Amazon.com Announces Second Quarter Sales up 35% Year over Year — Media Grows 27% — Electronics and Other General Merchandise Grows 55% — Record Free Cash Flow
By Press Release - Jul 24 , 2007
SEATTLE–(BUSINESS WIRE)–July 24, 2007–Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its second quarter ended June 30, 2007.
Operating cash flow was $895 million for the trailing twelve months, compared with $610 million for the trailing twelve months ended June 30, 2006. Free cash flow was $700 million for the trailing twelve months, an increase of 87% compared with $375 million for the trailing twelve months ended June 30, 2006.
Common shares outstanding plus shares underlying stock-based awards outstanding totaled 435 million on June 30, 2007, compared with 443 million a year ago.
Net sales increased 35% to $2.89 billion in the second quarter, compared with $2.14 billion in second quarter 2006. Excluding the $46 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 33% compared with second quarter 2006.
Operating income increased 149% to $116 million in the second quarter, compared with $47 million in second quarter 2006.
Net income increased 257% to $78 million in the second quarter, or $0.19 per diluted share, compared with net income of $22 million, or $0.05 per diluted share in second quarter 2006.
“Our strong revenue growth this quarter was fueled by low prices and the added convenience of Amazon Prime,” said Jeff Bezos, founder and CEO of Amazon.com. “More and more customers are taking advantage of Amazon Prime and we’re pleased with the acceleration in subscriber growth this quarter.”
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 and our Fulfillment by Amazon (FBA) partners. Members can order as late as 6:30 p.m. ET and still receive 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.
Highlights
— North America segment sales, representing the Company’s U.S.
and Canadian sites, were $1.60 billion, up 38% from second
quarter 2006.
— International segment sales, representing the Company’s U.K.,
German, Japanese, French and Chinese sites, were $1.28
billion, up 31% from second quarter 2006. Excluding the
favorable impact from year-over-year changes in foreign
exchange rates throughout the quarter, International net sales
growth was 26%.
— Worldwide Media grew 27% to $1.83 billion in second quarter
2007, compared to $1.45 billion in second quarter 2006.
— Worldwide Electronics & Other General Merchandise grew 55% to
$970 million in second quarter 2007 and increased to 34% of
worldwide net sales compared with 29% in second quarter 2006.
— The Company received orders for more than 2.2 million copies
of Harry Potter and the Deathly Hallows worldwide in advance
of its July 21 release, making it Amazon’s largest new product
release.
— Amazon.co.jp launched Amazon Prime for its Japanese customers
in June. Members pay an annual fee of JPY 3,900 for access to
unlimited express delivery service that can be used throughout
Japan. The service offers same-day delivery for the Kanto area
and next-day delivery to other locations.
— Amazon Enterprise Solutions and Lacoste launched a
multi-channel e-commerce solution, including a website
(www.lacoste.com), phone ordering, customer service, and
fulfillment.
— Amazon Europe launched a Jewelry and Watches store on its
amazon.co.uk website and a Watches store on its amazon.de
website, both offering customers thousands of items from
brands such as Rotary, Diesel, Timex and Citizen.
— Amazon Europe launched Merchants@ technology on its amazon.fr
website, enabling branded businesses to offer their selection
of new products.
— Joyo.com has been re-branded as Joyo Amazon and now
incorporates many of the features and functionalities found on
other Amazon websites.
— Over 265,000 developers have registered to use Amazon Web
Services, up 25,000 from the prior quarter.
Financial Guidance
The following forward-looking statements reflect Amazon.com’s expectations as of July 24, 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.
Third Quarter 2007 Guidance
— Net sales are expected to be between $3.0 billion and $3.175
billion, or to grow between 30% and 38% compared with third
quarter 2006.
— Operating income is expected to be between $75 million and
$110 million, or grow between 88% and 175% compared with third
quarter 2006. This guidance includes $50 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 $13.80 billion and $14.30
billion, or to grow between 29% and 34% compared with 2006.
— Operating income is expected to be between $540 million and
$640 million, or grow between 39% and 65% compared with 2006.
This guidance includes $185 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, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, significant indebtedness, government regulation and taxation, payments and fraud. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006, and all subsequent filings.
About Amazon.com
Amazon.com, Inc., (Nasdaq:AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden.
Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and the Joyo Amazon websites at www.joyo.cn and www.amazon.cn.
As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.
AMAZON.COM, INC.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
————– ————— —————–
2007 2006 2007 2006 2007 2006
——- —— ——- ——- ——– ——–
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD $ 748 $ 507 $1,022 $1,013 $ 683 $ 629
OPERATING ACTIVITIES:
Net income 78 22 189 73 306 302
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 60 43 122 83 244 149
Stock-based
compensation 46 30 80 41 140 84
Other operating
expense, net 3 3 3 6 7 10
Losses (gains) on
sales of
marketable
securities, net – (1) 1 1 (2) -
Remeasurements and
other 5 (11) 9 (7) 9 (14)
Deferred income
taxes (2) (2) – 8 14 (15)
Excess tax benefit
on stock awards (35) (21) (60) (29) (133) (34)
Changes in operating
assets and
liabilities:
Inventories 25 30 151 63 (193) (128)
Accounts
receivable, net
and other (10) 16 56 66 (113) (37)
Accounts payable 82 4 (520) (438) 319 207
Accrued expenses
and other 31 22 (28) (42) 256 88
Additions to
unearned revenue 64 38 109 92 223 181
Amortization of
previously
unearned revenue (48) (43) (92) (90) (182) (183)
——- —— ——- ——- ——– ——–
Net cash provided
by (used in)
operating
activities 299 130 20 (173) 895 610
INVESTING ACTIVITIES:
Purchases of fixed
assets, including
internal-use
software and website
development (47) (58) (82) (104) (195) (235)
Acquisitions, net of
cash acquired (22) – (22) (28) (26) (32)
Sales and maturities
of marketable
securities and other
investments 161 249 945 537 2,253 883
Purchases of
marketable
securities and other
investments (180) (232) (694) (362) (2,262) (1,009)
——- —— ——- ——- ——– ——–
Net cash provided
by (used in)
investing
activities (88) (41) 147 43 (230) (393)
FINANCING ACTIVITIES:
Proceeds from
exercises of stock
options 35 7 44 13 65 55
Excess tax benefit on
stock awards 35 21 60 29 133 34
Common stock
repurchased – – (248) – (500) -
Proceeds from long-
term debt and other – 66 – 69 3 82
Repayments of long-
term debt and
capital lease
obligations (29) (21) (46) (334) (67) (341)
——- —— ——- ——- ——– ——–
Net cash provided
by (used in)
financing
activities 41 73 (190) (223) (366) (170)
Foreign-currency
effect on cash and
cash equivalents 4 14 5 23 22 7
——- —— ——- ——- ——– ——–
Net increase
(decrease) in
cash and cash
equivalents 256 176 (18) (330) 321 54
——- —— ——- ——- ——– ——–
CASH AND CASH
EQUIVALENTS, END OF
PERIOD $1,004 $ 683 $1,004 $ 683 $ 1,004 $ 683
======= ====== ======= ======= ======== ========
SUPPLEMENTAL CASH
FLOW INFORMATION:
Cash paid for
interest $ 1 $ – $ 44 $ 63 $ 68 $ 84
Cash paid for income
taxes 7 3 10 8 17 15
Fixed assets acquired
under capital leases
and other financing
arrangements 9 17 21 21 68 27
AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
————— —————
2007 2006 2007 2006
——- ——- ——- ——-
Net sales $2,886 $2,139 $5,901 $4,418
Cost of sales 2,185 1,630 4,480 3,361
——- ——- ——- ——-
Gross profit 701 509 1,421 1,057
Operating expenses (1):
Fulfillment 258 189 518 383
Marketing 65 53 137 107
Technology and content 201 167 387 314
General and administrative 58 50 114 95
Other operating expense, net 3 3 3 6
——- ——- ——- ——-
Total operating expenses 585 462 1,159 905
——- ——- ——- ——-
Income from operations 116 47 262 152
Interest income 20 13 39 27
Interest expense (19) (19) (38) (38)
Other income (expense), net (1) 1 (1) -
Remeasurements and other (5) 12 (7) 9
——- ——- ——- ——-
Total non-operating expense (5) 7 (7) (2)
——- ——- ——- ——-
Income before income taxes 111 54 255 150
Provision for income taxes 33 32 66 77
——- ——- ——- ——-
Net income $ 78 $ 22 $ 189 $ 73
======= ======= ======= =======
Basic earnings per share $ 0.19 $ 0.05 $ 0.46 $ 0.18
======= ======= ======= =======
Diluted earnings per share $ 0.19 $ 0.05 $ 0.45 $ 0.17
======= ======= ======= =======
Weighted average shares used in computation of
earnings per share:
Basic 412 418 # 412 417
======= ======= ======= =======
Diluted 423 426 # 421 426
======= ======= ======= =======
(1) Includes stock-based compensation
as follows:
Fulfillment $ 10 $ 7 $ 17 $ 10
Marketing 2 1 3 2
Technology and content 25 16 44 23
General and administrative 9 6 16 6
AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
—————— —————-
2007 2006 2007 2006
——— ——– ——- ——–
North America
Net sales $1,601 $1,157 $3,223 $2,404
Cost of sales 1,167 848 2,350 1,753
——— ——– ——- ——–
Gross profit 434 309 873 651
Direct segment operating
expenses(1) 352 284 705 565
——— ——– ——- ——–
Segment operating income $ 82 $ 25 $ 168 $ 86
========= ======== ======= ========
International
Net sales $1,285 $ 982 $2,678 $2,014
Cost of sales 1,018 782 2,130 1,608
——— ——– ——- ——–
Gross profit 267 200 548 406
Direct segment operating
expenses(1) 184 145 371 293
——— ——– ——- ——–
Segment operating income $ 83 $ 55 $ 177 $ 113
========= ======== ======= ========
Consolidated
Net sales $2,886 $2,139 $5,901 $4,418
Cost of sales 2,185 1,630 4,480 3,361
——— ——– ——- ——–
Gross profit 701 509 1,421 1,057
Direct segment operating
expenses 536 429 1,076 858
——— ——– ——- ——–
Segment operating income 165 80 345 199
Stock-based compensation (46) (30) (80) (41)
Other operating expense, net (3) (3) (3) (6)
——— ——– ——- ——–
Income from operations 116 47 262 152
Total non-operating income
(expense) (5) 7 (7) (2)
Provision for income taxes (33) (32) (66) (77)
——— ——– ——- ——–
Net income $ 78 $ 22 $ 189 $ 73
========= ======== ======= ========
Segment Highlights:
Y/Y net sales growth:
North America 38% 21% 34% 21%
International 31 24 33 21
Consolidated 35 22 34 21
Y/Y gross profit growth:
North America 40% 11% 34% 17%
International 34 16 35 16
Consolidated 38 13 34 16
Y/Y segment operating income
growth:
North America 233% (66%) 94% (37%)
International 50 (8) 56 (8)
Consolidated 106 (39) 72 (23)
Net sales mix:
North America 55% 54% 55% 54%
International 45 46 45 46
__________________________
(1) A significant majority of our costs for “Technology and content”
are incurred in the United States and most of these costs are
allocated to our North America segment.
AMAZON.COM, INC.
Supplemental Net Sales Information
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
—————— —————-
2007 2006 2007 2006
———- ——- ——– ——-
North America
Media $ 923 $ 730 $1,913 $1,545
Electronics and other general
merchandise 606 365 1,170 738
Other 72 62 140 121
———- ——- ——– ——-
Total North America 1,601 1,157 3,223 2,404
International
Media 910 718 1,910 1,481
Electronics and other general
merchandise 364 259 747 524
Other 11 5 21 9
———- ——- ——– ——-
Total International 1,285 982 2,678 2,014
Consolidated
Media 1,833 1,448 3,823 3,026
Electronics and other general
merchandise 970 624 1,917 1,262
Other 83 67 161 130
———- ——- ——– ——-
Total Consolidated $2,886 $2,139 $5,901 $4,418
========== ======= ======== =======
Y/Y Net Sales Growth:
North America:
Media 26% 15% 24% 16%
Electronics and other general
merchandise 66 32 58 32
Other 15 25 16 25
Total North America 38 21 34 21
International:
Media 27% 17% 29% 15%
Electronics and other general
merchandise 40 45 42 39
Other 143 354 147 388
Total International 31 24 33 21
Consolidated:
Media 27% 16% 26% 16%
Electronics and other general
merchandise 55 37 52 35
Other 23 32 25 31
Total Consolidated 35 22 34 21
Y/Y Net Sales Growth Excluding
Effect of Exchange Rates:
International:
Media 23% 20% 23% 22%
Electronics and other general
merchandise 34 48 34 46
Other 128 362 128 412
Total International 26 27 27 28
Consolidated:
Media 25% 18% 24% 19%
Electronics and other general
merchandise 53 38 48 38
Other 22 32 23 32
Total Consolidated 33 23 31 24
Consolidated Net Sales Mix:
Media 63% 68% 65% 68%
Electronics and other general
merchandise 34 29 32 29
Other 3 3 3 3
AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)
June 30, Dec. 31, June 30,
2007 2006 2006
———– ——– ———–
ASSETS (unaudited) (unaudited)
Current assets:
Cash and cash equivalents
$ 1,004 $ 1,022 $ 683
Marketable securities
661 997 736
Inventories
735 877 521
Accounts receivable, net and other 384 399 225
Deferred tax assets
75 78 66
———– ——– ———–
Total current assets 2,859 3,373 2,231
Fixed assets, net 443 457 405
Deferred tax assets 224 199 208
Goodwill 214 195 193
Other assets 244 139 128
———– ——– ———–
Total assets $ 3,984 $ 4,363 $ 3,165
=========== ======== ===========
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$ 1,295 $ 1,816 $ 943
Accrued expenses and other 641 716 467
———– ——– ———–
Total current liabilities 1,936 2,532 1,410
Long-term debt 1,256 1,247 1,237
Other long-term liabilities 242 153 135
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares –
none – – -
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 427, 422 and 419
Outstanding shares — 413, 414
and 419 4 4 4
Treasury stock, at cost (500) (252) -
Additional paid-in capital 2,704 2,517 2,334
Accumulated other comprehensive
income (loss) 3 (1) (2)
Accumulated deficit (1,661) (1,837) (1,953)
———– ——– ———–
Total stockholders’ equity 550 431 383
———– ——– ———–
Total liabilities and
stockholders’ equity $ 3,984 $ 4,363 $ 3,165
=========== ======== ===========
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)
———————————————————————-
Y/Y %
Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Change
—————————————————
Cash Flows and
Shares
Operating cash
flow — trailing
twelve months
(TTM) $ 610 $ 587 $ 702 $ 726 $ 895 47%
Purchases of fixed
assets (incl.
internal-use
software &
website
development) –
TTM $ 235 $ 221 $ 216 $ 205 $ 195 (17%)
Free cash flow
(operating cash
flow less
purchases of
fixed assets) –
TTM $ 375 $ 366 $ 486 $ 521 $ 700 87%
Common shares and
stock-based
awards
outstanding 443 435 436 430 435 (2%)
Common shares
outstanding 419 411 414 409 413 (1%)
Stock-based awards
outstanding 24 24 22 21 22 (10%)
Stock-based awards
outstanding — %
of common shares
outstanding 5.8% 5.8% 5.3% 5.1% 5.3% N/A
Results of
Operations
Worldwide (WW) net
sales $ 2,139 $ 2,307 $ 3,986 $ 3,015 $ 2,886 35%
WW net sales –
Y/Y growth,
excluding F/X 23% 23% 30% 29% 33% N/A
WW net sales –
TTM $ 9,253 $ 9,701 $10,711 $11,447 $12,193 32%
WW net sales –
TTM Y/Y growth,
excluding F/X 24% 23% 26% 27% 29% N/A
Gross profit $ 509 $ 549 $ 850 $ 719 $ 701 38%
Gross margin — %
of WW net sales 23.8% 23.8% 21.3% 23.8% 24.3% N/A
Gross profit –
TTM $ 2,187 $ 2,273 $ 2,456 $ 2,628 $ 2,820 29%
Gross margin –
TTM % of WW net
sales 23.6% 23.4% 22.9% 23.0% 23.1% N/A
Operating income
(1) $ 47 $ 40 $ 197 $ 145 $ 116 149%
Operating margin
— % of WW net
sales 2.2% 1.7% 4.9% 4.8% 4.0% N/A
Operating income
— TTM (1) $ 372 $ 357 $ 389 $ 429 $ 498 34%
Operating margin
— TTM % of WW
net sales 4.0% 3.7% 3.6% 3.7% 4.1% N/A
Net income (2) $ 22 $ 19 $ 98 $ 111 $ 78 257%
Net income per
diluted share (2) $ 0.05 $ 0.05 $ 0.23 $ 0.26 $ 0.19 261%
Net income — TTM
(2) $ 302 $ 292 $ 190 $ 249 $ 306 1%
Net income per
diluted share –
TTM (2) $ 0.71 $ 0.69 $ 0.45 $ 0.59 $ 0.72 2%
Segments
North America
Segment:
Net sales $ 1,157 $ 1,257 $ 2,208 $ 1,622 $ 1,601 38%
Net sales — Y/Y
growth,
excluding F/X 20% 21% 31% 30% 38% N/A
Net sales — TTM $ 5,128 $ 5,343 $ 5,869 $ 6,244 $ 6,687 30%
Gross profit $ 309 $ 343 $ 532 $ 439 $ 434 40%
Gross margin –
% of North
America net
sales 26.7% 27.3% 24.1% 27.1% 27.1% N/A
Gross profit –
TTM $ 1,361 $ 1,411 $ 1,525 $ 1,623 $ 1,747 28%
Gross margin –
TTM % of North
America net
sales 26.5% 26.4% 26.0% 26.0% 26.1% N/A
Operating income
(1) $ 25 $ 22 $ 123 $ 86 $ 82 233%
Operating margin
— % of North
America net
sales 2.1% 1.7% 5.5% 5.3% 5.1% N/A
Operating income
— TTM (1) $ 245 $ 200 $ 230 $ 254 $ 312 27%
Operating margin
— TTM % of
North America
net sales 4.8% 3.8% 3.9% 4.1% 4.7% N/A
International
Segment:
Net sales $ 982 $ 1,050 $ 1,778 $ 1,393 $ 1,285 31%
Net sales — Y/Y
growth,
excluding F/X 27% 26% 28% 27% 26% N/A
Net sales — TTM $ 4,125 $ 4,358 $ 4,842 $ 5,203 $ 5,506 33%
Net sales — TTM
% of WW net
sales 45% 45% 45% 45% 45% N/A
Gross profit $ 200 $ 206 $ 318 $ 280 $ 267 34%
Gross margin –
% of
International
net sales 20.4% 19.6% 17.9% 20.1% 20.8% N/A
Gross profit –
TTM $ 827 $ 862 $ 931 $ 1,005 $ 1,072 30%
Gross margin –
TTM % of
International
net sales 20.0% 19.8% 19.2% 19.3% 19.5% N/A
Operating income $ 55 $ 50 $ 106 $ 93 $ 83 50%
Operating margin
— % of
International
net sales 5.6% 4.8% 6.0% 6.7% 6.4% N/A
Operating income
— TTM $ 260 $ 256 $ 270 $ 306 $ 333 28%
Operating margin
— TTM % of
International
net sales 6.3% 5.9% 5.6% 5.9% 6.0% N/A
Consolidated
Segments:
Operating
expenses $ 429 $ 477 $ 621 $ 540 $ 536 25%
Operating
expenses — TTM $ 1,681 $ 1,816 $ 1,956 $ 2,068 $ 2,175 29%
Operating income
(1) $ 80 $ 72 $ 229 $ 179 $ 165 106%
Operating margin
— % of
consolidated
sales 3.7% 3.1% 5.7% 6.0% 5.7% N/A
Operating income
— TTM (1) $ 506 $ 457 $ 500 $ 560 $ 645 28%
Operating margin
— TTM % of
consolidated
net sales 5.5% 4.7% 4.7% 4.9% 5.3% N/A
Supplemental North
America Segment
Net Sales:
Media $ 730 $ 785 $ 1,251 $ 990 $ 923 26%
Media — Y/Y
growth,
excluding F/X 15% 14% 21% 21% 26% N/A
Media — TTM $ 3,260 $ 3,361 $ 3,582 $ 3,757 $ 3,949 21%
Electronics and
other general
merchandise $ 365 $ 409 $ 876 $ 564 $ 606 66%
Electronics and
other general
merchandise –
Y/Y growth,
excluding F/X 32% 35% 51% 51% 66% N/A
Electronics and
other general
merchandise –
TTM $ 1,622 $ 1,727 $ 2,024 $ 2,214 $ 2,456 51%
Electronics and
other general
merchandise –
TTM % of North
America net
sales 32% 32% 34% 35% 37% N/A
Other $ 62 $ 63 $ 81 $ 68 $ 72 15%
Other — TTM $ 246 $ 255 $ 263 $ 273 $ 282 15%
Supplemental
International
Segment Net
Sales:
Media $ 718 $ 757 $ 1,247 $ 1,000 $ 910 27%
Media — Y/Y
growth,
excluding F/X 20% 19% 21% 24% 23% N/A
Media — TTM $ 3,077 $ 3,205 $ 3,485 $ 3,722 $ 3,914 27%
Electronics and
other general
merchandise $ 259 $ 290 $ 523 $ 383 $ 364 40%
Electronics and
other general
merchandise –
Y/Y growth,
excluding F/X 48% 51% 50% 34% 34% N/A
Electronics and
other general
merchandise –
TTM $ 1,033 $ 1,136 $ 1,337 $ 1,455 $ 1,560 51%
Electronics and
other general
merchandise –
TTM % of
International
net sales 25% 26% 28% 28% 28% N/A
Other $ 5 $ 3 $ 8 $ 10 $ 11 143%
Other — TTM $ 15 $ 17 $ 20 $ 26 $ 33 120%
Supplemental
Worldwide Net
Sales:
Media $ 1,448 $ 1,542 $ 2,498 $ 1,990 $ 1,833 27%
Media — Y/Y
growth,
excluding F/X 18% 17% 21% 23% 25% N/A
Media — TTM $ 6,337 $ 6,566 $ 7,067 $ 7,479 $ 7,863 24%
Electronics and
other general
merchandise $ 624 $ 699 $ 1,399 $ 947 $ 970 55%
Electronics and
other general
merchandise –
Y/Y growth,
excluding F/X 38% 41% 51% 44% 53% N/A
Electronics and
other general
merchandise –
TTM $ 2,655 $ 2,863 $ 3,361 $ 3,669 $ 4,015 51%
Electronics and
other general
merchandise –
TTM % of WW net
sales 29% 30% 31% 32% 33% N/A
Other $ 67 $ 66 $ 89 $ 78 $ 83 23%
Other — TTM $ 261 $ 272 $ 283 $ 299 $ 315 21%
Balance Sheet
Cash and
marketable
securities $ 1,419 $ 1,219 $ 2,019 $ 1,420 $ 1,665 17%
Inventory, net –
ending $ 521 $ 736 $ 877 $ 754 $ 735 41%
Inventory –
average inventory
% of TTM net
sales 5.3% 5.8% 6.0% 6.0% 5.9% N/A
Inventory
turnover, average
— TTM 14.3 13.2 12.7 12.9 12.9 (10%)
Fixed assets, net $ 405 $ 449 $ 457 $ 442 $ 443 10%
Accounts payable
days — ending 53 63 53 47 54 2%
Other
Employees (full-
time and part-
time; excludes
contractors &
temporary
personnel) 12,700 13,300 13,900 14,000 14,400 14%
———————————————————————-
Note: The attached “Financial and Operational Summary” is an integral
part of this Supplemental Financial Information and Business Metrics.
(1) In Q2 2006, a fee dispute with Toysrus.com reduced our operating
income by $20 million.
(2) Q4 2005 net income includes a tax benefit of $90 million related
to determining that certain of our deferred tax assets are
realizable.
Amazon.com, Inc.
Financial and Operational Summary
(Unaudited)
Quarterly Results of Operations (comparisons are with the equivalent period of the prior year, unless otherwise stated)
Net Sales
— Generally, revenue is recorded gross for sales of our own
inventory and net for sales by third parties.
— Amounts paid in advance for subscription services, including
amounts received from Amazon Prime, online DVD rentals and
other membership programs, are deferred and recognized as
revenue over the subscription term.
— Shipping revenue was $152 million, up 19% from $128 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 $227 million, up 21% from $188
million. Net shipping cost was $75 million or 2.6% of net
sales, up 25% from a net shipping cost of $60 million or 2.8%
of net sales in the prior period.
— We offer free-shipping and subscriptions to Amazon Prime,
which result in a net cost to us in delivery of products.
Operating Expenses
— Depreciation expense for fixed assets, including amortization
of internal-use software and website development, was $63
million, up from $41 million.
— Depreciation is recorded on a straight-line basis over the
estimated useful lives of the assets (generally two years or
less for assets such as internal-use software and our DVD
rental library, two or three years for our technology
infrastructure, five years for furniture and fixtures, and ten
years for heavy equipment).
— We utilize the accelerated method, rather than a straight-line
method, for recognizing stock-based compensation expense.
Under this method, over 50% of the compensation cost would be
expensed in the first year of a four-year vesting term.
— Stock-based compensation was $46 million, compared to $30
million.
— Operating expenses with and without stock-based compensation
are as follows:
Three Months Ended Three Months Ended
June 30, 2007 June 30, 2006
————————– ————————–
As Stock-Based As Stock-Based
Reported Compensation Net Reported Compensation Net
——– ———— —- ——– ———— —-
Operating
Expenses:
Fulfillment $ 258 $ (10) $248 $ 189 $ (7) $182
Marketing 65 (2) 63 53 (1) 52
Technology and
content 201 (25) 176 167 (16) 151
General and
administrative 58 (9) 49 50 (6) 44
Other operating
expense 3 – 3 3 – 3
——- ———- —- ——- ———– —-
Total
operating
expenses $ 585 $ (46) $539 $ 462 $ (30) $432
======= ========== ==== ======= =========== ====
Year-over-year
Percentage
Growth:
Fulfillment 36% 36% 20% 20%
Marketing 23 23 26 28
Technology and
content 20 16 58 63
General and
administrative 15 11 32 37
Percent of Net
Sales:
Fulfillment 9.0% 8.6% 8.9% 8.5%
Marketing 2.2 2.2 2.5 2.4
Technology and
content 7.0 6.1 7.8 7.1
General and
administrative 2.0 1.7 2.4 2.1
Fulfillment
— Certain of our fulfillment-related costs that are incurred on
behalf of other businesses are classified as cost of sales
rather than fulfillment.
— The increase in fulfillment costs in absolute dollars relates
to variable costs corresponding with sales volume and
inventory levels; our mix of product sales; payment processing
and related transaction costs, including mix of payment
methods and costs from our guarantee from certain third-party
seller transactions; and costs from expanding fulfillment
capacity.
— Additionally, because payment processing costs associated with
third-party seller transactions are based on the gross
purchase price of underlying transactions, and payment
processing and related transaction costs are higher as a
percentage of revenue versus our retail sales, our third-party
sales have higher fulfillment costs as a percentage of net
sales.
— We expanded our fulfillment capacity in the first half of 2007
and throughout 2006 through gains in efficiencies as well as
increases in leased warehouse space. This expansion is
designed to accommodate greater selection and in-stock
inventory levels and meet anticipated shipment volumes from
sales of our own products as well as sales by third parties
for whom 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.
— We continue to invest in several areas of technology and
content including seller platforms, web services, and digital
initiatives, as well as expansion of new and existing product
categories. We are also investing in technology infrastructure
so that we can continue to enhance the customer experience and
improve our process efficiency. The growth rate of our
technology and content spending decreased in Q2 2007 and the
six months ended June 30, 2007 compared to the comparable
prior period. We intend to continue investing in areas of
technology and content as we continue to add employees to our
staff and add technology infrastructure.
— Certain costs relating to development of internal-use
software, including development of software to upgrade and
enhance our websites and processes supporting our business,
are capitalized and depreciated over two years.
Q2 2007 Q2 2006
———- ———
(in millions)
Capitalized costs of internal-use software $ 33 $ 32
and website development
Amortization of previously capitalized amounts (28) (20)
———- ———
Net capitalization $ 5 $ 12
========== =========
Stockholders’ Equity and Stock-Based Awards
— We granted restricted stock unit awards of 5.8 million shares
in Q2 2007 with a per share weighted average fair value of
$44.
— As of June 30, 2007, there were 22.1 million shares underlying
outstanding stock awards, consisting of 18.6 million shares
underlying restricted stock units and 3.5 million shares
underlying stock options with a $23 weighted-average exercise
price.
— As of June 30, 2007, outstanding common shares plus shares
underlying outstanding stock-based awards were 435 million,
down 2% from 443 million as of June 30, 2006. This total
includes all stock-based awards outstanding, without regard
for estimated forfeitures, consisting of vested and unvested
awards and in-the-money and out-of-the-money stock options.
— The increase in stock-based compensation is primarily
attributable to the increased number of outstanding restricted
stock units and higher grant date fair value per share.
— In August 2006, our Board of Directors authorized a 24-month
program to repurchase up to an aggregate of $500 million of
our common stock from which we repurchased 8.2 million shares
for $252 million in 2006 and 6.3 million shares for $248
million in Q1 2007.
— In April 2007, our Board of Directors authorized a new
24-month program to repurchase up to an aggregate of $500
million of our common stock.
Other Expense, net
— Other expense, net consists primarily of gains or losses on
marketable securities, foreign-currency transaction gains and
losses, and other miscellaneous gains and losses.
— Foreign-currency transaction gains (losses) primarily relate
to the interest payable on our 6.875% PEACS, as well as
foreign-currency gains and losses on cross-currency
investments. Since interest payments on our 6.875% PEACS are
settled in Euros, the balance of interest payable is subject
to gains or losses resulting from changes in exchange rates
between the U.S. Dollar and Euro between reporting dates and
payment.
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 tax provision for interim periods is determined using an
estimate of our annual effective tax rate. The 2007 effective
tax rate is estimated to be lower than the 35% statutory rate
primarily due to anticipated earnings of our subsidiaries
outside of the U.S. in jurisdictions where our effective tax
rate is lower than in the U.S. There is a potential for
significant volatility of our 2007 effective tax rate due to
several factors, including variability in accurately
predicting our taxable income and the taxable jurisdictions to
which it relates.
— The effective tax rate in 2006 was higher than the 35%
statutory rate resulting from establishing our European
headquarters in Luxembourg, which we expect will benefit our
effective tax rate over time. Associated with the
establishment of our European headquarters, we transferred
certain of our operating assets in 2005 and 2006 from the U.S.
to international locations.
— Effective January 1, 2007, we adopted the provisions of FIN
48. As of January 1, 2007, our unrecognized tax benefits (“tax
contingencies”) totaled $110 million.
— As a result of the implementation of FIN 48, our tax
contingencies increased $8 million, which was accounted for as
a decrease to retained earnings of $11 million, which would
otherwise have increased our income tax expense in prior
periods, and an increase to additional paid-in capital of $3
million related to the tax benefits of excess stock-based
compensation deductions. These amounts do not include the
federal tax benefit associated with these tax contingencies
that will be available to us. To reflect the federal benefit
upon the implementation of FIN 48, we also recorded an
increase to our deferred tax assets of $2 million which was
accounted for as a $3 million increase to retained earnings
and a $1 million decrease to additional paid-in capital. As of
June 30, 2007, changes to our tax contingencies that are
reasonably possible in the next 12 months are not material.
— We recognize accrued interest and penalties related to our tax
contingencies as income tax expense. Our January 1, 2007 tax
contingencies include $13 million of interest and penalties,
including a $9 million increase related to our adoption of FIN
48. This increase decreased retained earnings by $6 million,
net of a $3 million federal tax benefit.
— We file U.S. federal income tax returns as well as income tax
returns in various states and foreign jurisdictions. We may be
subject to examination by the Internal Revenue Service (“IRS”)
for calendar years 2003 through 2006. Additionally, any net
operating losses that were generated in prior years and
utilized in these years may also be subject to examination by
the IRS. We are under examination, or may be subject to
examination, in the following major jurisdictions for the
years specified: Pennsylvania for 2002 through 2006, Kentucky
for 2003 through 2006, Delaware for 2004 through 2006, France
for 2003 through 2006, Germany for 1998 through 2006,
Luxembourg for 2003 through 2006, and the United Kingdom for
1999 through 2006. In addition, in February 2007, Japanese tax
authorities assessed income tax, including penalties and
interest, of approximately $90 million against one of our U.S.
subsidiaries for the years 2003 through 2005. We believe that
these claims are without merit and are disputing the
assessment. Further proceedings on the assessment will be
stayed during negotiations between U.S. and Japanese
authorities over the double taxation issues the assessment
raises, and we have provided bank guarantees to suspend
enforcement of the assessment. We also may be subject to
income tax examination by Japanese tax authorities for 2006.
— We have U.S. federal net operating losses that are classified
as deferred tax assets and are being utilized to reduce our
taxes payable to nominal levels.
Foreign Exchange
— The effect on our consolidated statements of operations from
year-over-year changes in exchange rates versus the U.S.
dollar throughout the period is as follows:
Three Months Ended June 30,
—————————————————
2007 2006
————————- ————————-
At At
Prior Exchange Prior Exchange
Year Rate Year Rate
Rates Effect As Rates Effect As
(1) (2) Reported (1) (2) Reported
——- ——– ——– ——- ——– ——–
Net sales $2,840 $46 $2,886 $2,163 $ (24) $2,139
Gross profit 691 10 701 514 (5) 509
Operating expenses 578 7 585 464 (2) 462
Income from
operations 113 3 116 49 (2) 47
Net interest
expense and
other(3) – – – (4) (1) (5)
Remeasurements and
other income
(expense)(4) (3) (2) (5) 2 10 12
Net income 77 1 78 19 3 22
Diluted earnings
per share $ 0.19 $ – $ 0.19 $ 0.04 $0.01 $ 0.05
(1) Represents the outcome that would have resulted had currency
exchange rates in the current period been the same as those in effect
in the comparable prior year period for operating results, and if we
did not incur the variability associated with remeasurements for our
6.875% PEACS and intercompany balances.
(2) Represents the increase or decrease in reported amounts resulting
from changes in exchange rates from those in effect in the comparable
prior year period for operating results, and if we did not incur the
variability associated with remeasurements for our 6.875% PEACS and
intercompany balances.
(3) Includes foreign-currency gains and losses on cross-currency
investments.
(4) Includes foreign-currency gains and losses on remeasurement of
6.875% PEACS and intercompany balances.
Cash Flows and Balance Sheet
— Tax benefits resulting from stock-based compensation
deductions in excess of amounts reported for financial
reporting purposes were $35 million in Q2 2007 and $133
million for the trailing twelve months, compared to $21
million in Q2 2006 and $34 million for the trailing twelve
months ended June 30, 2006.
— Our cash, cash equivalents and marketable securities of $1.66
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 $530
million, primarily in Euros, British Pounds and Japanese Yen.
— Other assets include, among other things, $171 million of
marketable securities restricted for longer than one year, $39
million of intangible assets net, $19 million of certain
equity investments, and $6 million of deferred issuance costs
on long-term debt. Marketable securities restricted for longer
than one year primarily relate to amounts pledged or otherwise
restricted as collateral for standby letters of credit,
guarantees, debt, and real estate leases.
— Accrued expenses and other current liabilities include, among
other things, liabilities for gift certificates of $173
million, professional fees, marketing activities, workforce
costs – including accrued payroll, vacation and other
benefits–and unearned revenue of $77 million, which is
recorded when payments are received in advance of performing
our service obligations and is recognized ratably over the
service period.
Long-term debt primarily includes the following (in millions):
Principal
at Interest Principal Due
Maturity Rate Date
——— ——– ————-
Convertible Subordinated Notes $ 900(1) 4.750% February 2009
Premium Adjustable Convertible
Securities (“PEACS”) 325(2) 6.785% February 2010
——
$1,225
——
(1) The 4.75% Convertible Subordinated Notes are convertible into our
common stock at the holders’ option at a conversion price of $78.0275
per share. Total common stock issuable upon conversion of our
outstanding 4.75% Convertible Subordinated Notes is 11.5 million
shares, which is excluded from our calculation of earnings per share
as its effect is anti-dilutive. We have the right to redeem the 4.75%
Convertible Subordinated Notes, in whole or in part, by paying the
principal and a redemption premium, plus any accrued and unpaid
interest. At June 30, 2007, the redemption premium, which decreases
by 47.5 basis points on February 1 of each year until maturity, was
0.95%.
(2) The 6.875% Premium Adjustable Convertible Securities (“6.875%
PEACS”) are convertible into our common stock at the holders’ option
at a conversion price of EUR 84.883 per share ($114.96 per share,
based on the exchange rate as of June 30, 2007). Total common stock
issuable upon conversion of our outstanding 6.875% PEACS is 2.8
million shares, which is excluded from our calculation of earnings
per share as its effect is anti-dilutive. The U.S. Dollar equivalent
principal, interest, and conversion price fluctuate based on the
Euro/U.S. Dollar exchange ratio. We have the right to redeem the
6.875% PEACS, in whole or in part, by paying the principal plus any
accrued and unpaid interest.
— Other long-term liabilities include tax contingencies,
long-term capital lease obligations, and other long-term
obligations. For further discussion of long-term tax
contingencies, see our discussion of “Income Taxes” above.
— We acquired certain companies during Q2 2007 for an aggregate
purchase price of $33 million, including cash payments of $24
million in the three months ended June 30, 2007 and future
cash payments of $9 million. We also made principal payments
of $13 million on acquired debt in connection with one of
these acquisitions. Additional consideration for these
acquisitions is contingent upon continued employment. This
amount is expensed as compensation over the employment period
and not included in the purchase price. Acquired intangibles
totaled $24 million and have estimated useful lives of between
two and ten years. The excess of purchase price over the fair
value of the net assets acquired was $17 million and is
classified as “Goodwill” on our consolidated balance sheets.
The purchase price allocation for each acquisition is
preliminary and subject to revision, and any change to the
fair value of net assets acquired will lead to a corresponding
change to the purchase price allocable to goodwill. The
results of operations of the acquired companies have been
included in our consolidated results from each closing date
forward. The effect of these acquisitions on consolidated net
sales and operating income for Q2 2007 was not significant.
Certain Definitions and Other
— We present segment information for North America and
International. We measure operating results of our segments
using an internal performance measure of direct segment
operating expenses that excludes stock-based compensation and
other operating expense, each of which is not allocated to
segment results. Other centrally incurred operating costs are
fully allocated to segment results. Our operating results,
particularly for the International segment, are affected by
movements in foreign exchange rates.
— The North America segment consists of amounts earned from
retail sales of consumer products (including from third-party
sellers) and subscriptions through North America-focused
websites such as www.amazon.com, www.shopbop.com,
www.endless.com and www.amazon.ca; from our Amazon Prime
membership program; and from non-retail activities such as
North America-focused Amazon Enterprise Solutions program, and
marketing and promotional agreements. This segment includes
export sales from www.amazon.com and www.amazon.ca.
— The International segment consists of amounts earned from
retail sales of consumer products (including from third-party
sellers) and subscriptions through internationally focused
websites such as www.amazon.co.uk, www.amazon.de,
www.amazon.co.jp, www.amazon.fr, and Joyo Amazon websites at
www.joyo.cn and www.amazon.cn; from our 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 Amazon customers),
Amazon Enterprise Solutions program customers, Amazon.com
Payments customers and the customers of select companies with
whom we have a technology alliance or marketing and
promotional relationship. Customers are considered active when
they have placed an order during the preceding twelve-month
period.
— References to sellers or merchants mean active seller
accounts, which are established when a seller receives an
order from a customer account. Seller accounts include sellers
in Amazon Marketplace, and Merchants@ platforms, but exclude
Amazon Enterprise Solutions sellers. Sellers are considered
active when they have received an order during the preceding
twelve-month period.
— References to registered developers mean cumulative registered
developer accounts, which are established when potential
developers enroll with Amazon Web Services and receive a
developer access key.
— References to units mean units sold (net of returns and
cancellations) by us and by third-party sellers at Amazon.com
domains worldwide – such as www.amazon.com, www.amazon.co.uk,
www.amazon.de, www.amazon.co.jp, www.amazon.fr and
www.amazon.ca – and at Syndicated Stores domains, as well as
Amazon.com-owned items sold through catalogs and at
non-Amazon.com domains, such as books, music and DVD/video
items ordered from Amazon.com’s store at www.target.com. Units
sold do not include units associated with certain of our
acquisitions (including Joyo Amazon 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, Inc.
