricted stock units as our primary form of stock-based compensation. Restricted stock units, under fixed accounting, are generally measured at fair value on the date of grant based on the number of shares granted and the quoted price of our common stock. Such value is recognized as an expense on an accelerated basis over the corresponding service period. To the extent that restricted stock units are forfeited prior to vesting, the corresponding previously recognized expense is reversed as an offset to stock-based compensation. * Stock-based awards generally fully vest over service periods of between three and six years. * Stock-based compensation was $20 million for the fourth quarter, consisting of $4 million in expense for stock awards under variable accounting, and $16 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 a cash expense and is not classified in "Stock-based compensation," but is allocated to the corresponding operating expense categories on the statement of operations. * We granted 0.8 million stock awards, primarily restricted stock units, during the fourth quarter at a per-share weighted average fair value of $40. Year-to-date we have granted 3.5 million stock awards, primarily restricted stock units, at a per-share average fair value of $44. * At December 31, 2004, there were 25 million stock awards outstanding, consisting of 18 million stock options with a $13 weighted average exercise price, 6 million restricted stock units, and 0.5 million shares of restricted stock (included in common stock outstanding). * 1 million outstanding stock awards, primarily stock options, were subject to variable accounting. 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 December 31, 2004, $44.29, was higher than the closing price on September 30, 2004, $40.86, we recorded an expense associated with variable accounting treatment for the fourth quarter of 2004. * SFAS 123R requires us to measure compensation cost for all share-base
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