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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File No. 000-22513
AMAZON.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1646860
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1200 12TH AVENUE SOUTH, SUITE 1200, SEATTLE, WASHINGTON 98144-2734
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 266-1000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
340,787,400 shares of $0.01 par value common stock outstanding as of October
31, 1999 (after adjusting for the three-for-one stock split paid on January 4,
1999 and the two-for-one stock split paid on September 1, 1999)
Page 1 of 28
Exhibit Index on Page 28
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AMAZON.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
PAGE
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PART I -- FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements......................................... 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk................ 24
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings......................................................... 26
Item 2. Changes in Securities and Use of Proceeds................................. 26
Item 3. Defaults Upon Senior Securities........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders....................... 26
Item 5. Other Information......................................................... 26
Item 6. Exhibits and Reports on Form 8-K.......................................... 26
Signature............................................................................. 27
Exhibit Index......................................................................... 28
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
Current assets:
Cash ................................................................. $ 43,149 $ 25,561
Marketable securities ................................................ 862,536 347,884
Inventories .......................................................... 118,793 29,501
Prepaid expenses and other ........................................... 55,590 21,308
------------ ------------
Total current assets ......................................... 1,080,068 424,254
Fixed assets, net ...................................................... 221,243 29,791
Other investments ...................................................... 196,317 7,740
Intangibles and other, net ............................................. 705,932 179,263
Deferred charges ....................................................... 36,239 7,412
------------ ------------
Total assets ................................................. $ 2,239,799 $ 648,460
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 236,711 $ 113,273
Accrued advertising .................................................. 24,567 13,071
Interest payable ..................................................... 10,045 10
Other liabilities and accrued expenses ............................... 73,572 34,413
Current portion of long-term debt and other .......................... 12,776 808
------------ ------------
Total current liabilities .................................... 357,671 161,575
Long-term debt and other ............................................... 1,462,203 348,140
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 150,000
Issued and outstanding shares -- none .............................. -- --
Common stock, $0.01 par value:
Authorized shares -- 1,500,000
Issued and outstanding shares -- 339,235 and 318,534
shares at September 30, 1999 and December 31, 1998,
respectively ................................................ 3,393 3,186
Additional paid-in capital ........................................... 1,027,655 298,537
Note receivable from officer for common stock ........................ (1,171) (1,099)
Stock-based compensation ............................................. (32,180) (1,625)
Accumulated other comprehensive (loss) income ........................ (18,957) 1,806
Accumulated deficit .................................................. (558,815) (162,060)
------------ ------------
Total stockholders' equity ................................... 419,925 138,745
------------ ------------
Total liabilities and stockholders' equity ................... $ 2,239,799 $ 648,460
============ ============
See accompanying notes to consolidated financial statements.
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AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales ...................................... $ 355,777 $ 153,648 $ 963,797 $ 356,992
Cost of sales .................................. 285,300 118,823 760,998 276,680
---------- ---------- ---------- ----------
Gross profit ................................... 70,477 34,825 202,799 80,312
Operating expenses:
Marketing and sales .......................... 86,555 37,454 233,222 84,325
Product development .......................... 44,608 13,227 102,298 29,168
General and administrative ................... 18,512 4,951 44,301 10,220
Merger, acquisition and investment
related costs, including amortization
of intangibles and equity in losses of
affiliates................................. 99,481 19,486 175,255 24,901
Stock-based compensation ..................... 11,789 1,214 16,570 1,591
---------- ---------- ---------- ----------
Total operating expenses ............. 260,945 76,332 571,646 150,205
Loss from operations ........................... (190,468) (41,507) (368,847) (69,893)
Interest income ................................ 12,699 4,755 36,479 9,790
Interest expense ............................... (21,470) (8,419) (66,424) (18,017)
Other income, net .............................. 2,159 - 2,037 -
---------- ---------- ---------- ----------
Net interest expense and other ............... (6,612) (3,664) (27,908) (8,227)
---------- ---------- ---------- ----------
Net loss ....................................... $ (197,080) $ (45,171) $ (396,755) $ (78,120)
========== ========== ========== ==========
Basic and diluted loss per share ............... $ (0.59) $ (0.15) $ (1.23) $ (0.27)
========== ========== ========== ==========
Shares used in computation of basic and
diluted loss per share ....................... 332,488 301,405 323,064 292,206
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE-MONTHS ENDED
SEPTEMBER 30,
----------------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net loss ................................................ $ (396,755) $ (78,120)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................ 22,935 6,182
Amortization of deferred compensation related to
stock options ....................................... 16,570 570
Non-cash merger, acquisition, and investment related
costs, including amortization of intangibles
and equity in losses of affiliates................... 175,255 24,082
Loss on sale of marketable securities ................ 6,086 --
Non-cash interest expense ............................ 26,116 15,455
------------ ------------
Net cash used in operating activities before changes (149,793) (31,831)
in operating assets and liabilities
Changes in operating assets and liabilities, net of
effects of acquisitions:
Inventories .......................................... (89,292) (10,784)
Prepaid expenses and other ........................... (32,685) (12,528)
Accounts payable ..................................... 121,771 25,447
Accrued advertising .................................. 11,057 8,403
Interest payable ..................................... 10,035 (61)
Other liabilities and accrued expenses ............... 6,526 13,691
------------ ------------
Net cash provided by changes in operating assets and
liabilities, net of effects from acquisitions ..... 27,412 24,168
Net cash used in operating activities ........... (122,381) (7,663)
INVESTING ACTIVITIES:
Sales and maturities of marketable securities ........... 3,460,139 117,669
Purchases of marketable securities ...................... (3,993,422) (315,608)
Purchases of fixed assets ............................... (181,859) (18,779)
Acquisitions and investments in businesses ............. (222,853) (14,374)
------------ ------------
Net cash used in investing activities ........... (937,995) (231,092)
FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and exercise of
stock options......................................... 36,930 11,325
Proceeds from long-term debt ............................ 1,260,639 325,987
Repayment of long-term debt ............................. (184,710) (77,383)
Financing costs ......................................... (35,151) (7,783)
------------ ------------
Net cash provided by financing activities ....... 1,077,708 252,146
Effect of exchange rate changes ........................... 256 (411)
------------ ------------
Net increase in cash ...................................... 17,588 12,980
Cash at beginning of period ............................... 25,561 1,876
------------ ------------
Cash at end of period ..................................... $ 43,149 $ 14,856
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired under capital leases ................ $ 25,850 $ --
Fixed assets acquired under financing agreements .......... 5,608 --
Stock issued in connection with business acquisitions ..... 635,343 217,241
See accompanying notes to consolidated financial statements.
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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ACCOUNTING POLICIES
Unaudited Interim Financial Information
The interim consolidated financial statements as of September 30, 1999 have
been prepared by Amazon.com, Inc. ("Amazon.com" or the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
for interim financial reporting. These consolidated statements are unaudited
and, in the opinion of management, include all adjustments (consisting of normal
recurring adjustments and accruals) necessary to present fairly the consolidated
balance sheets, consolidated operating results, and consolidated cash flows for
the periods presented in accordance with generally accepted accounting
principles. The consolidated balance sheet at December 31, 1998 has been derived
from the audited consolidated financial statements at that date. Operating
results for the quarter and nine-month periods ended September 30, 1999 may not
be indicative of the results for the year ending December 31, 1999. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the rules and regulations of the SEC. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements, and accompanying notes, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Comprehensive Loss
Comprehensive loss is comprised of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $206.6 million and $44.6 million for the quarters ended
September 30, 1999 and 1998, and $417.5 million and $77.5 million for the
nine-month periods ended September 30, 1999 and 1998, respectively.
NOTE 2 -- BUSINESS COMBINATIONS AND INVESTMENTS
The Company completed three significant acquisitions during the nine-month
period ended September 30, 1999: e-Niche Incorporated ("Exchange.com"),
Accept.com Financial Services Corporation ("Accept.com"), and Alexa Internet
("Alexa"). Each acquisition was recorded using the purchase method of accounting
under Accounting Principles Board ("APB") Opinion No. 16. The Company issued an
aggregate of approximately 8.0 million shares of common stock to effect the
transactions. The aggregate purchase price of the acquired companies, plus
related charges, was approximately $579.7 million, and was comprised of common
stock and cash. Results of operations for each acquired company have been
included in the financial results of the Company from the closing date of each
transaction forward.
In accordance with APB Opinion No. 16, all identifiable assets were assigned
a portion of the cost of the acquired companies (purchase price) on the basis of
their respective fair values. Identifiable intangible assets and goodwill are
included in "Intangibles and other, net" on the accompanying consolidated
balance sheets and are amortized over their estimated useful lives which
approximates 3 years. Intangible assets were identified and valued by
considering the Company's intended use of acquired assets and analysis of data
concerning products, technologies, markets, historical financial performance,
and underlying assumptions of future performance. The economic and competitive
environment in which the Company and the acquired companies operate was also
considered in the valuation analysis. The Company periodically evaluates its
intangible assets for impairment and as of September 30, 1999 no write-downs
have been recorded.
An immaterial portion of the purchase price of the Accept.com and Alexa
transactions attributable to in-process research and development efforts has
been expensed because, at the time of acquisition, technological feasibility had
not been established and no
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alternative future uses existed. Purchased in-process research and development
was identified and valued through discussions with the acquired companies'
management and the analysis of data concerning developmental products, their
respective stage of development, the time and resources needed to complete them,
their expected income generating ability, target markets and associated risks.
On May 14, 1999, the Company completed its acquisition of Exchange.com, a
developer of Internet marketplaces and related online communities that bring
together buyers and sellers of rare and hard-to-find items. In connection with
the acquisition, the Company assumed all outstanding Exchange.com stock options
and issued 1,893,944 shares of Amazon.com common stock to acquire all of the
outstanding common shares of Exchange.com. Pursuant to the terms of the
agreement, the purchase price may increase by up to $27.5 million based on the
tenure of certain employees.
On June 9, 1999, the Company completed its acquisition of Accept.com, an
e-commerce company developing technology to simplify person-to-person and
business-to-consumer transactions on the Internet. In connection with the
acquisition, the Company assumed all outstanding Accept.com stock options and
issued 1,755,314 shares of Amazon.com common stock to acquire all of the
outstanding common shares of Accept.com.
On June 10, 1999, the Company completed its acquisition of Alexa, a
developer of a web navigation service that works with Internet browsers to
provide useful information about the sites being viewed and suggests related
sites. In connection with the acquisition, the Company assumed all outstanding
Alexa stock options and issued 4,369,884 shares of Amazon.com common stock to
acquire all of the outstanding common shares of Alexa.
The Company made additional immaterial acquisitions and other investments
during the nine-month period ended September 30, 1999 totaling $298.9 million.
Equity investments are reflected in "Other investments" in the consolidated
balance sheets and are accounted for under the equity method. The Company's
share of affiliates' losses has been included in results from operations from
the closing date of the related transactions forward.
In connection with certain acquisitions, the Company has conditioned a
portion of the acquisition consideration on the continued tenure of key
employees. Under generally accepted accounting principles, a portion of this
amount is accounted for as compensation rather than as a component of purchase
price. Consequently, a maximum of $52.7 million in additional consideration
relating to the Company's acquisitions for the nine-month period ended September
30, 1999 may be recorded as compensation expense and classified between
stock-based compensation and merger, acquisition and investment related costs
in the results of operations. Amounts will be "earned" based on tenure of
certain employees and will be recognized as expense over a period of 12-36
months.
The pro forma consolidated financial information for the nine-month period
ended September 30, 1999 and 1998, determined as if all acquisitions had
occurred on January 1 of each period, would have resulted in net sales of $966.2
million and $358.1 million, net loss of $532.3 million and $296.6 million, and
basic and diluted loss per share of $1.60 and $0.98, respectively. This
unaudited pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the results of operations in future periods or
results that would have been achieved had Amazon.com and the acquired companies
been combined during the specified periods.
NOTE 3 -- MARKETABLE SECURITIES
Marketable securities available-for-sale, at fair value, consist of the
following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Asset-backed and agency securities .... $ 333,529 $ 83,569
Commercial paper and short-term
obligations........................ 128,139 114,180
Treasury notes and bonds .............. 218,926 89,013
Corporate notes and bonds ............. 181,942 51,351
Equity securities ..................... -- 9,771
------------ ------------
Total marketable securities..... $ 862,536 $ 347,884
============ ============
The Company's marketable securities consist primarily of high quality short-
to intermediate-term fixed income securities and money market mutual funds. The
Company classifies all uninvested funds on deposit with investment managers as
marketable securities, as well as highly liquid investments with maturities of
three months or less. The Company reflects the related cash flows as investing
cash flows in the Consolidated Statements of Cash Flows. As a result of the
classification of highly liquid investments
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within marketable securities, a significant portion of the Company's gross
marketable securities purchases and maturities disclosed as investing cash flows
is related to highly liquid investments.
At September 30, 1999 and December 31, 1998 the cost of the Company's
marketable securities approximated fair value.
NOTE 4 -- FIXED ASSETS
Fixed assets, at cost, consist of the following:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Computers, equipment and software ............ $ 68,031 $ 35,848
Leasehold improvements ....................... 29,316 5,535
Leased assets ................................ 50,858 442
Construction/installation in progress ........ 108,669 1,760
------------ ------------
256,874 43,585
Less accumulated depreciation and amortization (35,631) (13,794)
------------ ------------
Fixed assets, net .......................... $ 221,243 $ 29,791
============ ============
NOTE 5 -- INTANGIBLES AND OTHER
Intangibles and other, arising primarily from business acquisitions,
consists of $664.7 million in goodwill and $216.2 million in purchased
intangibles and other assets, net of accumulated amortization of $175.0 million
as of September 30, 1999. Total net intangibles and other assets were $179.3
million as of December 31, 1998 and were comprised primarily of goodwill. The
Company periodically evaluates its intangible assets for impairment and as of
September 30, 1999 no write-downs have been recorded.
NOTE 6 -- DEFERRED CHARGES
Deferred charges relate to fees and charges resulting from the issuance of
the Company's debt. The net increase in deferred charges relates to the February
1999 issuance of 4 3/4% Convertible Subordinated Notes due 2009, offset by
amortization charges and periodic repurchases of the 10% Senior Discount Notes
due 2003 (see Note 7). Net deferred charges are amortized into interest expense
over the life of the underlying debt.
NOTE 7 -- LONG-TERM DEBT
Convertible Subordinated Notes
On February 3, 1999, the Company completed an offering of $1.25 billion of
4 3/4% Convertible Subordinated Notes due 2009 (the "Convertible Notes"). The
Convertible Notes are convertible into the Company's common stock at the
holders' option at a conversion price of $78.0275 per share, subject to
adjustment in certain events. Interest on the Convertible Notes is payable
semi-annually in arrears on February 1 and August 1 of each year, and commenced
August 1, 1999. The Convertible Notes are unsecured and are subordinated to the
prior payment in full of all of Amazon.com's senior debt and are also
effectively subordinated to all indebtedness and other liabilities of the
Company. Subject to certain conditions, the Convertible Notes may be redeemed at
the option of the Company prior to February 6, 2002, in whole or in part, at the
redemption price of $1,000 per note, plus accrued and unpaid interest, if the
closing price for the Company's common stock has exceeded 150% of the conversion
price for at least 20 trading days within a period of 30 consecutive trading
days ending on the trading day prior to the date of mailing of the notice of
redemption. Upon any redemption made prior to February 6, 2002, the Company will
also make an additional cash payment with respect to the Convertible Notes
called for redemption in an amount equal to $212.60 per $1,000 note redeemed,
less the amount of any interest actually paid on such Convertible Notes prior to
the call for redemption. At any time on and after February 6, 2002, the Company
may redeem the Notes, in whole or in part, at the redemption prices set forth in
the Convertible Notes indenture.
Upon the occurrence of a "fundamental change" (as defined in the Convertible
Notes indenture) prior to the maturity of the Convertible Notes, each holder
thereof shall have the right to require Amazon.com to redeem all or any part of
such holder's Convertible Notes at a price equal to 100% of the principal amount
of the notes being redeemed, together with accrued interest.
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Senior Discount Notes
In May 1998, the Company completed the offering of approximately $530
million aggregate principal amount of 10% Senior Discount Notes due 2003 (the
"Senior Discount Notes") for aggregate gross proceeds of approximately $326
million. The Senior Discount Notes were sold at a substantial discount from
their principal amount at maturity of $530 million. Prior to November 1, 2003,
no cash interest payments are required; instead, interest will accrete during
this period to the principal amount at maturity. From and after May 1, 2003, the
Senior Discount Notes will bear interest of a rate of 10% per annum payable in
cash on each May 1 and November 1.
During the nine-month period ended September 30, 1999 the Company
repurchased $266.0 million (face amount) of the Senior Discount Notes,
representing accreted value of $178.4 million. As of September 30, 1999, the
remaining face amount outstanding was $264.0 million.
NOTE 8 -- STOCKHOLDERS' EQUITY
On January 4, 1999, the Company effected a three-for-one stock split to
stockholders of record on December 18, 1998; and on September 1, 1999, the
Company effected a two-for-one stock split to stockholders of record on August
12, 1999. Each stock split was effected in the form of a stock dividend. The
accompanying consolidated financial statements have been restated to reflect the
splits.
The Convertible Notes (see Note 7) initially may be converted into an
aggregate of 16,019,992 shares of Amazon.com common stock.
NOTE 9 -- LOSS PER SHARE
The following represents the calculations for basic and diluted net loss per
share:
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss -- as reported ....................... $ 197,080 $ 45,171 $ 396,755 $ 78,120
========== ========== ========== ==========
Weighted average shares outstanding ........... 337,959 309,975 329,064 300,748
Less weighted average common shares issued
subject to repurchase agreements ............ (5,471) (8,570) (6,000) (8,542)
---------- ---------- ---------- ----------
Shares used in computation of basic and diluted
loss per share .............................. 332,488 301,405 323,064 292,206
========== ========== ========== ==========
Basic and diluted loss per share .............. $ (0.59) $ (0.15) $ (1.23) $ (0.27)
========== ========== ========== ==========
All of the Company's stock options are excluded from diluted loss per share
since their effect is antidilutive.
NOTE 10 -- STOCK-BASED COMPENSATION
Stock-based compensation is comprised of the portion of acquisition-related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense rather than as a component of purchase
price under generally accepted accounting principles. Stock-based compensation
also includes stock-based charges such as option-related deferred compensation
recorded at the Company's initial public offering, as well as certain other
compensation and severance arrangements.
The following table shows the amounts of stock-based compensation that would
have been recorded under the following income statement categories had
stock-based compensation not been separately stated in the Consolidated
Statements of Operations:
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS)
Marketing and sales .......... $ 2,595 $ 1,062 $ 2,772 $ 1,132
Product development .......... 8,689 86 13,151 297
General and administrative ... 505 66 647 162
---------- ---------- ---------- ----------
$ 11,789 $ 1,214 $ 16,570 $ 1,591
========== ========== ========== ==========
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NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On April 7, 1999, Amazon Bookstore Cooperative, Inc. filed a lawsuit in the
United States District Court for the District of Minnesota, Third Division,
against the Company alleging trademark infringement and unfair competition under
state and federal law. The parties settled the lawsuit on November 4, 1999.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business. The Company currently is not aware of
any such legal proceedings or claims that it believes will have, individually or
in the aggregate, a material adverse effect on its business, prospects,
financial condition or operating results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition
and Results of Operations" includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this Form 10-Q are forward-looking. In particular, the statements herein
regarding industry prospects and our future results of operations or financial
position are forward-looking statements. Forward-looking statements reflect our
current expectations and are inherently uncertain. Our actual results may differ
significantly from our expectations. The section entitled "Additional Factors
That May Affect Future Results" describes some, but not all, of the factors that
could cause these differences.
OVERVIEW
Amazon.com, Inc. ("Amazon.com" or the "Company") is the Internet's number
one music, video and book retailer. Amazon.com, one of the most widely known,
used and cited commerce sites on the Web, offers more than 18 million unique
items in categories including books, music, video, toys, electronics, home
improvement products and software. Amazon.com offers a free electronic greeting
card service and also provides a community of online shoppers an easy and safe
way to purchase and sell a large selection of products through Amazon.com
Auctions and zShops. Amazon.com is a proven technology leader; the Company
developed electronic commerce innovations such as 1-Click ordering, All Products
Search, Amazon.com Payments, Amazon.com Anywhere, personalized shopping services
and easy-to-use search and browse features.
Amazon.com, Amazon.com Auctions, Amazon.co.uk, Amazon.de, Amazon.com Cards,
Amazon.com Anywhere, Internet Movie Database, PlanetAll, Earth's Biggest
Selection, Bid-Click, zShops, All Products Search, and 1-Click are either
registered trademarks or trademarks of Amazon.com or its affiliates. All other
names that are mentioned in this document may be trademarks of their respective
owners.
RECENT EVENTS
The Company's recent initiatives include:
o In March 1999, the Company launched Amazon.com Auctions, an on-line
auctions service that is designed to help people find, discover, buy and
sell a large selection of products online.
o In April 1999, the Company launched Amazon.com Cards, a free electronic
greeting card service.
o In July 1999, the Company launched two new broad product offerings:
toys and electronics.
o In late September 1999, the Company introduced three e-commerce
innovations: zShops, which enables anyone to offer merchandise for sale
on Amazon.com; Amazon.com Payments, which allows individuals and small
businesses to accept payments through Amazon.com's 1-Click payment
feature; and All Products Search, which helps shoppers find anything
for sale on the Internet.
o In October 1999, the Company launched Amazon.com Anywhere, a wireless
e-commerce service which allows customers to securly shop and check the
status of auction items at Amazon.com when they are away from their
desktop computers, and expanded its music, auctions, and zShops
offerings to Germany and the United Kingdom.
o In November 1999, the Company launched its home improvement store,
including a tool store, and expanded its toy and electronics offerings
to include video games and software.
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The Company announced several strategic acquisitions in the nine-month
period ended September 30, 1999, including Exchange.com, Alexa Internet and
Accept.com.
In late June 1999 Amazon.com named Joseph Galli, Jr. as its President and
Chief Operating Officer, and in September 1999 named Warren C. Jenson as its
Senior Vice President and Chief Financial Officer. Mr. Galli reports to
Amazon.com's founder and CEO, Jeff Bezos, and has been elected to the Company's
Board of Directors.
During the nine-month period ended September 30, 1999 the Company opened new
distribution centers in Nevada, Georgia, Kentucky, Kansas and North Dakota and
announced additional new distribution centers to be located in Kentucky, Germany
and the United Kingdom. Expansion of the Company's network of highly automated
distribution centers has and will continue to require the Company to enter into
lease obligations, stock inventories, purchase fixed assets and install
leasehold improvements. Distribution center expenditures will continue to
increase as the Company brings new facilities into service.
On May 19, 1999, the Company filed a universal shelf registration statement
on Form S-3 with the SEC which will permit the Company, from time to time, to
offer and sell various types of securities, up to a total value of $2 billion.
The registration statement was declared effective by the SEC on June 11, 1999.
RESULTS OF OPERATIONS
Net Sales
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
--------- --------- -------- --------- --------- --------
(IN THOUSANDS) (IN THOUSANDS)
Net sales....... $ 355,777 $ 153,648 132% $ 963,797 $ 356,992 170%
Net sales include the selling price of books, music, video, toys,
electronics and other products sold by the Company, net of returns and gift
certificate discounts, and also includes outbound shipping and handling charges.
Net sales also include commissions from auctions and zShops transactions, which
includes placement fees, sales commissions and fees from payment service
transactions. Growth in net sales reflects a significant increase in units sold
due to the growth of the Company's customer base, repeat purchases from existing
customers, and new product offerings including music and video product
offerings in the second half of 1998 and toys and electronics in July 1999.
At September 30, 1999 the Company's cumulative customer accounts (inclusive
of accounts with Amazon.com Auctions) reached 13.1 million, compared with 10.7
million at June 30, 1999, and 6.2 million and 4.5 million at December 31, and
September 30, 1998, respectively.
Net foreign sales, including domestic export and foreign-domicile sales,
represented 24.5% and 20.1% of net sales for the quarters ended September 30,
1999 and 1998, and 23.7% and 20.6% of net sales for the nine-month periods ended
September 30, 1999 and 1998, respectively. The Company launched Amazon.co.uk in
the United Kingdom and Amazon.de in Germany in the fourth quarter of 1998.
Gross Profit
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- -------- -------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Gross Profit....... $ 70,477 $ 34,825 102% $ 202,799 $ 80,312 153%
Gross Margin....... 19.8% 22.7% 21.0% 22.5%
Gross profit is calculated as net sales less the cost of sales, which
consists of the cost of merchandise sold to customers and inbound and outbound
shipping costs. For the quarter and nine-month periods ended September 30, 1999,
gross profit increased in absolute dollars over the same periods in 1998,
primarily reflecting the Company's increased sales volume. Gross margin
percentages declined over the same periods due primarily to the introduction of
newer product lines such as music, video, toys and electronics, as well as
inventory reserves taken in the third quarter of 1999 due to large inventory
purchases in advance of holiday sales. Gross profit was also impacted by the
Company's 50% discount on every book on the New York Times bestseller list.
Offsetting these declines in gross margin was the effect of improved product
sourcing.
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The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. Additionally, the Company may be unable to accurately forecast
inventory needs in new and existing product lines resulting in additional
inventory reserves that will negatively impact gross margin. In particular, the
Company anticipates that the introduction of toys, electronics, home improvement
products and software will result in continued lower overall gross
margins in upcoming quarters.
The Company anticipates a negative impact on shipping margins during the
fourth quarter of 1999 resulting primarily from complimentary upgrades and
increased split-shipments in order to ensure timely delivery for the holidays.
Split shipments may also increase due to recent openings of distribution centers
that may not be fully optimized thereby necessitating partial shipments from two
or more locations.
The Company believes that offering its customers attractive prices is an
essential component of its business strategy. Accordingly, in addition to the
50% discount on every book on the New York Times bestseller list, the Company
continues to offer up to 40% off on hundreds of thousands of other titles. The
Company may in the future expand or increase the discounts it offers to its
customers and may otherwise alter its pricing structure and policies.
Additionally, although the Company can provide no assurances, the Company
forecasts that its U.S. books business will be profitable in the fourth quarter
of 1999 (see "Additional Factors that May Affect Future Results").
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Marketing and Sales
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
------- ------- -------- --------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
Marketing and sales....... $86,555 $37,454 131% $ 233,222 $84,325 177%
Percentage of sales....... 24.3% 24.4% 24.2% 23.6%
Marketing and sales expenses consist primarily of fulfillment costs,
advertising, public relations and promotional expenditures, and all payroll and
related expenses for personnel engaged in marketing, selling and fulfillment
activities. Fulfillment costs include the cost of operating and staffing
distribution and customer service centers. Marketing and sales expenses
increased during the quarter and nine-month periods ended September 30, 1999 due
to several factors including the opening of new distribution and customer
service centers, increases in the Company's advertising and promotional
expenditures, increases in payroll and related costs associated with fulfilling
customer demand, costs associated with new product offerings, and increases in
credit card merchant fees resulting from higher sales.
The Company intends to continue pursuing its branding and marketing campaign
and plans to significantly increase marketing spending in the fourth quarter of
1999 in relation to third-quarter spending levels. Additionally, the Company
will incur significant incremental fulfillment costs relating to the
implementation of its announced distribution center expansion plan, as well as
incremental fulfillment costs associated with any increases in sales volumes. As
a result, the Company continues to expect marketing and sales expenses to
increase significantly.
Product Development
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- ------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Product development.... $ 44,608 $13,227 237% $102,298 $ 29,168 251%
Percentage of sales.... 12.5% 8.6% 10.6% 8.2%
Product development expenses consist principally of payroll and related
expenses for development, editorial, systems and telecommunications operations
personnel and consultants, systems and telecommunications infrastructure, and
costs of acquired content. The increase in product development expenses was
primarily attributable to increased staffing and associated costs related to
enhancing the features, content and functionality of the Company's Web sites and
transaction-processing systems, as well as increased investment in systems and
telecommunications infrastructure and new product offerings. Product development
costs are generally expensed as incurred, except for certain costs relating to
the development of internal-use software that are capitalized and depreciated
over estimated useful lives. The Company believes that continued investment in
product development is critical to attaining its strategic objectives. In
addition to ongoing investments in its Web stores and infrastructure, the
Company intends to increase investments in product, service and international
expansion. As a result, the Company expects product development expenses to
increase significantly.
General and Administrative
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- ------ -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
General and administrative... $ 18,512 $4,951 274% $ 44,301 $10,220 333%
Percentage of sales......... 5.2% 3.2% 4.6% 2.9%
General and administrative ("G&A") expenses consist of payroll and related
expenses for executive, finance and administrative personnel, recruiting,
professional fees and other general corporate expenses. Increases in G&A costs
are largely attributable to increased payroll-related and infrastructure costs
associated with the Company's expansion efforts, legal and other professional
fees, and recruiting costs. The company expects G&A costs to continue to
increase commensurate with its expansion plans.
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Merger, Acquisition and Investment Related Costs, Including Amortization of
Intangibles and Equity in Losses of Affiliates
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Merger, acquisition and investment
related costs including amortization of
intangibles and equity in losses of
affiliates ............................ $ 99,481 $ 19,486 $ 175,255 $ 24,901
Merger, acquisition and investment related costs ("M&A Costs") consist of
amortization of goodwill and other purchased intangibles, equity in the losses
of affiliates, and certain merger, acquisition and investment related charges.
Increases in M&A Costs are largely attributable to amortization charges
resulting from the acquisitions of Exchange.com, Alexa Internet and Accept.com,
increases in losses by unconsolidated subsidiaries, as well as several
insignificant acquisitions and investments during 1999. It is likely that the
Company will continue to expand its business through acquisitions and
investments which would cause M&A Costs to increase.
Stock-Based Compensation
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
------- ------ ------- ------
(IN THOUSANDS) (IN THOUSANDS)
Stock-based compensation........ $11,789 $1,214 $16,570 $1,591
Stock-based compensation is comprised of the portion of acquisition related
consideration conditioned on the continued tenure of key employees, which must
be classified as compensation expense rather than as a component of purchase
price under generally accepted accounting principles. Stock-based compensation
also includes stock-based charges such as option-related deferred compensation
recorded at the Company's initial public offering, as well as certain other
compensation and severance arrangements. The increase in stock-based
compensation results primarily from 1999 acquisition activity. Stock-based
compensation for the three-month and nine-month periods ended September 30, 1998
relates primarily to option related deferred compensation recorded at the time
of the Company's initial public offering.
Interest Income and Expense
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
-------- ------- -------- -------- ------- --------
(IN THOUSANDS) (IN THOUSANDS)
Interest income..... $ 12,699 $ 4,755 167% $ 36,479 $ 9,790 273%
Interest expense.... (21,470) (8,419) 155% (66,424) (18,017) 269%
Interest income on cash and marketable securities increased due to higher
balances resulting from the Company's financing activities, principally the
February 1999 issuance of $1.25 billion aggregate principal amount of 4 3/4%
Convertible Subordinated Notes due 2009 ("Convertible Notes"). Interest expense
for the quarter and nine-month period ended September 30, 1999 consists
primarily of interest on the Convertible Notes and the 10% Senior Discount Notes
due 2003 ("Senior Discount Notes"), the amortization of deferred charges and
interest on asset acquisitions financed through loans and capital leases.
Other Income, net
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------ -------- ------
(IN THOUSANDS) (IN THOUSANDS)
Other income, net... $ 2,159 $ - $ 2,037 $ -
Other income is comprised of net gains and losses on sales of marketable
securities, fixed assets and other miscellaneous items. For the three and
nine-month periods ended September 30, 1999 other income, net was primarily
related to the disposition of an investment security. No comparable activity was
recorded in the respective periods of the prior year.
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Income Taxes
The Company has not generated any taxable income to date and therefore has
not paid any federal income taxes since inception. Utilization of the Company's
net operating loss carryforwards, which begin to expire in 2011, may be subject
to certain limitations under Section 382 of the Internal Revenue Code of 1986,
as amended. Due to uncertainties regarding realizability of the deferred tax
assets, the Company has provided a valuation allowance on the deferred tax asset
in an amount necessary to reduce the net deferred tax asset to zero.
Pro Forma Results of Operations
Pro forma information regarding the Company's results, excluding merger,
acquisition, investment related costs, and stock-based compensation (discussed
above) are presented for informational purposes and are not presented in
accordance with generally accepted accounting principles.
QUARTER ENDED NINE-MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro forma loss from operations, excluding
merger and acquisition, investment and
stock-based compensation costs ............. $ (79,198) $ (20,807) $ (177,022) $ (43,401)
========== ========== ========== ==========
Pro forma net loss, excluding merger and
acquisition, investment and stock-based
compensation costs ......................... $ (85,810) $ (24,471) $ (204,930) $ (51,628)
========== ========== ========== ==========
Pro forma basic and diluted loss per share,
excluding merger and acquisition, investment
and stock-based compensation costs ......... $ (0.26) $ (0.08) $ (0.63) $ (0.18)
========== ========== ========== ==========
Shares used in computation of pro forma basic
and diluted loss per share ................. 332,488 301,405 323,064 292,206
========== ========== ========== ==========
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999 the Company's principal sources of liquidity consisted
of $43.1 million of cash and $862.5 million of marketable securities compared to
$25.6 million of cash and $347.9 million of marketable securities at December
31, 1998.
Net cash used in operating activities was $122.4 million and $7.7 million
for the nine-month periods ended September 30, 1999 and 1998, respectively. Net
operating cash flows were primarily attributable to quarterly net losses and
increases in inventories and prepaid expenses and other, partially offset by
non-cash charges for depreciation and amortization and merger and acquisition
related costs, as well as increases in accounts payable, accrued advertising and
interest payable.
Net cash used in investing activities was $938.0 million and $231.1 million
for the nine-month periods ended September 30, 1999 and 1998, respectively, and
consisted of net purchases of marketable securities, purchases of fixed assets
primarily for distribution center expansion, and cash paid for acquisitions and
equity investments. Cash available for investment purposes increased
substantially in 1999 as a result of the issuance of the Convertible Notes.
Net cash provided by financing activities of $1.1 billion for the nine-month
period ended September 30, 1999 resulted from proceeds relating to the issuance
of the Convertible Notes, net of financing costs, and proceeds from issuance of
capital stock and exercises of stock options, offset by cash payments of $184.7
million on long-term debt including $182.5 million for repurchases of the Senior
Discount Notes.
As of September 30, 1999, the Company's principal commitments consisted of
obligations outstanding under its Convertible Notes (including interest
payments) and Senior Discount Notes, obligations in connection with the
acquisition of fixed assets and leases, and commitments for advertising and
promotional arrangements. Expansion of the Company's distribution center network
has and will require it to continue to commit to lease obligations, stock
inventories, and purchase fixed assets and install leasehold improvements.
Failure to achieve favorable financing for asset acquisitions could negatively
impact the Company's cash flows. In addition, the Company plans to continue to
increase its merchandise inventory in order to provide broader product offerings
and better availability to customers and to support the recently introduced
toys, electronics, home improvement and software product lines. Geographic
expansion and continued acquisitions and investments will also require future
capital expenditures.
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The Company believes that current cash and marketable securities balances
will be sufficient to meet its anticipated operating cash needs for at least the
next 12 months. However, any projections of future cash needs and cash flows are
subject to substantial uncertainty. If current cash, marketable securities and
cash that may be generated from operations are insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell additional equity
or debt securities or to obtain a line of credit. The Company has on file with
the SEC an effective universal shelf registration statement which will permit
the Company, from time to time, to offer and sell various types of securities,
up to a total value of $2 billion. The sale of additional equity or convertible
debt securities could result in additional dilution to the Company's
stockholders. In addition, the company will periodically consider the
acquisition of or investment in complementary businesses, products, services and
technologies, and the repurchase and retirement of debt, which might impact the
Company's liquidity requirements or cause the Company to issue additional equity
or debt securities. There can be no assurance that financing will be available
in amounts or on terms acceptable to the Company, if at all.
YEAR 2000 IMPLICATIONS
Many currently installed computer systems, software programs, and embedded
data chips are programmed using a 2-digit date field and are therefore unable to
distinguish dates beyond the 20th century (collectively, the "Year 2000" issue).
A failure to identify and correct any mission-critical internal or third party
Year 2000 processing problem could have a material adverse operational or
financial consequence to the Company.
State of Readiness
The Company has established a Year 2000 Project Team that, together with
external consultants, has developed a process for addressing the Year 2000 issue
including performing an inventory, an assessment, remediation procedures (to the
extent necessary) and testing procedures of all mission-critical information
systems and equipment and machinery that contain embedded technology, as well as
obtaining assurances from all mission-critical third parties as to their own
Year 2000 preparedness. The Company assesses as "mission-critical" any
information systems, equipment and machinery and third parties that
substantially affect the Company's ability to take, process and fulfill orders,
impact the Company's ability to gather and process financial information, or
otherwise significantly impact the customer experience.
Many of the steps taken to address the Year 2000 issue are performed
concurrently. A description of each phase of the process is as follows:
Inventory -- this phase includes the identification of all internal
information systems, machinery and equipment of the Company and third party
relationships. The inventory phase is greater than 95% complete and is expected
to be completed by the end of the fourth quarter of 1999.
Assessment -- this phase includes the application of a structured
code-release process/routine to evaluate the Year 2000 compliance status of all
mission-critical internal information systems. This phase also includes formal
communications with mission-critical third parties regarding their own Year 2000
preparedness and with manufacturers as to whether mission-critical equipment and
machinery are Year 2000 compliant. The assessment phase, as it relates to
internal information systems is greater than 80% complete with an estimated
completion in November 1999. The assessment of mission critical third parties,
including manufacturers of mission-critical equipment and machinery, is greater
than 90% complete and is expected to be completed in the fourth quarter of 1999.
Remediation -- this phase includes all measures necessary to correct Year
2000 non-compliance in mission-critical internal information systems. Such
measures primarily include the re-programming of internal code or replacement of
non-compliant mission-critical information systems, equipment and machinery.
Remediation of mission-critical internal information systems is greater than 90%
complete and is expected to be complete in the fourth quarter of 1999.
Remediation of mission-critical third parties will be addressed through
contingency planning.
Testing -- this phase includes the application of a structured code-release
process/routine to re-evaluate the Year 2000 compliance status of previously
non-compliant mission-critical information systems, date-forward testing of
mission-critical equipment and machinery and electronic data interchange testing
with mission-critical third parties. The testing phase is approximately 50%
complete with the remaining testing expected to be completed in the fourth
quarter of 1999.
Year 2000 Costs
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The Company has not incurred to date and does not expect to incur material
costs in its efforts to address the Year 2000 issue. A Year 2000 budget of
approximately $1 million has been established for external costs (costs of
consultants and purchases of hardware and software) associated with the project.
A majority of the budgeted amount has been spent, and remaining amounts will be
directed toward third-party consulting efforts in the fourth quarter of 1999.
The Company has not tracked the costs of Company employees working on the Year
2000 issue. No significant information technology projects have been deferred
due to the Year 2000 issue, and all costs related to the Year 2000 issue have
been funded from operations.
Year 2000 Risks
There can be no assurance that the Company will be completely successful in
its efforts to address the Year 2000 issue or that problems arising from the
Year 2000 issue will not cause a material adverse effect on the operating
results or financial condition of the Company. The Company believes, however,
that its most reasonably likely worst-case scenario would relate to problems
with the systems of third parties rather than with the Company's internal
systems, including computer systems necessary to maintain the viability of the
Internet or any of the Web sites that direct consumers to our online stores,
temporary power outages at distribution centers, delayed transportation of
products by third parties, temporary building management issues (e.g. false fire
alarms, malfunction of elevators, etc.), and delayed customer purchases due to
non-compliant personal computers. The Company is limited in its efforts to
address the Year 2000 issue as it relates to third parties and is relying solely
on the assurances of these third parties as to their Year 2000 preparedness.
Contingency Planning
The Company views contingency planning as broader than the Year 2000 issue
and believes that a comprehensive contingency plan should address any known
circumstance that may cause a disruption of operations or an adverse customer
experience. To that end, the Company is developing business continuity plans to
address each critical process and activity that it believes would cause a
significant disruption to operations if not functional for 24 hours. The Company
has identified 100% of known critical processes and activities and expects all
business continuity plans to be complete by mid-December 1999. Additionally, the
Company has formed an incident management team comprised of senior-level
management personnel to evaluate and respond to business continuity issues. If a
business continuity issue arises, the incident management team will dispatch
emergency response teams who will be on call to remedy these issues from
November 15, 1999 through January 15, 2000. Despite these efforts, the Company
cannot guarantee that the contingency plan will adequately address all
circumstances that may disrupt operations or that such planning will prevent
circumstances that may cause a material adverse effect on the operating results
or financial condition of the Company.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to the factors discussed in the "Liquidity and Capital
Resources" sections of this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in the Company's Annual Report on Form
10-K for the year ended December 31, 1998, the following additional factors may
affect the Company's future results:
We Have a Limited Operating History
We incorporated in July 1994 and began offering products for sale on our Web
site in July 1995. Accordingly, we have a relatively short operating history
upon which you can evaluate our business and prospects. You should consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by online commerce companies. As an online commerce company, we have
an evolving and unpredictable business model, we face intense competition, we
must effectively manage our growth and we must respond quickly to rapid changes
in customer demands and industry standards. We may not succeed in addressing
these challenges and risks.
We Have an Accumulated Deficit and Anticipate Further Losses
We have incurred significant losses since we began doing business. As of
September 30, 1999, we had an accumulated deficit of $558.8 million. To succeed
we must invest heavily in marketing and promotion and in developing our product,
technology and operating infrastructure. In addition, the expenses associated
with our recent acquisitions, and interest expense related to our outstanding
notes, will adversely affect our operating results. Our aggressive pricing
programs have resulted in relatively low product gross margins, so we need to
generate and sustain substantially higher revenues in order to become
profitable. Although our revenues have grown, we cannot sustain our current rate
of growth. Our percentage growth rate will decrease in the future. For these
reasons we
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believe that we will continue to incur substantial operating losses for the
foreseeable future, and these losses may be significantly higher than our
current losses.
Unpredictability of Future Revenues; Potential Fluctuations in Quarterly
Operating Results; Seasonality; Consumer Trends
Due to our limited operating history and the unpredictability of our
industry, we cannot accurately forecast our revenues. We base our current and
future expense levels on our investment plans and estimates of future revenues.
Our expenses are to a large extent fixed. We may not be able to adjust our
spending quickly if our revenues fall short of our expectations. Further, we may
make pricing, purchasing, service, marketing, acquisition or financing decisions
that could adversely affect our business results.
Our quarterly operating results will fluctuate for many reasons, including:
o our ability to retain existing customers, attract new customers and
satisfy our customers' demands,
o our ability to acquire merchandise, manage our inventory and fulfill
orders,
o changes in gross margins of our current and future products, services
and markets,
o purchases of large quantities of toys, electronics products, home
improvement products and software particularly in advance of the
holidays for which demand may not materialize,
o introduction of our new sites, services and products or those of
competitors,
o changes in usage of the Internet and online services and consumer
acceptance of the Internet and online commerce,
o timing of upgrades and developments in our systems and infrastructure,
o the level of traffic on our Web sites,
o the effects of acquisitions and other business combinations, and related
integration,
o technical difficulties, system downtime or Internet brownouts,
o introductions of popular books, music selections, videos, toys,
electronics products, home improvement products, software and other
products or services, and our ability to properly anticipate demand,
o the mix of books, music, videos, toys, electronics products, home
improvement products, software and other products sold by us,
o our ability to prevent fraud perpetrated by third parties through credit
card transactions, Amazon.com payments transactions, and auction and
zShops transactions,
o our level of merchandise returns, and
o disruptions in service by common shipping carriers due to strikes or
otherwise.
The popularity of our auction and our zShops services, both of which permit
anyone to offer merchandise for sale at Amazon.com, and of certain items offered
through our auction and zShops services may vary over time due to perceived
scarcity, subjective value, "fads" and consumer trends in general. If the
popularity of our auction and zShops services or the items that are listed for
sale declines, our revenues from these services will fall.
Both seasonal fluctuations in Internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book, music, toy, electronics and
home improvement industries usually increase significantly in the fourth
calendar quarter of each year. The fourth quarter seasonal impact may be even
more pronounced in our toys and electronics businesses.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. Our future operating
results may fall below the expectations of securities analysts or investors,
which would likely cause the trading price of our common stock to decline.
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Intense Competition
The online commerce market is new, rapidly evolving and intensely
competitive. In addition, the retail book, music, video, toy, electronics, home
improvement and software industries are intensely competitive. Our current or
potential competitors include:
o online vendors of books, music, video, toys, electronics, home
improvement products and software,
o a number of indirect competitors, including Web portals and Web search
engines, such as Yahoo! Inc. and America Online, Inc., that are involved
in online commerce, either directly or in collaboration with other
retailers,
o online auction services, including eBay, Inc. and Yahoo! Auctions run by
Yahoo!,
o publishers, distributors and retail vendors of books, music, video and
other products, including Barnes & Noble, Inc., Bertelsmann AG and other
large specialty booksellers and media corporations, many of which
possess significant brand awareness, sales volume and customer bases,
o major store-based retailers of toys, other children's products and
electronics,
o major store-based retailers of home improvement products,
o major store-based retailers of software and
o traditional retailers and manufacturers who currently sell, or who may
sell, products or services through the Internet, mail order or direct
marketing.
We believe that the principal competitive factors in our market are brand
recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of editorial
and other site content, and reliability and speed of fulfillment.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we have. They may be able
to secure merchandise from vendors on more favorable terms and may be able to
adopt more aggressive pricing or inventory policies. They also can devote more
resources to technology development and marketing than we can. We also expect to
experience increased competition from online commerce sites that provide goods
and services at or near cost, relying on advertising revenues to achieve
profitability.
As the online commerce market continues to grow, other companies may enter
into business combinations or alliances that strengthen their competitive
positions. For example, (1) Bertelsmann purchased a significant interest in
Barnes & Noble's online venture, barnesandnoble.com inc., and has launched
online stores in several countries, and (2) CDNow, Inc. agreed to merge with
Columbia House, the jointly owned music retail arm of Sony and Time Warner. We
may not be able to compete successfully against these and future competitors.
Competition in the Internet and online commerce markets probably will
intensify. As various Internet market segments obtain large, loyal customer
bases, participants in those segments may use their market power to expand into
the markets in which we operate. In addition, new and expanded Web technologies
may increase the competitive pressures on online retailers. For example,
"shopping agent" technologies, including our own "shopping agent" technology,
All Products Search, permit customers to quickly compare our prices with those
of our competitors. This increased competition may reduce our operating margins,
diminish our market share or impair the value of our brand.
System Risks
Customer access to our Web sites directly affects the volume of orders we
fulfill and thus affects our revenues. We experience occasional system
interruptions that make our Web sites unavailable or prevent us from efficiently
fulfilling orders, which may reduce the volume of goods we sell and the
attractiveness of our products and services. These interruptions will continue.
We need to add additional software and hardware and upgrade our systems and
network infrastructure to accommodate increased traffic on our Web sites,
increased sales volume and fully integrate our systems. Without these upgrades,
we may face additional system interruptions, slower response times, diminished
customer service, impaired quality and speed of order fulfillment, and delays in
our financial reporting. In addition, our inventory management systems
are not fully integrated with our financial reporting systems, and a significant
amount of manual effort may be necessary to reconcile our inventory and other
financial accounts.
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accurately project the rate or timing of any increases in traffic or sales
volume on our Web sites and, therefore, the integration and timing of these
upgrades are uncertain.
We maintain substantially all of our computer and communications hardware at
a single leased facility in Seattle, Washington. Our systems and operations
could be damaged or interrupted by fire, flood, power loss, telecommunications
failure, break-ins, earthquake and similar events. We do not have backup systems
or a formal disaster recovery plan and we may not have sufficient business
interruption insurance to compensate us for losses from a major interruption.
Computer viruses, physical or electronic break-ins and similar disruptions could
cause system interruptions, delays, and loss of critical data and could prevent
us from providing services and accepting and fulfilling customer orders.
We May Have Difficulty Managing Our Growth
We have rapidly and significantly expanded our operations and will further
expand our operations to address potential growth of our product and service
offerings and customer base. We will expand our product and service offerings
and our international operations and will pursue other market opportunities. We
need to successfully execute our announced distribution center expansion plan
and continue to improve our transaction-processing, operational and financial
systems, procedures and controls. This expansion will continue to place a
significant strain on our management, operational and financial resources. Our
distribution center expansion plan may not be completed in time to meet the
increase in demand expected for the holiday season in the fourth quarter.
Because it is difficult to predict sales increases and lead times for developing
distribution centers are long, we may over-expand our facilities, which may
result in excess inventory, warehousing, fulfillment and distribution capacity.
We will also need to retain flexibility within our distribution and logistics
network, including the ability to manage the operational challenges of shipping
non-uniform and sometimes heavy products as part of the fulfillment of toy,
electronics and home improvement orders. We also need to expand, train and
manage our employee base. Our current and planned personnel, systems, procedures
and controls may not be adequate to support and effectively manage our future
operations. We may not be able to hire, train, retain, motivate and manage
required personnel or to successfully identify, manage and exploit market
opportunities, which may limit our growth.
Risk of Entering New Business Areas
We intend to expand our operations by promoting new or complementary
products, services or sales formats and by expanding our product or service
offerings. This will require significant additional expense and could strain our
management, financial and operational resources. We cannot expect to benefit in
these new markets from the first-to-market advantage that we experienced in the
online book market. Our gross margins in these new business areas may be lower
than our existing business activities. We may not be able to expand our
operations in a cost-effective or timely manner. Any new business that our
customers do not receive favorably could damage our reputation and the
Amazon.com brand.
Risk of Distribution Center Expansion
We are in the process of implementing our previously announced distribution
center expansion plan. During the nine-month period ended September 30, 1999, we
opened distribution centers in Nevada, Georgia, Kentucky, Kansas and North
Dakota and announced plans to open new distribution centers in Kentucky, Germany
and the United Kingdom. These distribution centers are or will be highly
automated and we have no previous experience with automated distribution
centers, as the two distribution centers in operation prior to 1999, in
Washington and Delaware, were manually operated. The new distribution centers
may fail to operate properly to ensure that customer demand is met, particularly
during the fourth quarter of 1999.
If we do not successfully expand our distribution operations to accommodate
peak volumes or if distribution centers fail to operate properly, it could
significantly limit our ability to meet customer demand. Our distribution center
expansion may cause disruptions in our business. We are not experienced in
coordinating and managing distribution operations in geographically distant
locations.
Risks Related to the Fourth Quarter
Because we expect a disproportionate amount of the our net sales to be
realized during the holiday season in the fourth quarter of our fiscal year, we
face significant risks in the fourth quarter. We may fail to accurately predict
the optimal inventory levels at our distribution centers for the fourth quarter.
If we do not sufficiently stock popular products during the fourth quarter and
fail to meet customer demand, it could significantly impact our revenue. Because
we have significantly increased inventory levels in anticipation of the fourth
quarter, if we overstock products that are not popular with consumers we may be
required to take significant inventory markdowns, most likely in the first
quarter, which could reduce gross margins. A failure to optimize inventory at
our distribution centers will negatively impact our shipping margins by
requiring us to make partial shipments from two or more locations. In addition,
we anticipate a negative impact on our shipping margins due to complimentary
upgrades and split-shipments necessary to ensure timely delivery for the holiday
season. Furthermore, if too many customers access our Web sites within a short
period of time due to increased holiday demand, we may experience system
interruptions that make our Web sites unavailable or prevent us from efficiently
fulfilling orders, which may reduce the volume of goods we sell and the
attractiveness of our products and services. Finally, our new automated
distribution centers may fail to operate properly to ensure customer demand is
met in the fourth quarter.
Risk of International Expansion
We plan to expand our presence in foreign markets. We have relatively little
experience in purchasing, marketing and distributing products or services for
these markets and may not benefit from any first-to-market advantages. It will
be costly to establish international facilities and operations, promote our
brand internationally, and develop localized Web sites and stores and other
systems. We may not succeed in our efforts in these countries. If revenues from
international activities do not offset the expense of establishing and
maintaining foreign operations, our business, prospects, financial condition and
operating results will suffer.
As the international online commerce market continues to grow, competition
in this market will likely intensify. In addition, governments in foreign
jurisdictions may regulate Internet or other online services in such areas as
content, privacy, network security, encryption or distribution. This may affect
our ability to conduct business internationally.
Risks of Business Combinations and Strategic Alliances
We plan to continue to expand our operations and market presence by entering
into business combinations, investments, joint ventures or other strategic
alliances with other companies. These transactions create risks such as:
o difficulty assimilating the operations, technology and personnel of the
combined companies,
o disruption of our ongoing business,
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o problems retaining key technical and managerial personnel,
o expenses associated with amortization of goodwill and other purchased
intangible assets,
o additional operating losses and expenses of acquired businesses, and
o impairment of relationships with existing employees, customers and
business partners.
We may not succeed in addressing these risks. In addition, the businesses we
have acquired, and in the future may acquire, may incur operating losses.
Rapid Technological Change
Technology in the online commerce industry changes rapidly. Customer
functionality requirements and preferences also change. Competitors often
introduce new products and services with new technologies. These changes and the
emergence of new industry standards and practices could render our existing Web
sites and proprietary technology obsolete. To succeed we must enhance our Web
site responsiveness, functionality and features, acquire and license leading
technologies, enhance our existing services, develop new services and technology
and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. We may not be able to adapt
quickly enough to changing customer requirements and industry standards.
We Depend on Key Personnel
We depend on the continued services and performance of our senior management
and other key personnel, particularly Jeffrey P. Bezos, our chief executive
officer and chairman of the board. We do not have "key person" life
insurance policies. The loss of any of our executive officers or other key
employees could harm our business.
We Rely on a Small Number of Suppliers
We purchase a majority of our book, music, and video titles from three major
vendors, Ingram Book Group, Baker & Taylor, Inc. and Valley Media, Inc. Although
we increased our direct purchasing from manufacturers during 1999, we continue
to purchase a majority of our book, music, and video titles from these three
suppliers. We do not have long-term contracts or arrangements with most of our
vendors to guarantee the availability of merchandise, particular payment terms
or the extension of credit limits. Our current vendors may stop selling
merchandise to us on acceptable terms. We may not be able to acquire merchandise
from other suppliers in a timely and efficient manner and on acceptable terms.
We Face Inventory and Forecasting Risk with our Toy, Electronics, Home
Improvement and Software Businesses
The toy, electronics, home improvement and software businesses are difficult
to manage and have inherent complexities that differ from those encountered in
the book, music, and video businesses. Because we are a new participant in these
markets, we do not yet have a basis to forecast product demand. Further, the
acquisition of many of the toy, electronics, home improvement and software
products that we offer involves a significant lead-time and up-front financial
commitment.
We will be exposed to significant inventory risks as a result of seasonality
and rapid changes in product cycles, consumer tastes and "fads" in the market
for such products. In order to achieve success in our toy, electronics, home
improvement and software sales categories, we must seek to predict these trends
and attempt neither to overstock unpopular nor understock popular products. The
demand for products can change between the time they are ordered and the date of
eventual sale. We will be particularly exposed to this risk in the first year of
operations in our toy, electronics, home improvement and software businesses,
particularly in anticipation of the holiday selling season.
Our ability to negotiate satisfactory terms with manufacturers or suppliers
so that we might stock certain "preferred" products or brands in the toy,
electronics, home improvement and software businesses may be affected by our
time of entry in such lines of business and the competitive positions of other
physical stores and catalog and online retailers.
In order to provide customers with a high quality experience and minimize
the risk of stocking-out, we will carry a broad selection and significant
inventory levels of toy, electronics, home improvement and software products. In
the event that one or more of these products
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do not sell through in sufficient quantities to consumers at anticipated prices
or during anticipated selling seasons, we may be required to markdown some of
our prices or write down inventory, which will reduce our revenues and gross
margins.
We Are Highly Leveraged
We have significant indebtedness. As of September 30, 1999, we had
indebtedness under senior discount notes, convertible subordinated notes,
capitalized lease obligations and other asset financing totaling approximately
$1.5 billion. We may incur substantial additional debt in the future. Our
indebtedness could:
o make it difficult to make principal and interest payments on the
convertible subordinated notes and the senior discount notes,
o make it difficult to obtain necessary financing for working capital,
capital expenditures, debt service requirements or other purposes,
o limit our flexibility in planning for, or reacting to, changes in our
business and competition, and
o make it more difficult for us to react in the event of an economic
downturn.
We may not be able to meet our debt service obligations. If our cash flow is
inadequate to meet our obligations, we may face substantial liquidity problems.
If we are unable to generate sufficient cash flow or obtain funds for required
payments, or if we fail to comply with other covenants in our indebtedness, we
will be in default. This would permit our creditors to accelerate the maturity
of our indebtedness.
Risks Associated With Domain Names
We hold rights to various Web domain names, including "Amazon.com,"
"Amazon.co.uk," "Amazon.de" and "zShops.com." Governmental agencies typically
regulate domain names. These regulations are subject to change. We may not be
able to acquire or maintain appropriate domain names in all countries in which
we do business. Furthermore, regulations governing domain names may not protect
our trademarks and similar proprietary rights. We may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon or
diminish the value of our trademarks and other proprietary rights.
Governmental Regulation and Legal Uncertainties
At this time, we face general business regulations and laws or regulations
regarding taxation and access to online commerce. For example, expanding our
distribution center network or other aspects of our business may result in
additional sales and other tax obligations. Regulatory authorities may adopt
specific laws and regulations governing the Internet or online commerce. These
regulations may cover taxation, user privacy, pricing, content, copyrights,
distribution, electronic contracts and characteristics and quality of products
and services. Changes in consumer protection laws also may impose additional
burdens on companies conducting business online. In addition, many states
currently regulate "auctions" and "auctioneers" in conducting auctions and may
regulate online auction services. These laws or regulations may impede the
growth of the Internet or other online services. States may also regulate
consumer to consumer fixed price online markets, like zShops. This could, in
turn, diminish the demand for our products and services and increase our cost of
doing business. Moreover, it is not clear how existing laws governing issues
such as property ownership, sales and other taxes, libel and personal privacy
apply to the Internet and online commerce. Unfavorable resolution of these
issues may harm our business.
Risks Related to Auction and zShops Services
We may be unable to prevent users of our auction and zShops services from
selling unlawful goods, or from selling goods in an unlawful manner. We may face
civil or criminal liability for unlawful and fraudulent activities by our
auction and zShops users. Any costs we incur as a result of liability relating
to the
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sale of unlawful goods, the unlawful sale of goods, the fraudulent receipt of
goods or the fraudulent collection of payments, could harm our business.
In running our auction and zShops services, we rely on sellers of goods to
make accurate representations and provide reliable delivery and on buyers to pay
the agreed purchase price. For our auction and zShops services, we do not take
responsibility for delivery of payment or goods to any users of our services.
While we can suspend or terminate the accounts of users of auctions or zShops
who fail to fulfill their delivery obligations to other users, we cannot require
users to make payments or deliver goods. We do not compensate users who believe
they have been defrauded by other users except through our guarantee program. In
addition, we are aware that governmental agencies are currently investigating
the conduct of online auctions.
Risks Related to Fraud and Amazon.com Payments
Although we have developed systems and processes to mitigate fraudulent
credit card transactions, failure to prevent such fraud may impact our
financial results. In addition, fraudulent activities by our auction and zShops
users, such as the fraudulent receipt of goods and the fraudulent collection of
payments, may create liability for us through our guarantee program. We
guarantee payments made through Amazon.com Payments for both buyers and sellers
and we may be unable to prevent users of Amazon.com Payments from fraudulently
receiving goods when no payment will be made to a seller or fraudulently
collecting payments when no goods will be shipped to a buyer. The law relating
to the liability of providers of online payment services is currently
unsettled. Our liability risk will increase as we encourage or require sellers
to use Amazon.com Payments. Any costs we incur as a result of liability because
of our guarantee of payments made through Amazon.com Payments could harm our
business. In addition, the functionality of Amazon.com Payments depends on
certain third-party vendors delivering services. If these vendors are unable or
unwilling to provide services, Amazon.com Payments will not be viable (and our
businesses that use Amazon.com Payments may not be viable).
Risk of Uncertain Protection of Intellectual Property
Third parties that license our proprietary rights, such as trademarks,
patented technology or copyrighted material, may take actions that diminish the
value of our proprietary rights or reputation. In addition, the steps we take to
protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, trade dress, patents and
similar proprietary rights. Other parties may claim that we infringed their
proprietary rights. We have been subject to claims, and expect to continue to be
subject to legal proceedings and claims, regarding alleged infringement by our
licensees and us of the trademarks and other intellectual property rights of
third parties. Such claims, whether or not meritorious, may result in the
expenditure of significant financial and managerial resources.
Risks of Year 2000 Noncompliance
We are in the process of assessing and remediating the year 2000 issues
associated with the computer systems, software, other property and equipment we
use. Our year 2000 readiness plan includes a multi-phased analysis of key
information technology and non-information technology-related components of our
business, operations and infrastructure. Many aspects of this phased approach
are not yet complete. In particular, our testing phase is only 50% complete and
failure to complete testing of mission-critical systems could harm our business.
As part of the implementation of our year 2000 readiness plan, we will continue
to inventory and identify all significant internal and external hardware,
software and data chips to assess and evaluate the year 2000 preparedness of
these systems, correct or convert our critical data-processing systems and
information technology to recognize the year 2000, and test and evaluate the
year 2000 compliance of previously non-compliant hardware, software and data
chips. We cannot guarantee that we will be successful in our efforts to make our
critical systems year 2000 compliant or that the year 2000 problem will not
adversely affect our business.
As part of our year 2000 readiness plan, we have engaged in formal
communications with our significant suppliers and service providers to determine
the extent to which our systems may be vulnerable if such third parties fail to
address and correct their own year 2000 issues. We cannot guarantee that the
systems of suppliers or other companies on which we rely will be year 2000
compliant. In addition, the computer systems necessary to maintain the viability
of the Internet or any of the Web sites that direct consumers to our online
stores may not be year 2000 compliant. Another area of vulnerability that is
beyond our control is the year 2000 integrity of the computers and software used
by our customers to access our online stores. We are limited in our efforts to
address the year 2000 problem as it relates to third parties and must rely
solely on the assurances of these third parties as to their year 2000
preparedness.
We have engaged a third-party consulting firm to assist in the development
of a formal contingency plan. We believe that such contingency plan will be
completed in the fourth quarter of 1999. We cannot guarantee that the
contingency plan will adequately address all circumstances that may disrupt our
operations or that such planning will prevent circumstances that may cause a
material adverse effect on our operating results or financial condition.
Our Stock Price Is Highly Volatile
The trading price of our common stock fluctuates significantly. For example,
during the 52-week period ended September 30, 1999 (as adjusted for the 3-for-1
split of our common stock on January 4, 1999 and the 2-for-1 split of our common
stock on September 1, 1999), the reported closing price of our common stock on
the NASDAQ National Market was as high as $105.0625 and as low as $42.75 per
share. Trading prices of our common stock may fluctuate in response to a number
of events and factors, such as:
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o quarterly variations in operating results,
o announcements of innovations,
o new products, services and strategic developments by us or our
competitors, or business combinations and investments by us or our
competitors,
o changes in our operating expense levels or losses,
o changes in financial estimates and recommendations by securities
analysts,
o performance by other online commerce companies, and
o news reports relating to trends in the Internet, book, music, video,
toys, electronics, home improvement products, software, auctions,
consumer to consumer fixed price online markets, or other product or
service industries.
Any of these events may cause our stock price to fall, which may adversely
affect our business and financing opportunities. In addition, the stock market
in general and the market prices for Internet-related companies in particular
have experienced significant volatility that often has been unrelated to such
companies' operating performance. These broad market and industry fluctuations
may adversely affect the trading price of our common stock regardless of our
operating performance.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk for the impact of interest rate
changes and changes in the market values of its investments.
The Company's exposure to market risk for changes in interest rates relate
primarily to the Company's investment portfolio and its long-term debt. The
Company's entire investment portfolio is designated as available-for-sale, and
accordingly is presented at fair value on the consolidated balance sheets. The
Company has not utilized derivative financial instruments in its investment
portfolio. The Company's long-term debt includes the Senior Discount Notes and
the Convertible Notes. Long-term debt is stated at amortized cost on the
consolidated balance sheets.
The Company employs established investment policies and procedures to manage
the market risk of its marketable securities. The Company's Senior Discount
Notes, Convertible Notes and other long-term debt have fixed interest rates and
the fair value of these instruments is affected by changes in market interest
rates. The Company believes that the market risk arising from holdings of its
financial instruments is not material.
Information relating to quantitative and qualitative disclosure about market
risk is set forth below and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The table below provides information about the Company's marketable
securities, including principal cash flows for 1999 through 2003 and thereafter
and the related weighted average interest yields.
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Market value amounts and other information as of September 30, 1999 are as
follows (in thousands):
AFTER
1999 2000 2001 2002 2003 2003 TOTAL
-------- -------- -------- -------- -------- ----------- --------
Asset-backed and agency
securities(1) ............. $ 1,249 $ 45,109 $103,995 $ 58,198 $ 28,988 $ 95,990 $333,529
Weighted average yield .... 5.61% 6.72% 6.75% 6.62% 6.79% 7.91% 7.05%
Effective duration ........ 0.0 yrs 0.7 yrs 1.2 yrs 1.1 yrs 1.8 yrs 3.2 yrs 1.7 yrs
Commercial paper and
short-term obligations .... 45,713 11,641 23,601 28,746 11,911 6,527 128,139
Weighted average yield .... 4.71% 6.44% 7.04% 7.39% 6.76% 6.83% 6.17%
Effective duration ........ 0.0 yrs 0.8 yrs 1.0 yrs 1.3 yrs 0.6 yrs 0.4 yrs 0.6 yrs
Treasury notes and bonds .... -- 12,360 23,709 182,857 -- -- 218,926
Weighted average yield .... -- 5.21% 5.21% 5.79% -- -- 5.70%
Effective duration ........ -- 0.8 yrs 1.5 yrs 1.4 yrs -- -- 1.3 yrs
Corporate notes and bonds ... 3,496 42,030 136,416 -- -- -- 181,942
Weighted average yield .... 5.92% 5.69% 5.98% -- -- -- 5.87%
Effective duration ........ 0.3 yrs 1.6 yrs 1.7 yrs -- -- -- 1.7 yrs
Total portfolio ..... $ 50,458 $111,140 $287,721 $269,801 $ 40,899 $ 102,517 $862,536
======== ======== ======== ======== ======== =========== ========
- ----------
(1) Asset-backed and agency securities reflect current market prepayment
assumptions.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11 -- Commitments and Contingencies in Part I, Item 1. Financial
Statements
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER TITLE
------- -----
10.1 + Amazon.com, Inc. 1997 Stock Option Plan
(as restated on September 8, 1999)
27.1 Financial Data Schedule
- ----------
+ Executive Compensation Plan or Agreement
(b) Reports on Form 8-K
On July 22, 1999, the Company filed a Form 8-K under Item 5 announcing the
Company's financial results for the second quarter ended June 30, 1999 and
two-for-one stock split.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMAZON.COM, INC. (Registrant)
DATED: November 15, 1999
By: /s/ KELYN J. BRANNON
----------------------------------------
Kelyn J. Brannon
Vice President of Finance,
and Chief Accounting Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER TITLE
------- -----
10.1 + Amazon.com, Inc. 1997 Stock Option Plan
(as restated on September 8, 1999)
27.1 Financial Data Schedule
- ----------
+ Executive Compensation Plan or Agreement
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