SEATTLE--(BUSINESS WIRE)--July 24, 2007--Amazon.com, Inc. (NASDAQ:AMZN) today announced financial results for its second quarter ended June 30, 2007.
Operating cash flow was $895 million for the trailing twelve months, compared with $610 million for the trailing twelve months ended June 30, 2006. Free cash flow was $700 million for the trailing twelve months, an increase of 87% compared with $375 million for the trailing twelve months ended June 30, 2006.
Common shares outstanding plus shares underlying stock-based awards outstanding totaled 435 million on June 30, 2007, compared with 443 million a year ago.
Net sales increased 35% to $2.89 billion in the second quarter, compared with $2.14 billion in second quarter 2006. Excluding the $46 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 33% compared with second quarter 2006.
Operating income increased 149% to $116 million in the second quarter, compared with $47 million in second quarter 2006.
Net income increased 257% to $78 million in the second quarter, or $0.19 per diluted share, compared with net income of $22 million, or $0.05 per diluted share in second quarter 2006.
"Our strong revenue growth this quarter was fueled by low prices and the added convenience of Amazon Prime," said Jeff Bezos, founder and CEO of Amazon.com. "More and more customers are taking advantage of Amazon Prime and we're pleased with the acceleration in subscriber growth this quarter."
Amazon Prime, Amazon.com's first-ever membership program, was introduced in February 2005. For a flat membership fee of $79 per year, Amazon Prime members get unlimited, express two-day shipping for free, with no minimum purchase requirement on over a million eligible items sold by Amazon.com and our Fulfillment by Amazon (FBA) partners. Members can order as late as 6:30 p.m. ET and still receive their order the next day for only $3.99 per item, and they can share the benefits of Amazon Prime with up to four family members living in their household. Sign up for Amazon Prime at www.amazon.com/prime.
Highlights -- North America segment sales, representing the Company's U.S. and Canadian sites, were $1.60 billion, up 38% from second quarter 2006. -- International segment sales, representing the Company's U.K., German, Japanese, French and Chinese sites, were $1.28 billion, up 31% from second quarter 2006. Excluding the favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International net sales growth was 26%. -- Worldwide Media grew 27% to $1.83 billion in second quarter 2007, compared to $1.45 billion in second quarter 2006. -- Worldwide Electronics & Other General Merchandise grew 55% to $970 million in second quarter 2007 and increased to 34% of worldwide net sales compared with 29% in second quarter 2006. -- The Company received orders for more than 2.2 million copies of Harry Potter and the Deathly Hallows worldwide in advance of its July 21 release, making it Amazon's largest new product release. -- Amazon.co.jp launched Amazon Prime for its Japanese customers in June. Members pay an annual fee of JPY 3,900 for access to unlimited express delivery service that can be used throughout Japan. The service offers same-day delivery for the Kanto area and next-day delivery to other locations. -- Amazon Enterprise Solutions and Lacoste launched a multi-channel e-commerce solution, including a website (www.lacoste.com), phone ordering, customer service, and fulfillment. -- Amazon Europe launched a Jewelry and Watches store on its amazon.co.uk website and a Watches store on its amazon.de website, both offering customers thousands of items from brands such as Rotary, Diesel, Timex and Citizen. -- Amazon Europe launched Merchants@ technology on its amazon.fr website, enabling branded businesses to offer their selection of new products. -- Joyo.com has been re-branded as Joyo Amazon and now incorporates many of the features and functionalities found on other Amazon websites. -- Over 265,000 developers have registered to use Amazon Web Services, up 25,000 from the prior quarter. Financial Guidance
The following forward-looking statements reflect Amazon.com's expectations as of July 24, 2007. Results may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, and the various factors detailed below.
Third Quarter 2007 Guidance -- Net sales are expected to be between $3.0 billion and $3.175 billion, or to grow between 30% and 38% compared with third quarter 2006. -- Operating income is expected to be between $75 million and $110 million, or grow between 88% and 175% compared with third quarter 2006. This guidance includes $50 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions to stock-based compensation estimates. Full Year 2007 Expectations -- Net sales are expected to be between $13.80 billion and $14.30 billion, or to grow between 29% and 34% compared with 2006. -- Operating income is expected to be between $540 million and $640 million, or grow between 39% and 65% compared with 2006. This guidance includes $185 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions to stock-based compensation estimates.
A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results.
These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services and technologies, system interruptions, significant indebtedness, government regulation and taxation, payments and fraud. More information about factors that potentially could affect Amazon.com's financial results is included in Amazon.com's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2006, and all subsequent filings.
About Amazon.com
Amazon.com, Inc., (Nasdaq:AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com, Inc. seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden.
Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and the Joyo Amazon websites at www.joyo.cn and www.amazon.cn.
As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.
AMAZON.COM, INC. Consolidated Statements of Cash Flows (in millions) (unaudited) Three Months Six Months Twelve Months Ended Ended Ended June 30, June 30, June 30, -------------- --------------- ----------------- 2007 2006 2007 2006 2007 2006 ------- ------ ------- ------- -------- --------CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 748 $ 507 $1,022 $1,013 $ 683 $ 629OPERATING ACTIVITIES:Net income 78 22 189 73 306 302Adjustments to reconcile net income to net cash from operating activities: Depreciation of fixed assets, including internal-use software and website development, and other amortization 60 43 122 83 244 149 Stock-based compensation 46 30 80 41 140 84 Other operating expense, net 3 3 3 6 7 10 Losses (gains) on sales of marketable securities, net - (1) 1 1 (2) - Remeasurements and other 5 (11) 9 (7) 9 (14) Deferred income taxes (2) (2) - 8 14 (15) Excess tax benefit on stock awards (35) (21) (60) (29) (133) (34)Changes in operating assets and liabilities: Inventories 25 30 151 63 (193) (128) Accounts receivable, net and other (10) 16 56 66 (113) (37) Accounts payable 82 4 (520) (438) 319 207 Accrued expenses and other 31 22 (28) (42) 256 88 Additions to unearned revenue 64 38 109 92 223 181 Amortization of previously unearned revenue (48) (43) (92) (90) (182) (183) ------- ------ ------- ------- -------- -------- Net cash provided by (used in) operating activities 299 130 20 (173) 895 610INVESTING ACTIVITIES:Purchases of fixed assets, including internal-use software and website development (47) (58) (82) (104) (195) (235)Acquisitions, net of cash acquired (22) - (22) (28) (26) (32)Sales and maturities of marketable securities and other investments 161 249 945 537 2,253 883Purchases of marketable securities and other investments (180) (232) (694) (362) (2,262) (1,009) ------- ------ ------- ------- -------- -------- Net cash provided by (used in) investing activities (88) (41) 147 43 (230) (393)FINANCING ACTIVITIES:Proceeds from exercises of stock options 35 7 44 13 65 55Excess tax benefit on stock awards 35 21 60 29 133 34Common stock repurchased - - (248) - (500) -Proceeds from long- term debt and other - 66 - 69 3 82Repayments of long- term debt and capital lease obligations (29) (21) (46) (334) (67) (341) ------- ------ ------- ------- -------- -------- Net cash provided by (used in) financing activities 41 73 (190) (223) (366) (170)Foreign-currency effect on cash and cash equivalents 4 14 5 23 22 7 ------- ------ ------- ------- -------- -------- Net increase (decrease) in cash and cash equivalents 256 176 (18) (330) 321 54 ------- ------ ------- ------- -------- --------CASH AND CASH EQUIVALENTS, END OF PERIOD $1,004 $ 683 $1,004 $ 683 $ 1,004 $ 683 ======= ====== ======= ======= ======== ========SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interest $ 1 $ - $ 44 $ 63 $ 68 $ 84Cash paid for income taxes 7 3 10 8 17 15Fixed assets acquired under capital leases and other financing arrangements 9 17 21 21 68 27
AMAZON.COM, INC. Consolidated Statements of Operations (in millions, except per share data) (unaudited) Three Months Six Months Ended Ended June 30, June 30, --------------- --------------- 2007 2006 2007 2006 ------- ------- ------- -------Net sales $2,886 $2,139 $5,901 $4,418Cost of sales 2,185 1,630 4,480 3,361 ------- ------- ------- -------Gross profit 701 509 1,421 1,057Operating expenses (1): Fulfillment 258 189 518 383 Marketing 65 53 137 107 Technology and content 201 167 387 314 General and administrative 58 50 114 95 Other operating expense, net 3 3 3 6 ------- ------- ------- ------- Total operating expenses 585 462 1,159 905 ------- ------- ------- -------Income from operations 116 47 262 152Interest income 20 13 39 27Interest expense (19) (19) (38) (38)Other income (expense), net (1) 1 (1) -Remeasurements and other (5) 12 (7) 9 ------- ------- ------- ------- Total non-operating expense (5) 7 (7) (2) ------- ------- ------- -------Income before income taxes 111 54 255 150Provision for income taxes 33 32 66 77 ------- ------- ------- -------Net income $ 78 $ 22 $ 189 $ 73 ======= ======= ======= =======Basic earnings per share $ 0.19 $ 0.05 $ 0.46 $ 0.18 ======= ======= ======= =======Diluted earnings per share $ 0.19 $ 0.05 $ 0.45 $ 0.17 ======= ======= ======= =======Weighted average shares used in computation of earnings per share: Basic 412 418 # 412 417 ======= ======= ======= ======= Diluted 423 426 # 421 426 ======= ======= ======= =======(1) Includes stock-based compensation as follows: Fulfillment $ 10 $ 7 $ 17 $ 10 Marketing 2 1 3 2 Technology and content 25 16 44 23 General and administrative 9 6 16 6
AMAZON.COM, INC. Segment Information (in millions) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2007 2006 2007 2006 --------- -------- ------- --------North America Net sales $1,601 $1,157 $3,223 $2,404 Cost of sales 1,167 848 2,350 1,753 --------- -------- ------- -------- Gross profit 434 309 873 651 Direct segment operating expenses(1) 352 284 705 565 --------- -------- ------- -------- Segment operating income $ 82 $ 25 $ 168 $ 86 ========= ======== ======= ========International Net sales $1,285 $ 982 $2,678 $2,014 Cost of sales 1,018 782 2,130 1,608 --------- -------- ------- -------- Gross profit 267 200 548 406 Direct segment operating expenses(1) 184 145 371 293 --------- -------- ------- -------- Segment operating income $ 83 $ 55 $ 177 $ 113 ========= ======== ======= ========Consolidated Net sales $2,886 $2,139 $5,901 $4,418 Cost of sales 2,185 1,630 4,480 3,361 --------- -------- ------- -------- Gross profit 701 509 1,421 1,057 Direct segment operating expenses 536 429 1,076 858 --------- -------- ------- -------- Segment operating income 165 80 345 199 Stock-based compensation (46) (30) (80) (41) Other operating expense, net (3) (3) (3) (6) --------- -------- ------- -------- Income from operations 116 47 262 152 Total non-operating income (expense) (5) 7 (7) (2) Provision for income taxes (33) (32) (66) (77) --------- -------- ------- -------- Net income $ 78 $ 22 $ 189 $ 73 ========= ======== ======= ========Segment Highlights: Y/Y net sales growth: North America 38% 21% 34% 21% International 31 24 33 21 Consolidated 35 22 34 21 Y/Y gross profit growth: North America 40% 11% 34% 17% International 34 16 35 16 Consolidated 38 13 34 16 Y/Y segment operating income growth: North America 233% (66%) 94% (37%) International 50 (8) 56 (8) Consolidated 106 (39) 72 (23) Net sales mix: North America 55% 54% 55% 54% International 45 46 45 46__________________________(1) A significant majority of our costs for "Technology and content" are incurred in the United States and most of these costs are allocated to our North America segment.
AMAZON.COM, INC. Supplemental Net Sales Information (in millions) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2007 2006 2007 2006 ---------- ------- -------- -------North America Media $ 923 $ 730 $1,913 $1,545 Electronics and other general merchandise 606 365 1,170 738 Other 72 62 140 121 ---------- ------- -------- ------- Total North America 1,601 1,157 3,223 2,404International Media 910 718 1,910 1,481 Electronics and other general merchandise 364 259 747 524 Other 11 5 21 9 ---------- ------- -------- ------- Total International 1,285 982 2,678 2,014Consolidated Media 1,833 1,448 3,823 3,026 Electronics and other general merchandise 970 624 1,917 1,262 Other 83 67 161 130 ---------- ------- -------- ------- Total Consolidated $2,886 $2,139 $5,901 $4,418 ========== ======= ======== =======Y/Y Net Sales Growth:North America: Media 26% 15% 24% 16% Electronics and other general merchandise 66 32 58 32 Other 15 25 16 25 Total North America 38 21 34 21International: Media 27% 17% 29% 15% Electronics and other general merchandise 40 45 42 39 Other 143 354 147 388 Total International 31 24 33 21Consolidated: Media 27% 16% 26% 16% Electronics and other general merchandise 55 37 52 35 Other 23 32 25 31 Total Consolidated 35 22 34 21Y/Y Net Sales Growth Excluding Effect of Exchange Rates:International: Media 23% 20% 23% 22% Electronics and other general merchandise 34 48 34 46 Other 128 362 128 412 Total International 26 27 27 28Consolidated: Media 25% 18% 24% 19% Electronics and other general merchandise 53 38 48 38 Other 22 32 23 32 Total Consolidated 33 23 31 24Consolidated Net Sales Mix: Media 63% 68% 65% 68% Electronics and other general merchandise 34 29 32 29 Other 3 3 3 3
AMAZON.COM, INC. Consolidated Balance Sheets (in millions, except per share data) June 30, Dec. 31, June 30, 2007 2006 2006 ----------- -------- -----------ASSETS (unaudited) (unaudited)Current assets: Cash and cash equivalents $ 1,004 $ 1,022 $ 683 Marketable securities 661 997 736 Inventories 735 877 521 Accounts receivable, net and other 384 399 225 Deferred tax assets 75 78 66 ----------- -------- ----------- Total current assets 2,859 3,373 2,231Fixed assets, net 443 457 405Deferred tax assets 224 199 208Goodwill 214 195 193Other assets 244 139 128 ----------- -------- ----------- Total assets $ 3,984 $ 4,363 $ 3,165 =========== ======== ===========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 1,295 $ 1,816 $ 943 Accrued expenses and other 641 716 467 ----------- -------- ----------- Total current liabilities 1,936 2,532 1,410Long-term debt 1,256 1,247 1,237Other long-term liabilities 242 153 135Commitments and contingenciesStockholders' equity: Preferred stock, $0.01 par value: Authorized shares -- 500 Issued and outstanding shares -- none - - - Common stock, $0.01 par value: Authorized shares -- 5,000 Issued shares -- 427, 422 and 419 Outstanding shares -- 413, 414 and 419 4 4 4Treasury stock, at cost (500) (252) -Additional paid-in capital 2,704 2,517 2,334Accumulated other comprehensive income (loss) 3 (1) (2)Accumulated deficit (1,661) (1,837) (1,953) ----------- -------- ----------- Total stockholders' equity 550 431 383 ----------- -------- ----------- Total liabilities and stockholders' equity $ 3,984 $ 4,363 $ 3,165 =========== ======== ===========
AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except per share data) (unaudited)---------------------------------------------------------------------- Y/Y % Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Change ---------------------------------------------------Cash Flows and SharesOperating cash flow -- trailing twelve months (TTM) $ 610 $ 587 $ 702 $ 726 $ 895 47%Purchases of fixed assets (incl. internal-use software & website development) -- TTM $ 235 $ 221 $ 216 $ 205 $ 195 (17%)Free cash flow (operating cash flow less purchases of fixed assets) -- TTM $ 375 $ 366 $ 486 $ 521 $ 700 87%Common shares and stock-based awards outstanding 443 435 436 430 435 (2%)Common shares outstanding 419 411 414 409 413 (1%)Stock-based awards outstanding 24 24 22 21 22 (10%)Stock-based awards outstanding -- % of common shares outstanding 5.8% 5.8% 5.3% 5.1% 5.3% N/AResults of OperationsWorldwide (WW) net sales $ 2,139 $ 2,307 $ 3,986 $ 3,015 $ 2,886 35%WW net sales -- Y/Y growth, excluding F/X 23% 23% 30% 29% 33% N/AWW net sales -- TTM $ 9,253 $ 9,701 $10,711 $11,447 $12,193 32%WW net sales -- TTM Y/Y growth, excluding F/X 24% 23% 26% 27% 29% N/AGross profit $ 509 $ 549 $ 850 $ 719 $ 701 38%Gross margin -- % of WW net sales 23.8% 23.8% 21.3% 23.8% 24.3% N/AGross profit -- TTM $ 2,187 $ 2,273 $ 2,456 $ 2,628 $ 2,820 29%Gross margin -- TTM % of WW net sales 23.6% 23.4% 22.9% 23.0% 23.1% N/AOperating income (1) $ 47 $ 40 $ 197 $ 145 $ 116 149%Operating margin -- % of WW net sales 2.2% 1.7% 4.9% 4.8% 4.0% N/AOperating income -- TTM (1) $ 372 $ 357 $ 389 $ 429 $ 498 34%Operating margin -- TTM % of WW net sales 4.0% 3.7% 3.6% 3.7% 4.1% N/ANet income (2) $ 22 $ 19 $ 98 $ 111 $ 78 257%Net income per diluted share (2) $ 0.05 $ 0.05 $ 0.23 $ 0.26 $ 0.19 261%Net income -- TTM (2) $ 302 $ 292 $ 190 $ 249 $ 306 1%Net income per diluted share -- TTM (2) $ 0.71 $ 0.69 $ 0.45 $ 0.59 $ 0.72 2%SegmentsNorth America Segment: Net sales $ 1,157 $ 1,257 $ 2,208 $ 1,622 $ 1,601 38% Net sales -- Y/Y growth, excluding F/X 20% 21% 31% 30% 38% N/A Net sales -- TTM $ 5,128 $ 5,343 $ 5,869 $ 6,244 $ 6,687 30% Gross profit $ 309 $ 343 $ 532 $ 439 $ 434 40% Gross margin -- % of North America net sales 26.7% 27.3% 24.1% 27.1% 27.1% N/A Gross profit -- TTM $ 1,361 $ 1,411 $ 1,525 $ 1,623 $ 1,747 28% Gross margin -- TTM % of North America net sales 26.5% 26.4% 26.0% 26.0% 26.1% N/A Operating income (1) $ 25 $ 22 $ 123 $ 86 $ 82 233% Operating margin -- % of North America net sales 2.1% 1.7% 5.5% 5.3% 5.1% N/A Operating income -- TTM (1) $ 245 $ 200 $ 230 $ 254 $ 312 27% Operating margin -- TTM % of North America net sales 4.8% 3.8% 3.9% 4.1% 4.7% N/AInternational Segment: Net sales $ 982 $ 1,050 $ 1,778 $ 1,393 $ 1,285 31% Net sales -- Y/Y growth, excluding F/X 27% 26% 28% 27% 26% N/A Net sales -- TTM $ 4,125 $ 4,358 $ 4,842 $ 5,203 $ 5,506 33% Net sales -- TTM % of WW net sales 45% 45% 45% 45% 45% N/A Gross profit $ 200 $ 206 $ 318 $ 280 $ 267 34% Gross margin -- % of International net sales 20.4% 19.6% 17.9% 20.1% 20.8% N/A Gross profit -- TTM $ 827 $ 862 $ 931 $ 1,005 $ 1,072 30% Gross margin -- TTM % of International net sales 20.0% 19.8% 19.2% 19.3% 19.5% N/A Operating income $ 55 $ 50 $ 106 $ 93 $ 83 50% Operating margin -- % of International net sales 5.6% 4.8% 6.0% 6.7% 6.4% N/A Operating income -- TTM $ 260 $ 256 $ 270 $ 306 $ 333 28% Operating margin -- TTM % of International net sales 6.3% 5.9% 5.6% 5.9% 6.0% N/AConsolidated Segments: Operating expenses $ 429 $ 477 $ 621 $ 540 $ 536 25% Operating expenses -- TTM $ 1,681 $ 1,816 $ 1,956 $ 2,068 $ 2,175 29% Operating income (1) $ 80 $ 72 $ 229 $ 179 $ 165 106% Operating margin -- % of consolidated sales 3.7% 3.1% 5.7% 6.0% 5.7% N/A Operating income -- TTM (1) $ 506 $ 457 $ 500 $ 560 $ 645 28% Operating margin -- TTM % of consolidated net sales 5.5% 4.7% 4.7% 4.9% 5.3% N/ASupplemental North America Segment Net Sales: Media $ 730 $ 785 $ 1,251 $ 990 $ 923 26% Media -- Y/Y growth, excluding F/X 15% 14% 21% 21% 26% N/A Media -- TTM $ 3,260 $ 3,361 $ 3,582 $ 3,757 $ 3,949 21% Electronics and other general merchandise $ 365 $ 409 $ 876 $ 564 $ 606 66% Electronics and other general merchandise -- Y/Y growth, excluding F/X 32% 35% 51% 51% 66% N/A Electronics and other general merchandise -- TTM $ 1,622 $ 1,727 $ 2,024 $ 2,214 $ 2,456 51% Electronics and other general merchandise -- TTM % of North America net sales 32% 32% 34% 35% 37% N/A Other $ 62 $ 63 $ 81 $ 68 $ 72 15% Other -- TTM $ 246 $ 255 $ 263 $ 273 $ 282 15%Supplemental International Segment Net Sales: Media $ 718 $ 757 $ 1,247 $ 1,000 $ 910 27% Media -- Y/Y growth, excluding F/X 20% 19% 21% 24% 23% N/A Media -- TTM $ 3,077 $ 3,205 $ 3,485 $ 3,722 $ 3,914 27% Electronics and other general merchandise $ 259 $ 290 $ 523 $ 383 $ 364 40% Electronics and other general merchandise -- Y/Y growth, excluding F/X 48% 51% 50% 34% 34% N/A Electronics and other general merchandise -- TTM $ 1,033 $ 1,136 $ 1,337 $ 1,455 $ 1,560 51% Electronics and other general merchandise -- TTM % of International net sales 25% 26% 28% 28% 28% N/A Other $ 5 $ 3 $ 8 $ 10 $ 11 143% Other -- TTM $ 15 $ 17 $ 20 $ 26 $ 33 120%Supplemental Worldwide Net Sales: Media $ 1,448 $ 1,542 $ 2,498 $ 1,990 $ 1,833 27% Media -- Y/Y growth, excluding F/X 18% 17% 21% 23% 25% N/A Media -- TTM $ 6,337 $ 6,566 $ 7,067 $ 7,479 $ 7,863 24% Electronics and other general merchandise $ 624 $ 699 $ 1,399 $ 947 $ 970 55% Electronics and other general merchandise -- Y/Y growth, excluding F/X 38% 41% 51% 44% 53% N/A Electronics and other general merchandise -- TTM $ 2,655 $ 2,863 $ 3,361 $ 3,669 $ 4,015 51% Electronics and other general merchandise -- TTM % of WW net sales 29% 30% 31% 32% 33% N/A Other $ 67 $ 66 $ 89 $ 78 $ 83 23% Other -- TTM $ 261 $ 272 $ 283 $ 299 $ 315 21%Balance SheetCash and marketable securities $ 1,419 $ 1,219 $ 2,019 $ 1,420 $ 1,665 17%Inventory, net -- ending $ 521 $ 736 $ 877 $ 754 $ 735 41%Inventory -- average inventory % of TTM net sales 5.3% 5.8% 6.0% 6.0% 5.9% N/AInventory turnover, average -- TTM 14.3 13.2 12.7 12.9 12.9 (10%)Fixed assets, net $ 405 $ 449 $ 457 $ 442 $ 443 10%Accounts payable days -- ending 53 63 53 47 54 2%OtherEmployees (full- time and part- time; excludes contractors & temporary personnel) 12,700 13,300 13,900 14,000 14,400 14%----------------------------------------------------------------------Note: The attached "Financial and Operational Summary" is an integral part of this Supplemental Financial Information and Business Metrics.(1) In Q2 2006, a fee dispute with Toysrus.com reduced our operating income by $20 million.(2) Q4 2005 net income includes a tax benefit of $90 million related to determining that certain of our deferred tax assets are realizable.
Amazon.com, Inc. Financial and Operational Summary (Unaudited)
Quarterly Results of Operations (comparisons are with the equivalent period of the prior year, unless otherwise stated)
Net Sales -- Generally, revenue is recorded gross for sales of our own inventory and net for sales by third parties. -- Amounts paid in advance for subscription services, including amounts received from Amazon Prime, online DVD rentals and other membership programs, are deferred and recognized as revenue over the subscription term. -- Shipping revenue was $152 million, up 19% from $128 million. Cost of Sales -- Cost of sales consists of the purchase price of consumer products sold by us, inbound and outbound shipping charges, packaging supplies, amortization of our DVD rental library and costs incurred in operating and staffing our fulfillment and customer service centers on behalf of other businesses. -- Payment processing and related transaction costs, including those associated with our third-party seller transactions, are classified in "Fulfillment" on our consolidated statements of operations. -- Outbound shipping costs totaled $227 million, up 21% from $188 million. Net shipping cost was $75 million or 2.6% of net sales, up 25% from a net shipping cost of $60 million or 2.8% of net sales in the prior period. -- We offer free-shipping and subscriptions to Amazon Prime, which result in a net cost to us in delivery of products. Operating Expenses -- Depreciation expense for fixed assets, including amortization of internal-use software and website development, was $63 million, up from $41 million. -- Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets (generally two years or less for assets such as internal-use software and our DVD rental library, two or three years for our technology infrastructure, five years for furniture and fixtures, and ten years for heavy equipment). -- We utilize the accelerated method, rather than a straight-line method, for recognizing stock-based compensation expense. Under this method, over 50% of the compensation cost would be expensed in the first year of a four-year vesting term. -- Stock-based compensation was $46 million, compared to $30 million. -- Operating expenses with and without stock-based compensation are as follows: Three Months Ended Three Months Ended June 30, 2007 June 30, 2006 -------------------------- -------------------------- As Stock-Based As Stock-Based Reported Compensation Net Reported Compensation Net -------- ------------ ---- -------- ------------ ----Operating Expenses: Fulfillment $ 258 $ (10) $248 $ 189 $ (7) $182 Marketing 65 (2) 63 53 (1) 52 Technology and content 201 (25) 176 167 (16) 151 General and administrative 58 (9) 49 50 (6) 44 Other operating expense 3 - 3 3 - 3 ------- ---------- ---- ------- ----------- ---- Total operating expenses $ 585 $ (46) $539 $ 462 $ (30) $432 ======= ========== ==== ======= =========== ====Year-over-year Percentage Growth: Fulfillment 36% 36% 20% 20% Marketing 23 23 26 28 Technology and content 20 16 58 63 General and administrative 15 11 32 37Percent of Net Sales: Fulfillment 9.0% 8.6% 8.9% 8.5% Marketing 2.2 2.2 2.5 2.4 Technology and content 7.0 6.1 7.8 7.1 General and administrative 2.0 1.7 2.4 2.1
Fulfillment -- Certain of our fulfillment-related costs that are incurred on behalf of other businesses are classified as cost of sales rather than fulfillment. -- The increase in fulfillment costs in absolute dollars relates to variable costs corresponding with sales volume and inventory levels; our mix of product sales; payment processing and related transaction costs, including mix of payment methods and costs from our guarantee from certain third-party seller transactions; and costs from expanding fulfillment capacity. -- Additionally, because payment processing costs associated with third-party seller transactions are based on the gross purchase price of underlying transactions, and payment processing and related transaction costs are higher as a percentage of revenue versus our retail sales, our third-party sales have higher fulfillment costs as a percentage of net sales. -- We expanded our fulfillment capacity in the first half of 2007 and throughout 2006 through gains in efficiencies as well as increases in leased warehouse space. This expansion is designed to accommodate greater selection and in-stock inventory levels and meet anticipated shipment volumes from sales of our own products as well as sales by third parties for whom we provide the fulfillment. Technology and Content -- Technology and content expenses consist principally of payroll and related expenses for employees involved in application development, category expansion, editorial content, buying, merchandising selection, and systems support, as well as costs associated with the systems and telecommunications infrastructure. -- We continue to invest in several areas of technology and content including seller platforms, web services, and digital initiatives, as well as expansion of new and existing product categories. We are also investing in technology infrastructure so that we can continue to enhance the customer experience and improve our process efficiency. The growth rate of our technology and content spending decreased in Q2 2007 and the six months ended June 30, 2007 compared to the comparable prior period. We intend to continue investing in areas of technology and content as we continue to add employees to our staff and add technology infrastructure. -- Certain costs relating to development of internal-use software, including development of software to upgrade and enhance our websites and processes supporting our business, are capitalized and depreciated over two years.
Q2 2007 Q2 2006 ---------- --------- (in millions)Capitalized costs of internal-use software $ 33 $ 32and website developmentAmortization of previously capitalized amounts (28) (20) ---------- --------- Net capitalization $ 5 $ 12 ========== =========
Stockholders' Equity and Stock-Based Awards -- We granted restricted stock unit awards of 5.8 million shares in Q2 2007 with a per share weighted average fair value of $44. -- As of June 30, 2007, there were 22.1 million shares underlying outstanding stock awards, consisting of 18.6 million shares underlying restricted stock units and 3.5 million shares underlying stock options with a $23 weighted-average exercise price. -- As of June 30, 2007, outstanding common shares plus shares underlying outstanding stock-based awards were 435 million, down 2% from 443 million as of June 30, 2006. This total includes all stock-based awards outstanding, without regard for estimated forfeitures, consisting of vested and unvested awards and in-the-money and out-of-the-money stock options. -- The increase in stock-based compensation is primarily attributable to the increased number of outstanding restricted stock units and higher grant date fair value per share. -- In August 2006, our Board of Directors authorized a 24-month program to repurchase up to an aggregate of $500 million of our common stock from which we repurchased 8.2 million shares for $252 million in 2006 and 6.3 million shares for $248 million in Q1 2007. -- In April 2007, our Board of Directors authorized a new 24-month program to repurchase up to an aggregate of $500 million of our common stock. Other Expense, net -- Other expense, net consists primarily of gains or losses on marketable securities, foreign-currency transaction gains and losses, and other miscellaneous gains and losses. -- Foreign-currency transaction gains (losses) primarily relate to the interest payable on our 6.875% PEACS, as well as foreign-currency gains and losses on cross-currency investments. Since interest payments on our 6.875% PEACS are settled in Euros, the balance of interest payable is subject to gains or losses resulting from changes in exchange rates between the U.S. Dollar and Euro between reporting dates and payment. Remeasurements and Other -- The remeasurement of our 6.875% PEACS and intercompany balances can result in significant gains and losses associated with the effect of movements in currency exchange rates. Income Taxes -- Our tax provision for interim periods is determined using an estimate of our annual effective tax rate. The 2007 effective tax rate is estimated to be lower than the 35% statutory rate primarily due to anticipated earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the U.S. There is a potential for significant volatility of our 2007 effective tax rate due to several factors, including variability in accurately predicting our taxable income and the taxable jurisdictions to which it relates. -- The effective tax rate in 2006 was higher than the 35% statutory rate resulting from establishing our European headquarters in Luxembourg, which we expect will benefit our effective tax rate over time. Associated with the establishment of our European headquarters, we transferred certain of our operating assets in 2005 and 2006 from the U.S. to international locations. -- Effective January 1, 2007, we adopted the provisions of FIN 48. As of January 1, 2007, our unrecognized tax benefits ("tax contingencies") totaled $110 million. -- As a result of the implementation of FIN 48, our tax contingencies increased $8 million, which was accounted for as a decrease to retained earnings of $11 million, which would otherwise have increased our income tax expense in prior periods, and an increase to additional paid-in capital of $3 million related to the tax benefits of excess stock-based compensation deductions. These amounts do not include the federal tax benefit associated with these tax contingencies that will be available to us. To reflect the federal benefit upon the implementation of FIN 48, we also recorded an increase to our deferred tax assets of $2 million which was accounted for as a $3 million increase to retained earnings and a $1 million decrease to additional paid-in capital. As of June 30, 2007, changes to our tax contingencies that are reasonably possible in the next 12 months are not material. -- We recognize accrued interest and penalties related to our tax contingencies as income tax expense. Our January 1, 2007 tax contingencies include $13 million of interest and penalties, including a $9 million increase related to our adoption of FIN 48. This increase decreased retained earnings by $6 million, net of a $3 million federal tax benefit. -- We file U.S. federal income tax returns as well as income tax returns in various states and foreign jurisdictions. We may be subject to examination by the Internal Revenue Service ("IRS") for calendar years 2003 through 2006. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. We are under examination, or may be subject to examination, in the following major jurisdictions for the years specified: Pennsylvania for 2002 through 2006, Kentucky for 2003 through 2006, Delaware for 2004 through 2006, France for 2003 through 2006, Germany for 1998 through 2006, Luxembourg for 2003 through 2006, and the United Kingdom for 1999 through 2006. In addition, in February 2007, Japanese tax authorities assessed income tax, including penalties and interest, of approximately $90 million against one of our U.S. subsidiaries for the years 2003 through 2005. We believe that these claims are without merit and are disputing the assessment. Further proceedings on the assessment will be stayed during negotiations between U.S. and Japanese authorities over the double taxation issues the assessment raises, and we have provided bank guarantees to suspend enforcement of the assessment. We also may be subject to income tax examination by Japanese tax authorities for 2006. -- We have U.S. federal net operating losses that are classified as deferred tax assets and are being utilized to reduce our taxes payable to nominal levels. Foreign Exchange -- The effect on our consolidated statements of operations from year-over-year changes in exchange rates versus the U.S. dollar throughout the period is as follows:Three Months Ended June 30, --------------------------------------------------- 2007 2006 ------------------------- ------------------------- At At Prior Exchange Prior Exchange Year Rate Year Rate Rates Effect As Rates Effect As (1) (2) Reported (1) (2) Reported ------- -------- -------- ------- -------- --------Net sales $2,840 $46 $2,886 $2,163 $ (24) $2,139Gross profit 691 10 701 514 (5) 509Operating expenses 578 7 585 464 (2) 462Income from operations 113 3 116 49 (2) 47Net interest expense and other(3) - - - (4) (1) (5)Remeasurements and other income (expense)(4) (3) (2) (5) 2 10 12Net income 77 1 78 19 3 22Diluted earnings per share $ 0.19 $ - $ 0.19 $ 0.04 $0.01 $ 0.05(1) Represents the outcome that would have resulted had currencyexchange rates in the current period been the same as those in effectin the comparable prior year period for operating results, and if wedid not incur the variability associated with remeasurements for our6.875% PEACS and intercompany balances.(2) Represents the increase or decrease in reported amounts resultingfrom changes in exchange rates from those in effect in the comparableprior year period for operating results, and if we did not incur thevariability associated with remeasurements for our 6.875% PEACS andintercompany balances.(3) Includes foreign-currency gains and losses on cross-currencyinvestments.(4) Includes foreign-currency gains and losses on remeasurement of6.875% PEACS and intercompany balances.
Cash Flows and Balance Sheet -- Tax benefits resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes were $35 million in Q2 2007 and $133 million for the trailing twelve months, compared to $21 million in Q2 2006 and $34 million for the trailing twelve months ended June 30, 2006. -- Our cash, cash equivalents and marketable securities of $1.66 billion, at fair value, primarily consist of cash, investment grade securities and AAA-rated money market mutual funds. Included are amounts held in foreign currencies of $530 million, primarily in Euros, British Pounds and Japanese Yen. -- Other assets include, among other things, $171 million of marketable securities restricted for longer than one year, $39 million of intangible assets net, $19 million of certain equity investments, and $6 million of deferred issuance costs on long-term debt. Marketable securities restricted for longer than one year primarily relate to amounts pledged or otherwise restricted as collateral for standby letters of credit, guarantees, debt, and real estate leases. -- Accrued expenses and other current liabilities include, among other things, liabilities for gift certificates of $173 million, professional fees, marketing activities, workforce costs - including accrued payroll, vacation and other benefits--and unearned revenue of $77 million, which is recorded when payments are received in advance of performing our service obligations and is recognized ratably over the service period. Long-term debt primarily includes the following (in millions):
Principal at Interest Principal Due Maturity Rate Date --------- -------- -------------Convertible Subordinated Notes $ 900(1) 4.750% February 2009Premium Adjustable Convertible Securities ("PEACS") 325(2) 6.785% February 2010 ------ $1,225 ------(1) The 4.75% Convertible Subordinated Notes are convertible into our common stock at the holders' option at a conversion price of $78.0275 per share. Total common stock issuable upon conversion of our outstanding 4.75% Convertible Subordinated Notes is 11.5 million shares, which is excluded from our calculation of earnings per share as its effect is anti-dilutive. We have the right to redeem the 4.75% Convertible Subordinated Notes, in whole or in part, by paying the principal and a redemption premium, plus any accrued and unpaid interest. At June 30, 2007, the redemption premium, which decreases by 47.5 basis points on February 1 of each year until maturity, was 0.95%.(2) The 6.875% Premium Adjustable Convertible Securities ("6.875% PEACS") are convertible into our common stock at the holders' option at a conversion price of EUR 84.883 per share ($114.96 per share, based on the exchange rate as of June 30, 2007). Total common stock issuable upon conversion of our outstanding 6.875% PEACS is 2.8 million shares, which is excluded from our calculation of earnings per share as its effect is anti-dilutive. The U.S. Dollar equivalent principal, interest, and conversion price fluctuate based on the Euro/U.S. Dollar exchange ratio. We have the right to redeem the 6.875% PEACS, in whole or in part, by paying the principal plus any accrued and unpaid interest.-- Other long-term liabilities include tax contingencies, long-term capital lease obligations, and other long-term obligations. For further discussion of long-term tax contingencies, see our discussion of "Income Taxes" above. -- We acquired certain companies during Q2 2007 for an aggregate purchase price of $33 million, including cash payments of $24 million in the three months ended June 30, 2007 and future cash payments of $9 million. We also made principal payments of $13 million on acquired debt in connection with one of these acquisitions. Additional consideration for these acquisitions is contingent upon continued employment. This amount is expensed as compensation over the employment period and not included in the purchase price. Acquired intangibles totaled $24 million and have estimated useful lives of between two and ten years. The excess of purchase price over the fair value of the net assets acquired was $17 million and is classified as "Goodwill" on our consolidated balance sheets. The purchase price allocation for each acquisition is preliminary and subject to revision, and any change to the fair value of net assets acquired will lead to a corresponding change to the purchase price allocable to goodwill. The results of operations of the acquired companies have been included in our consolidated results from each closing date forward. The effect of these acquisitions on consolidated net sales and operating income for Q2 2007 was not significant. Certain Definitions and Other -- We present segment information for North America and International. We measure operating results of our segments using an internal performance measure of direct segment operating expenses that excludes stock-based compensation and other operating expense, each of which is not allocated to segment results. Other centrally incurred operating costs are fully allocated to segment results. Our operating results, particularly for the International segment, are affected by movements in foreign exchange rates. -- The North America segment consists of amounts earned from retail sales of consumer products (including from third-party sellers) and subscriptions through North America-focused websites such as www.amazon.com, www.shopbop.com, www.endless.com and www.amazon.ca; from our Amazon Prime membership program; and from non-retail activities such as North America-focused Amazon Enterprise Solutions program, and marketing and promotional agreements. This segment includes export sales from www.amazon.com and www.amazon.ca. -- The International segment consists of amounts earned from retail sales of consumer products (including from third-party sellers) and subscriptions through internationally focused websites such as www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, and Joyo Amazon websites at www.joyo.cn and www.amazon.cn; from our International DVD rental service; and from non-retail activities such as internationally focused marketing and promotional agreements. This segment includes export sales from these internationally based sites (including export sales from these sites to customers in the U.S. and Canada) but excludes export sales from www.amazon.com and www.amazon.ca. -- We provide supplemental sales information within each segment for three categories: Media, Electronics and Other General Merchandise, and Other. Media consists of amounts earned from DVD rentals and retail sales from all sellers of books, music, DVD/video, magazine subscriptions, software, video games and video-game consoles. Electronics and Other General Merchandise consists of amounts earned from retail sales from all sellers of items not included in Media, such as electronics and office, camera and photo, toys and baby, tools, home and garden, apparel, shoes, sports and outdoors, kitchen and housewares, gourmet food, grocery, jewelry and watches, health and personal care and beauty. The Other category consists of non-retail activities, such as the Amazon Enterprise Solutions program and miscellaneous marketing and promotional activities, such as our co-branded credit card programs. -- Operating cash flow is net cash provided by (used in) operating activities, including cash outflows for interest and excluding proceeds from the exercise of stock-based employee awards. Free cash flow is operating cash flow less cash outflows for purchases of fixed assets, including internal-use software and website development. -- Operating cycle is number of days of sales in inventory plus number of days of sales in accounts receivable minus accounts payable days. Accounts payable days are calculated as the quotient of accounts payable to cost of sales, multiplied by the number of days in the period. Inventory turns are calculated as the quotient of trailing twelve month cost of sales to average inventory over five quarter ends. -- Return on invested capital is trailing-twelve-month free cash flow divided by average total assets less current liabilities over five quarter ends. -- References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer's initial order is shipped or when a customer orders from certain third-party sellers on our websites. Customer accounts include customers of Amazon Marketplace, and our Merchants@ and Syndicated Stores programs, but exclude certain customers, including DVD rental customers, customers associated with certain of our acquisitions (including Joyo Amazon customers), Amazon Enterprise Solutions program customers, Amazon.com Payments customers and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period. -- References to sellers or merchants mean active seller accounts, which are established when a seller receives an order from a customer account. Seller accounts include sellers in Amazon Marketplace, and Merchants@ platforms, but exclude Amazon Enterprise Solutions sellers. Sellers are considered active when they have received an order during the preceding twelve-month period. -- References to registered developers mean cumulative registered developer accounts, which are established when potential developers enroll with Amazon Web Services and receive a developer access key. -- References to units mean units sold (net of returns and cancellations) by us and by third-party sellers at Amazon.com domains worldwide - such as www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr and www.amazon.ca - and at Syndicated Stores domains, as well as Amazon.com-owned items sold through catalogs and at non-Amazon.com domains, such as books, music and DVD/video items ordered from Amazon.com's store at www.target.com. Units sold do not include units associated with certain of our acquisitions (including Joyo Amazon units), Amazon.com gift certificates or DVD rentals.
CONTACT: Amazon.com Investor Relations Kim Nelson, 206/266-2171 ir@amazon.com www.amazon.com/ir or Amazon.com Public Relations Patty Smith, 206/266-7180 SOURCE: Amazon.com, Inc.