Exhibit 99.1
(BW) (WA-AMAZON.COM) (AMZN) AMAZON.COM EXPECTS PRO FORMA OPERATING PROFITABILITY
IN FOURTH QUARTER 2001; FOURTH QUARTER 2000 PRO FORMA OPERATING LOSS IMPROVES
FROM 26 PERCENT TO 6 PERCENT OF NET SALES; ANNOUNCES RESTRUCTURING
Business Writers
Over 35 Percent of Customers Purchase Items from
Electronics, Kitchen, Tools or Toys;
International Sales More Than Double;
Gross Profit Up 155 Percent;
Inventory $175 Million--18 Turns
SEATTLE, WA--Jan. 30, 2001--Amazon.com, Inc. (NASDAQ: AMZN) today announced
that net sales for the fourth quarter of 2000 were $972 million, an increase of
44 percent over net sales of $676 million in the fourth quarter of 1999. The
fourth quarter net sales growth reflects exceptionally strong sales in
Amazon.com's international sites and its Electronics, Kitchen and Tools &
Hardware stores, with Electronics being its second largest U.S. store for the
year. In the quarter, over 35 percent of U.S. customers purchased items from the
company's Electronics, Kitchen, Tools & Hardware or Toys & Games stores, an
increase of 47 percent over the prior year, demonstrating to customers the
attractiveness of the Amazon.com platform. For the year ended December 31, 2000,
net sales were $2.76 billion, a 68 percent increase over 1999 net sales of $1.64
billion.
"Over the past year, our U.S. pro forma operating loss decreased from 24
percent of net sales in the fourth quarter of 1999 to less than 2 percent in the
fourth quarter of 2000," said Warren Jenson, Amazon.com chief financial officer.
"While the strength of consumer spending remains uncertain, and there are no
guarantees, we expect Amazon.com as a whole to reach operating profitability in
the fourth quarter of this year."
"We've evolved a great deal in five years, and in 2000 we learned a
tremendous amount about the operating characteristics of our model, while
improving our bottom line each quarter of the year," said Jeff Bezos, Amazon.com
chief executive officer. "That learning, combined with even more hard work,
positions Amazon.com to profitably serve customers better than ever."
Gross profit for the fourth quarter of 2000 was $224 million, an increase
of 155 percent over the prior year. Pro forma operating loss for the fourth
quarter of 2000 was $60 million, or 6 percent of net sales, compared to a pro
forma operating loss of $175 million, or 26 percent of net sales, in the fourth
quarter of 1999. U.S. pro forma operating loss for the fourth quarter of 2000
was $16 million, or 2 percent of U.S. net sales. Fourth-quarter pro forma net
loss was $0.25 per share, an improvement over the pro forma net loss of $0.55
per share in the prior year period. While net sales grew 44 percent for the
quarter, inventory declined 21 percent from the prior year to $175 million,
reflecting improvement in asset turnover.
Fourth-quarter GAAP net loss was $545 million, or $1.53 per share, and
includes charges totaling $339 million for the impairment of goodwill and equity
investments. This compares to a net loss of $323 million, or $0.96 per share, in
the fourth quarter of 1999.
The company also announced a reduction in its corporate staffing and a
consolidation of its distribution and customer service center network, resulting
in the closure of a distribution center in McDonough, Georgia, and a customer
service center in Seattle, Washington. The company's Seattle distribution center
will be operated seasonally. This restructuring reduces staffing by
approximately 15 percent of Amazon.com's overall workforce, or 1,300 jobs, and
will result in a charge in excess of $150 million in the first half of 2001. In
addition to a standard severance package, the company has established a trust
fund of Amazon.com stock to be distributed to affected employees in 2003.
A conference call to discuss fourth quarter 2000 financial results and the
2001 business outlook will be Webcast live on Tuesday, January 30, 2001, at 5:00
p.m. EST/2:00 p.m. PST. This conference call will be available at
www.amazon.com/ir through March 31, 2001, and will contain forward-looking
statements and other material information.
Business Outlook
The following forward-looking statements reflect Amazon.com's expectations
as of January 30, 2001. Given the potential changes in general economic
conditions and consumer spending, the emerging nature of online retail, and the
various other risk factors discussed below, actual results may differ
materially. The company intends to continue its practice of not updating
forward-looking statements until its next quarterly results announcement, other
than in publicly available statements.
First Quarter 2001 Expectations
. Net sales are expected to grow to between $650 million and $700 million.
. Gross margin is expected to be between 21 percent and 23 percent of net
sales.
. Pro forma operating losses are expected to decrease year over year to between
10 percent and 13 percent of net sales.
. Cash and marketable securities are expected to be over $650 million as of
March 31, 2001, which includes up to $50 million of cash outflow in
connection with the restructuring.
2001 Expectations
. Net sales are expected to increase between 20 percent and 30 percent over
2000.
2
. Pro forma operating losses are expected to be between 4 percent and 7 percent
of net sales for the year, with pro forma operating profitability expected in
the fourth quarter.
. Cash and marketable securities are expected to be over $900 million at
December 31, 2001. Unless the company chooses to raise cash to further
strengthen its balance sheet or for strategic flexibility, it has no reason
to do so.
The aforementioned forward-looking statements are inherently difficult to
predict. Actual results could differ materially for a variety of reasons,
including the rate of growth of the Internet and online commerce, customer
spending patterns, the amount that Amazon.com invests in new business
opportunities and the timing of those investments, the mix of products sold to
customers, the mix of revenues derived from product sales as compared to
services, risks of inventory management, the magnitude of losses arising from
investments accounted for under the equity method, the degree to which the
company enters into Amazon Commerce Network and other strategic transactions,
fluctuations in the value of securities and noncash payments Amazon.com receives
in connection with such transactions, and risks of distribution and fulfillment
throughput and productivity. Other risks and uncertainties include Amazon.com's
limited operating history, anticipated losses, potential fluctuations in
quarterly operating results, seasonality, consumer trends, competition,
distribution center expansion and reduction, adverse consequences arising from
system interruptions, management of potential growth, Auctions, zShops and
Marketplace services, fraud and Amazon.com Payments, new business areas,
international expansion, business combinations, and strategic alliances. More
information about factors that potentially could affect Amazon.com's financial
results is included in Amazon.com's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K and 10-K/A for the year
ended December 31, 1999, and its Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
About Amazon.com
Amazon.com (Amazon.com, Inc., and its subsidiaries) is the Internet's No. 1
retailer. Amazon.com (Nasdaq: AMZN) opened its virtual doors on the World Wide
Web in July 1995 and today offers Earth's Biggest Selection, along with online
auctions and free electronic greeting cards. Amazon.com seeks to be the world's
most customer-centric company, where customers can find and discover anything
they might want to buy online. Amazon.com lists more than 28 million unique
items in categories such as electronics, kitchen products, books, music, DVDs,
videos, camera and photo items, toys, software, computer and video games, tools
and hardware, lawn and patio items, and wireless products. Through Amazon.com
zShops, any business or individual can sell virtually anything to Amazon.com's
more than 29 million cumulative customers, and with Amazon.com Payments, sellers
can accept credit card transactions, avoiding the hassles of offline payments.
Amazon.com operates four international Web sites: www.amazon.fr,
www.amazon.co.uk, www.amazon.de and www.amazon.co.jp. It also operates the
3
Internet Movie Database (www.imdb.com), the Web's comprehensive and
authoritative source of information on more than 250,000 movies and
entertainment titles and 1 million cast and crew members dating from the birth
of film in 1891 to 2003.
Historical financial results of operations are preliminary and unaudited
and should not be considered a complete disclosure of quarterly or annual
results. Financial results are prepared in accordance with U.S. generally
accepted accounting principles. Pro forma financial results exclude stock-based
compensation costs, amortization of goodwill and other intangibles, impairment-
related charges and other noncash investment gains and losses, net, and equity
in losses of equity-method investees, net; and these results will exclude
restructuring charges subsequent to 2000.
Contacts:
For investors and analysts only: For press only:
Tim Halladay Bill Curry
Investor Relations Public Relations
Amazon.com, Inc. Amazon.com, Inc.
(206) 266-2171 (206) 266-7180
ir@amazon.com
********************************************************************************
4
AMAZON.COM, INC.
Statements of Operations
(in thousands, except per share data)
(unaudited)
Three Months Ended Year Ended
December 31, December 31,
--------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 972,360 $ 676,042 $ 2,761,983 $ 1,639,839
Cost of sales 748,060 588,196 2,106,206 1,349,194
------------ ------------ ------------ ------------
Gross profit 224,300 87,846 655,777 290,645
Operating expenses:
Marketing, sales and fulfillment 186,223 179,424 594,489 413,150
Technology and content 69,791 57,720 269,326 159,722
General and administrative 28,232 26,051 108,962 70,144
Stock-based compensation (1,112) 14,049 24,797 30,618
Amortization of goodwill and other intangibles 79,210 82,301 321,772 214,694
Impairment-related and other 184,052 2,085 200,311 8,072
------------ ------------ ------------ ------------
Total operating expenses 546,396 361,630 1,519,657 896,400
------------ ------------ ------------ ------------
Loss from operations (322,096) (273,784) (863,880) (605,755)
Interest income 10,979 8,972 40,821 45,451
Interest expense (36,094) (18,142) (130,921) (84,566)
Other income (expense), net (5,365) (366) (10,058) 1,671
Non-cash investment gains and losses, net (155,005) - (142,639) -
------------ ------------ ------------ ------------
Net interest expense and other (185,485) (9,536) (242,797) (37,444)
------------ ------------ ------------ ------------
Loss before equity in losses of equity-method investees (507,581) (283,320) (1,106,677) (643,199)
Equity in losses of equity-method investees, net (37,559) (39,893) (304,596) (76,769)
------------ ------------ ------------ ------------
Net loss $ (545,140) $ (323,213) $ (1,411,273) $ (719,968)
============ ============ ============ ============
Basic and diluted loss per share $ (1.53) $ (0.96) $ (4.02) $ (2.20)
============ ============ ============ ============
Shares used in computation of basic
and diluted loss per share 355,681 338,389 350,873 326,753
============ ============ ============ ============
Pro Forma Results
Pro forma loss from operations $ (59,946) $ (175,349) $ (317,000) $ (352,371)
============ ============ ============ ============
Pro forma net loss $ (90,426) $ (184,885) $ (417,158) $ (389,815)
============ ============ ============ ============
Pro forma basic and diluted loss per share $ (0.25) $ (0.55) $ (1.19) $ (1.19)
============ ============ ============ ============
Shares used in computation of pro forma basic
and diluted loss per share 355,681 338,389 350,873 326,753
============ ============ ============ ============
Note: The attached "Operational Highlights" are an integral part of the press
release financial statements.
1
AMAZON.COM, INC.
Balance Sheets
(in thousands, except per share data)
(unaudited)
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 822,435 $ 133,309
Marketable securities 278,087 572,879
Inventories 174,563 220,646
Prepaid expenses and other current assets 86,044 79,643
------------ ------------
Total current assets 1,361,129 1,006,477
Fixed assets, net 366,416 317,613
Goodwill, net 158,990 534,699
Other intangibles, net 96,335 195,445
Investments in equity-method investees 52,073 226,727
Other investments 40,177 144,735
Other assets 60,049 40,154
------------ ------------
Total assets $ 2,135,169 $2,465,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 485,383 $ 463,026
Accrued expenses and other current liabilities 272,683 176,208
Unearned revenue 131,117 54,790
Interest payable 69,196 24,888
Current portion of long-term debt and other 16,577 14,322
------------ ------------
Total current liabilities 974,956 733,234
Long-term debt 2,127,464 1,466,338
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value:
Authorized shares -- 500,000
Issued and outstanding shares -- none - -
Common stock, $0.01 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- 357,140 and 345,155
shares at December 31, 2000 and December 31, 1999, respectively 3,571 3,452
Additional paid-in capital 1,338,303 1,194,369
Stock-based compensation (13,448) (47,806)
Accumulated other comprehensive loss (2,376) (1,709)
Accumulated deficit (2,293,301) (882,028)
------------ ------------
Total stockholders' equity (deficit) (967,251) 266,278
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 2,135,169 $ 2,465,850
============ ============
Note: The attached "Operational Highlights" are an integral part of the press
release financial statements.
2
AMAZON.COM, INC.
Segment Information
(in thousands)
(unaudited)
Three Months Ended December 31, 2000
---------------------------------------------------------------
US Books, US Early-Stage
Music and Businesses
DVD/Video International And Other Consolidated
------------ ------------- -------------- ------------
Net sales $ 511,671 $ 144,885 $ 315,804 $ 972,360
Gross profit (loss) 138,989 26,231 59,080 224,300
Segment gain (loss) 39,122 (43,551) (55,517) (59,946)
Other non-cash operating expenses (262,150)
Net interest expense and other (185,485)
Equity in losses of equity-method investees, net (37,559)
============
Net loss $ (545,140)
------------
Three Months Ended December 31, 1999
---------------------------------------------------------------
US Books, US Early-Stage
Music and Businesses
DVD/Video International And Other Consolidated
------------ ------------- -------------- ------------
Net sales $ 459,870 $ 70,997 $ 145,175 $ 676,042
Gross profit (loss) 77,825 14,847 (4,826) 87,846
Segment gain (loss) (16,627) (30,798) (127,924) (175,349)
Other non-cash operating expenses (98,435)
Net interest expense and other (9,536)
Equity in losses of equity-method investees, net (39,893)
============
Net loss $ (323,213)
------------
Year Ended December 31, 2000
---------------------------------------------------------------
US Books, US Early-Stage
Music and Businesses
DVD/Video International And Other Consolidated
------------ ------------- -------------- ------------
Net sales $ 1,698,266 $ 381,075 $ 682,642 $ 2,761,983
Gross profit (loss) 417,452 77,436 160,889 655,777
Segment gain (loss) 71,441 (145,070) (243,371) (317,000)
Other non-cash operating expenses (546,880)
Net interest expense and other (242,797)
Equity in losses of equity-method investees ,net (304,596)
============
Net loss $ (1,411,273)
------------
Three Months Ended December 31, 1999
---------------------------------------------------------------
US Books, US Early-Stage
Music and Businesses
DVD/Video International And Other Consolidated
------------ ------------- -------------- ------------
Net sales $ 1,308,292 $ 167,743 $ 163,804 $ 1,639,839
Gross profit (loss) 262,871 35,575 (7,801) 290,645
Segment gain (loss) (31,000) (79,223) (242,148) (352,371)
Other non-cash operating expenses (253,384)
Net interest expense and other (37,444)
Equity in losses of equity-method investees, net (76,769)
============
Net loss $ (719,968)
------------
Note: The attached "Operational Highlights" are an integral part of the press
release financial statements.
3
AMAZON.COM, INC.
Statements of Cash Flows
(in thousands)
(unaudited)
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------- ------------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 647,048 $ 73,543 $ 133,309 $ 71,583
OPERATING ACTIVITIES:
Net loss (545,140) (323,213) (1,411,273) (719,968)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation of fixed assets 22,741 13,871 84,460 36,806
Amortization of deferred stock-based compensation (1,112) 14,049 24,797 30,618
Equity in losses of equity-method investees, net 37,559 39,893 304,596 76,769
Amortization of goodwill and other intangibles 79,210 82,301 321,772 214,694
Impairment-related and other costs 184,052 2,085 200,311 8,072
Amortization of previously unearned revenue (42,653) (5,837) (108,211) (5,837)
Loss (gain) on sale of marketable securities 3,877 2,602 (280) 8,688
Non-cash investment gains and losses, net 155,005 - 142,639 -
Non-cash interest expense and other 6,450 3,055 24,766 29,171
Changes in operating assets and liabilities:
Inventories (10,683) (82,777) 46,083 (172,069)
Prepaid expenses and other current assets 3,412 (22,242) (8,585) (54,927)
Accounts payable 180,674 208,395 22,357 330,166
Accrued expenses and other current liabilities 113,374 78,256 93,967 95,839
Unearned revenue 31,727 6,225 97,818 6,225
Interest payable 29,160 14,843 34,341 24,878
--------- --------- ----------- -----------
Net cash provided by (used in) operating activities 247,653 31,506 (130,442) (90,875)
INVESTING ACTIVITIES:
Sales and maturities of marketable securities 23,811 403,728 545,724 2,064,101
Purchases of marketable securities (88,715) (150,114) (184,455) (2,359,398)
Purchases of fixed assets (37,331) (105,196) (134,758) (287,055)
Investments in equity-method investees and
other investments (691) (146,754) (62,533) (369,607)
--------- --------- ----------- -----------
Net cash provided by (used in) investing activities (102,926) 1,664 163,978 (951,959)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 4,980 27,539 44,697 64,469
Proceeds from long-term debt - 3,000 681,499 1,263,639
Repayment of long-term debt (3,930) (4,176) (16,927) (188,886)
Financing costs - - (16,122) (35,151)
--------- --------- ----------- -----------
Net cash provided by financing activities 1,050 26,363 693,147 1,104,071
Effect of exchange rate changes on cash and
cash equivalents 29,610 233 (37,557) 489
--------- --------- ----------- -----------
Net increase in cash and cash equivalents 175,387 59,766 689,126 61,726
--------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 822,435 $ 133,309 $ 822,435 $ 133,309
========= ========= =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Fixed assets acquired under capital leases $ 113 $ - $ 4,459 $ 25,850
Fixed assets acquired under financing agreements - - 4,844 5,608
Stock issued in connection with business acquisitions - 139,066 32,130 774,409
Equity securities received for commercial service
agreements - 54,402 106,848 54,402
Cash paid for interest 8,456 3,299 92,253 59,688
Note: The attached "Operational Highlights" are an integral part of the press
release financial statements.
4
AMAZON.COM, INC.
SUPPLEMENTAL FINANCIAL AND BUSINESS METRICS
FOURTH QUARTER 2000
------------------------------------------------------------------------
Year-Over-Year
Q4 99 Q1 00 Q2 00 Q3 00 Q4 00 Growth %
------------------------------------------------------------------------
------------------------------------------------------------------------
Results of Operations
Net sales (MM) $ 676 $ 574 $ 578 $ 638 $ 972 44%
Gross profit (MM) $ 88 $ 128 $ 136 $ 167 $ 224 155%
Trailing twelve months net sales per active customer $ 113 $ 117 $ 125 $ 130 $ 134 19%
U.S. Customers purchasing from non-Books,
Music and Video/DVD (BMV) stores 24% 11% 13% 14% 36% N/A
Cost per new customer $ 19 $ 13 $ 17 $ 15 $ 13 (32)%
Fulfillment costs as a % of net sales 16% 17% 15% 15% 13% N/A
Pro-forma operating loss (MM) $ 175 $ 99 $ 89 $ 68 $ 60 (66)%
Pro-forma operating loss as a % of net sales (26)% (17)% (15)% (11)% (6)% N/A
U.S. BMV pro-forma operating profit (loss) as a % of
BMV net sales (4)% (1)% 3% 6% 8% N/A
U.S. pro-forma operating profit (loss) as a % of net sales (24)% (14)% (11)% (5)% (2)% N/A
Customer Data
New customers (MM) 3.8 3.1 2.5 2.9 4.1 8%
Trailing twelve months active customers (MM) 14.1 15.9 17.0 18.2 19.8 40%
New customers -- international (MM) 0.6 0.6 0.6 0.9 1.1 83%
Cumulative customers -- international (MM) 1.8 2.4 3.0 3.9 5.0 178%
Balance Sheet
Cash and marketable securities (MM) $ 706 $ 1,009 $ 908 $ 900 $ 1,101 N/A
Cash generated by (used in) operations (MM) $ 32 $ (320) $ (54) $ (4) $ 248 N/A
Inventory, net (MM) $ 221 $ 172 $ 172 $ 164 $ 175 (21)%
Inventory turnover -- annualized 14 9 10 11 18 N/A
------------------------------------------------------------------------
1
AMAZON.COM, INC.
OPERATIONAL HIGHLIGHTS
FOURTH QUARTER 2000
OPERATIONS
Sales
Net sales includes the selling price of products sold by us, less returns
and promotional gift certificates, and also includes outbound shipping charges
charged to our customers. Orders from repeat customers represented 75 percent of
total orders in the quarter ended December 31, 2000, up from 73 percent the
previous year. Net product sales, including shipping, Auctions, zShops and
Marketplace, were approximately $900 million and $669 million for the fourth
quarter of 2000 and 1999, respectively. Shipping revenue was approximately $112
million and $93 million for the fourth quarter of 2000 and 1999, respectively.
Net sales also includes service revenues earned in connection with our
strategic relationships with selected companies of approximately $73 million and
$7 million in the fourth quarter of 2000 and 1999, respectively. The percentage
of cash-based service revenue was approximately 69 percent in the fourth quarter
of 2000, of which $9 million was associated with the sale of inventory to
Toysrus.com during the fourth quarter of 2000 at our cost, which did not exceed
market.
Sales to customers outside the U.S., including export sales from Amazon.com
and sales from Amazon.co.uk, Amazon.de, Amazon.fr, and Amazon.co.jp represented
approximately 21 percent and 19 percent of net sales for the quarter ended
December 2000 and 1999 respectively.
Gross Profit
Gross profit consists of net sales less the cost of sales, which consists
of the cost of merchandise sold to customers, shipping costs, packaging supplies
and costs associated with the service revenue. Gross profit from service revenue
earned from our strategic relationships with selected companies was
approximately $39 million and $7 million in the fourth quarter of 2000 and 1999,
respectively. Gross profit from product sales, including shipping, Auctions,
zShops and Marketplace, was approximately $186 million for the fourth quarter of
2000 and $81 million for the fourth quarter of 1999. Gross loss from shipping
was approximately $17 million and $5 million in the fourth quarter of 2000 and
1999, respectively.
Marketing, Sales and Fulfillment
Marketing, sales and fulfillment expenses consist of advertising,
promotional and public relations expenditures, credit card fees and
payroll-related expenses for personnel engaged in marketing, selling and
fulfillment activities. Fulfillment costs represent costs incurred in operating
and staffing distribution and customer service centers (including costs
attributable to receiving, inspecting and warehousing inventories; picking,
packing and preparing customers' orders for shipment; and responding to
inquiries from customers) and credit card fees. Fulfillment costs amounted to
approximately $131 million, or 13 percent of net sales and 15 percent of product
sales, in the fourth quarter of 2000, and $107 million, or 16 percent of net
sales and product sales, for the fourth quarter of 1999. Fulfillment-related
costs associated with our strategic relationship with Toysrus.com are included
within gross profit.
Technology and Content
Technology and content 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, including freelance reviews. Fourth quarter 2000
technology and content expenses increased 21 percent over the prior year.
General and Administrative
General and administrative expenses consist of payroll and related expenses
for executive, finance and administrative personnel, recruiting, professional
fees and other general corporate expenses.
Stock-Based Compensation
Stock-based compensation is comprised of the portion of acquisition-related
consideration that is conditioned on the continued tenure of key employees of
acquired businesses and stock-based charges for certain other compensation and
severance arrangements. In the fourth quarter of 2000, due to the decline in the
value of Amazon.com's publicly traded common stock, as required under U.S.
generally accepted accounting principles, the company reversed a previously
accrued expense in connection with certain stock options under a severance
agreement. Stock-based compensation is excluded from pro forma operating
results.
Impairment-Related and Other
The company records impairment losses on goodwill and other intangible
assets when events and circumstances indicate that such assets might be impaired
and the estimated fair value of the asset is less than its recorded amount.
Goodwill is viewed in two separate categories: enterprise-level and
2
business-unit level. Enterprise-level goodwill results from purchase
acquisitions of businesses that have been fully integrated into the company's
operations and no longer exist as a discrete business unit. Business-unit
goodwill and other intangibles result from purchase business combinations where
the acquired operations have been managed as a separate business unit and not
fully absorbed into the company. Enterprise-level goodwill is evaluated using
the market-value method, which compares the company's net book value to the
value indicated by the market price of the company's equity securities; if the
net book value were to exceed the company's market capitalization, the excess
carrying amount of goodwill would be written off. Measurement of fair value for
business-unit goodwill as well as other intangibles is based on discounted
cash-flow analysis. During the quarter ended December 31, 2000, conditions were
identified by the company which necessitated an impairment assessment for
goodwill and other intangibles. The results of the discounted cash flow analyses
performed on the business-unit goodwill and other intangibles recorded in
connection with certain of the company's acquisitions necessitated an impairment
charge of approximately $184 million to reduce the goodwill and other
intangibles to its recoverable amount. No impairments of enterprise-wide
goodwill were identified. Impairment-related and other for the year ended
December 31, 2000, also includes a third-quarter charge of approximately $11
million related to the loss on retirement of certain fixed assets to be disposed
of. Impairment-related and other is excluded from pro forma operating results.
Other Income (Expense)
Other income (expense), net primarily consists of net realized gains and
losses on sales of marketable securities and other investments, and net foreign
exchange transaction gains and losses.
Noncash Investment Gains and Losses
Noncash investment gains and losses for the quarter ended December 31,
2000, includes other-than-temporary impairment losses totaling approximately
$155 million to record certain of the company's investments at their fair
values. Noncash investment gains and losses, net for the year ended December 31,
2000, includes the following items: a gain of approximately $40 million related
to the acquisition of HomeGrocer.com, Inc., previously one of the company's
equity-method investees, by Webvan Group, Inc.; a gain of approximately $20
million representing the previously unearned revenue recognized upon the
termination of the company's commercial agreement with living.com, which filed
for bankruptcy during the quarter ended September 30, 2000; a loss of
approximately $14 million, representing the company's investment in living.com
at the time of its bankruptcy; and other-than-temporary impairment losses
totaling approximately $34 million and $155 million in the quarters ending
September 30 and December 31, 2000, to record certain of the company's
investments at their fair values. Noncash investment gains and losses are
excluded from pro forma operating results.
3
Equity in Losses of Equity-Method Investees
Equity in losses of equity-method investees, net represents the company's
share of income and losses of companies in which it has investments that give it
the ability to exercise significant influence, but not control, over an
investee. Most of the companies in which the company has invested to date are in
the early stage of their operations and are incurring net losses. Equity in
losses of equity-method investees are excluded from pro forma operating results.
Pro Forma Operating Results
Pro forma results for the quarter and year ended December 31, 2000 and 1999
are presented for informational purposes only and are not prepared in accordance
with U.S. generally accepted accounting principles. These results present the
operating results of Amazon.com, excluding net amounts of approximately $455
million and $138 million for the fourth quarter, and $994 million and $330
million for the years ended December 31, 2000 and 1999, respectively, related to
stock-based compensation; amortization of goodwill and other intangibles;
impairment-related and other; noncash investment gains and losses, net; and
equity in losses of equity-method investees, net.
Loss Per Share
The number of shares used in calculating loss per share for the fourth
quarter and year 2000 does not include the weighted average number of
outstanding shares subject to repurchase. The effect of stock options is
antidilutive and accordingly excluded from diluted loss per share. If the effect
of stock options was included, the number of shares used in computation of basic
and diluted loss per share would have been approximately 379 million for the
fourth quarter of 2000.
FINANCIAL CONDITION
Cash and Cash Equivalents
The company classifies all highly liquid investments with an original
maturity of three months or less as cash equivalents.
Marketable Securities
Marketable securities are available for sale, stated at fair value, and
consist primarily of A-rated or higher short-to intermediate-term fixed income
securities, as well as equity securities. Equity securities valued at
approximately $36 million are included within marketable securities at December
31, 2000.
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Accounts Payable
Accounts payable days as of the end of the fourth quarter of 2000 were
approximately 60 days, a decrease of approximately 12 days from the end of the
fourth quarter of 1999.
CERTAIN DEFINITIONS
Trailing 12-month sales per active customer figures include revenue
recorded from service revenue earned from our strategic relationships with
selected companies and exclude catalog sales and sales of inventory to
Toysrus.com.
The Electronics store includes Amazon.com Electronics, Computer & Video
Games, Wireless Products and Software. The Tools store includes Amazon.com Tools
& Hardware and Lawn & Patio.
Customer accounts exclude the businesses of our strategic relationships
with selected companies and Amazon.com's catalog businesses, but include
Toysrus.com customers and users of Amazon Auctions, zShops and Marketplace
services.
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