SEATTLE--April 24, 2001--Company Takes Previously Announced Restructuring Charges Amazon.com, Inc. (Nasdaq:AMZN) today announced financial results for the first quarter ended March 31, 2001.
Net sales were at the top end of the company's guidance, increasing 22 percent to $700 million, compared with $574 million in the first quarter of 2000. Gross profit for the quarter was $183 million, compared with $128 million for the first quarter of 2000, an increase of 43 percent. With another quarter of strong revenue growth, Electronics remained the company's second-biggest U.S. store, while net sales from Amazon.com's four international sites rose to $132 million, an increase of 76 percent from the first quarter of 2000.
Pro forma operating loss was $49 million in the first quarter of 2001, compared with a pro forma operating loss of $99 million in the first quarter of 2000. This marks the fifth sequential quarter in which pro forma absolute dollar operating losses have declined. The company posted a pro forma net loss of $0.21 per share, compared with $0.35 per share in the prior year quarter. A detailed reconciliation of GAAP to pro forma is included with the attached financial statements.
Net loss (GAAP) for the quarter was $234 million, or $0.66 per share. Excluding $114 million, which represents this quarter's portion of previously announced restructuring and other charges, and excluding a net gain of $23 million for certain other items, the net loss for the quarter would have been $143 million, or $0.40 per share. First quarter 2000 net loss was $308 million, or $0.90 per share. Amazon.com ended the quarter with $643 million in cash and marketable securities.
"This was another quarter of significant progress for Amazon.com
we are on track to reach our objective of pro forma operating profitability in the coming December quarter," said Warren Jenson, Amazon.com's chief financial officer.
"We're working hard every day to innovate, making Amazon.com even better for customers, and we're grateful for their response. Cumulative customer accounts grew to over 32 million, which includes 6 million international customers," said Jeff Bezos, founder and CEO of Amazon.com. "Again this quarter our customers responded with particularly strong purchase levels in our electronics, tools and kitchen stores and from our international sites."
On January 30, 2001, the company announced a reduction in its corporate staffing and a consolidation of its fulfillment and customer service center networks. The company took restructuring and other charges of $114 million during the first quarter of 2001, and expects to take additional restructuring and other charges of over $50 million during the second quarter of the year.
Highlights of First Quarter Results (all comparisons are with the prior year quarter)
Net sales rose 22% to $700 million.
Gross profit increased 43% to $183 million.
Worldwide, 3 million new customers ordered, including 1 million new International customers.
Pro forma loss from operations was $49 million, or 7% of net sales, compared with $99 million, or 17% of net sales.
Pro forma net loss was $0.21 per share, compared with $0.35 per share.
Net loss (GAAP) was $234 million, or $0.66 per share, down from $308 million, or $0.90 per share, an improvement of more than 24%. Excluding $114 million for this quarter's portion of previously announced restructuring and other charges, and excluding a net gain of $23 million for certain other items, the net loss would have been $143 million, or $0.40 per share.
Cash and marketable securities were $643 million at March 31, 2001.
Pro forma information regarding Amazon.com's results from operations is provided as a complement to results provided in accordance with accounting principles generally accepted in the United States (GAAP). Pro forma operating loss excludes stock-based compensation costs, amortization of goodwill and other intangibles, and impairment-related and other costs (including restructuring and other charges). Management measures the progress of the business using this pro forma information.
Pro forma net loss excludes stock-based compensation costs, amortization of goodwill and other intangibles, impairment-related and other costs (including restructuring and other charges), non-cash gains and losses, equity in losses of equity-method investees, and the cumulative effect of change in accounting principle. Operational Highlights
Amazon.com and Borders Group, Inc., (NYSE:BGP) announced an agreement to re-launch Borders.com as a co-branded Web site powered by Amazon.com's e-commerce platform.
Amazon Marketplace gross merchandise sales in March 2001 nearly doubled over December 2000, and over a quarter of a million Amazon.com customers have already made at least one purchase from Amazon Marketplace, a new service that allows customers to buy and sell used and collectible items directly from Amazon.com's product detail pages.
Amazon.com launched the Amazon Honor System (www.amazon.com/honor), now with over 1,000 participating Web sites, enabling online visitors to easily "tip" their favorite sites or to pay for access to premium content.
Amazon.com's Worldwide Digital Group launched three new initiatives: a Software Downloads store (www.amazon.com/software); a global alliance to offer the Adobe (Nasdaq:ADBE) Acrobat eBook Reader(TM) software in Amazon.com's e-Books store (www.amazon.com/ebooks), which offers nearly 2,000 Adobe Portable Document Format-based eBooks; and a new free music downloads community (www.amazon.com/music-downloads), designed to help fans discover the music of major-label and independent artists through thousands of free MP3 and Liquid Audio downloads and artist uploads.
The Trilogy/Fortune Survey on Customer Relations 2001 named Amazon.com the best non-Fortune 500 company overall at managing customer relations. Business Outlook
The following forward-looking statements reflect Amazon.com's expectations as of April 24, 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 other than in publicly available statements. Second Quarter 2001 Expectations
Net sales are expected to be between $650 million and $700 million.
Gross margin is expected to be between 23 and 26 percent of net sales.
Absolute pro forma operating losses are expected to be flat to slightly improved from the first quarter of 2001.
Cash and marketable securities are expected to be approximately $600 million as of June 30, 2001, and approximately $900 million at December 31, 2001. Full Year 2001 Expectations
Net sales are expected to increase between 20 and 30 percent over 2000.
Pro forma operating losses are expected to be between 3 and 6 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 approximately $900 million at December 31, 2001.
These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, among others, 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 net sales derived from products as compared to services, risks of inventory management, the degree to which the company enters into service relationships and other strategic transactions, fluctuations in the value of securities and non-cash payments Amazon.com receives in connection with such transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, Amazon.com's anticipated losses, significant amount of indebtedness, competition, seasonality, potential fluctuations in operating results, management of potential growth, system interruption, consumer trends, fulfillment center optimization, inventory, limited operating history, fraud and Amazon Payments, and new business areas, international expansion, business combinations, strategic alliances and strategic partnerships. 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, 2000. Conference Call
A conference call to discuss first quarter 2001 financial results and 2001 business outlook will be Webcast live on Tuesday, April 24, 2001, at 5:00 p.m. EDT/2:00 p.m. PDT. This conference call will be available at www.amazon.com/ir through June 30, 2001, and will contain forward-looking statements and other material information. About Amazon.com
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 millions of unique items in categories such as electronics, kitchen and housewares, books, music, DVDs, videos, camera and photo items, toys, software, computer and video games, tools and hardware, outdoor living and wireless products. Through Amazon.com zShops, any business or individual can sell virtually anything to Amazon.com's over 32 million cumulative customers, and with Amazon 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 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 one million cast and crew members dating from the birth of film in 1891 to 2003.
AMAZON.COM, INC. Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended March 31, ---------------------- 2001 2000 --------- --------- Net sales $ 700,356 $ 573,889 Cost of sales 517,759 445,755 --------- ---------Gross profit 182,597 128,134Operating expenses: Fulfillment 98,248 99,463 Marketing 36,638 40,648 Technology and content 70,284 61,244 General and administrative 26,028 26,045 Stock-based compensation 2,916 13,652 Amortization of goodwill and other intangibles 50,831 82,955 Impairment-related and other 114,260 2,019 --------- --------- Total operating expenses 399,205 326,026 --------- ---------Loss from operations (216,608) (197,892)Interest income 9,950 10,126Interest expense (33,748) (27,621)Other expense, net (3,884) (4,774) Non-cash gains and losses, net 33,857 -- --------- --------- Net interest income (expense) and other 6,175 (22,269) --------- ---------Loss before equity in losses of equity-method investees (210,433) (220,161)Equity in losses of equity-method investees, net (13,175) (88,264) --------- ---------Net loss before change in accounting principle (223,608) (308,425)Cumulative effect of change in accounting principle (10,523) -- --------- ---------Net loss $(234,131) $(308,425) ========= ========= Basic and diluted loss per share: Prior to cumulative effect of change in accounting principle $ (0.63) $ (0.90) Cumulative effect of change in accounting principle (0.03) -- --------- --------- $ (0.66) $ (0.90) ========= ========= Shares used in computation of basic and diluted loss per share 357,424 343,884 ========= ========= Note: The attached "Financial and Operational Highlights" are anintegral part of the press release financial statements. AMAZON.COM, INC. Pro Forma Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended March 31, 2001 ------------------------------------- Pro Forma As Reported Adjustments Pro Forma ------------------------------------- Net sales $ 700,356 -- $ 700,356 Cost of sales 517,759 -- 517,759 -------------------------------------Gross profit 182,597 -- 182,597 Operating expenses: Fulfillment 98,248 -- 98,248 Marketing 36,638 -- 36,638 Technology and content 70,284 -- 70,284 General and administrative 26,028 -- 26,028 Stock-based compensation 2,916 (2,916) -- Amortization of goodwill and other intangibles 50,831 (50,831) -- Impairment-related and other 114,260 (114,260) -- ------------------------------------- Total operating expenses 399,205 (168,007) 231,198 -------------------------------------Loss from operations (216,608) 168,007 (48,601)Interest income 9,950 -- 9,950 Interest expense (33,748) -- (33,748)Other expense, net (3,884) -- (3,884)Non-cash gains and losses, net 33,857 (33,857) -- ------------------------------------- Net interest expense and other 6,175 (33,857) (27,682) -------------------------------------Loss before equity in losses of equity-method investees (210,433) 134,150 (76,283)Equity in losses of equity-method investees, net (13,175) 13,175 -- Net loss before change in accounting principle (223,608) 147,325 (76,283)Cumulative effect of change in accounting principle (10,523) 10,523 -- -------------------------------------Net loss $(234,131) $ 157,848 $ (76,283) =====================================Basic and diluted loss per share: Prior to cumulative effect of change in accounting principle $ (0.63) $ (0.21) Cumulative effect of change in accounting principle (0.03) -- --------- --------- $ (0.66) $ (0.21) ========= ========= Shares used in computation of basic and diluted loss per share 357,424 357,424 ========= ========= Three Months Ended March 31, 2000 ------------------------------------- Pro Forma As Reported Adjustments Pro Forma ------------------------------------- Net sales $ 573,889 -- $ 573,889 Cost of sales 445,755 -- 445,755 -------------------------------------Gross profit 128,134 -- 128,134 Operating expenses: Fulfillment 99,463 -- 99,463 Marketing 40,648 -- 40,648 Technology and content 61,244 -- 61,244 General and administrative 26,045 -- 26,045 Stock-based compensation 13,652 (13,652) -- Amortization of goodwill and other intangibles 82,955 (82,955) -- Impairment-related and other 2,019 (2,019) -- ------------------------------------- Total operating expenses 326,026 (98,626) 227,400 -------------------------------------Loss from operations (197,892) 98,626 (99,266)Interest income 10,126 -- 10,126 Interest expense (27,621) -- (27,621)Other expense, net (4,774) -- (4,774)Non-cash gains and losses, net -- -- -- ------------------------------------- Net interest expense and other (22,269) -- (22,269) -------------------------------------Loss before equity in losses of equity-method investees (220,161) 98,626 (121,535)Equity in losses of equity-method investees, net (88,264) 88,264 -- -------------------------------------Net loss before change in accounting principle (308,425) 186,890 (121,535)Cumulative effect of change in accounting principle -- -- -- -------------------------------------Net loss $(308,425) $ 186,890 $(121,535) =====================================Basic and diluted loss per share: Prior to cumulative effect of change in accounting principle $ (0.90) $ (0.35) Cumulative effect of change in accounting principle -- -- --------- --------- $ (0.90) $ (0.35) ========= ========= Shares used in computation of basic and diluted loss per share 343,884 343,884 ========= ========= Note: The attached "Financial and Operational Highlights" are anintegral part of the press release financial statements. AMAZON.COM, INC. Segment Information (in thousands) (unaudited) Three Months Ended March 31, 2001 --------------------------------------------------- U.S. Retail ------------------------ Books, Electronics, Music Tools and DVD/ and Consol- Video Kitchen Total Int'l Services idated ---------------------------------------------------Net sales $409,586 $116,507 $526,093 $132,105 $42,158 $700,356Gross profit 109,119 17,220 126,339 28,050 28,208 182,597Pro forma income (loss) from operations 27,625 (45,833) (18,208) (34,569) 4,176 (48,601)Other non-cash operating expenses (168,007)Net interest expense and other 6,175Equity in losses of equity-method investees, net (13,175)Cumulative effect of change in accounting principle (10,523) -----------Net loss $ (234,131) ===========Segment highlights: Y / Y net sales growth 2% 56% 11% 76% 85% 22% Y / Y gross profit growth 32% 144% 41% 75% 27% 43% Gross margin 27% 15% 24% 21% 67% 26% Pro forma operating margin 7% (39%) (3%) (26%) 10% (7%) Three Months Ended March 31, 2000 --------------------------------------------------- U.S. Retail ------------------------ Books, Electronics, Music Tools and DVD/ and Consol- Video Kitchen Total Int'l Services idated ---------------------------------------------------Net sales $401,415 $74,596 $476,011 $75,132 $22,746 $573,889Gross profit 82,855 7,059 89,914 16,036 22,184 128,134Pro forma loss from operations (2,425) (67,249) (69,674) (27,448) (2,144) (99,266)Other non-cash operating expenses (98,626)Net interest expense and other (22,269)Equity in losses of equity-method investees, net (88,264)Cumulative effect of change in accounting principle -- --------- Net loss $(308,425) =========Segment highlights:Y / Y net sales growth 50% N/A 78% 192% N/A 95%Y / Y gross profit growth 40% N/A 51% 211% N/A 98%Gross margin 21% 9% 19% 21% 98% 22%Pro forma operating margin (1%) (90%) (15%) (37%) (9%) (17%) Note: The attached "Financial and Operational Highlights" are anintegral part of the press release financial statements. AMAZON.COM, INC. Balance Sheets (in thousands, except per share data) (unaudited) MARCH 31, DECEMBER 31, 2001 2000 ------------ -----------ASSETSCurrent assets: Cash and cash equivalents $ 446,944 $ 822,435 Marketable securities 196,029 278,087 Inventories 155,562 174,563 Prepaid expenses and other current assets 57,175 86,044 ----------- ----------- Total current assets 855,710 1,361,129Fixed assets, net 304,179 366,416Goodwill, net 123,996 158,990Other intangibles, net 80,424 96,335Investments in equity-method investees 22,539 52,073Other equity investments 28,503 40,177Other assets 54,804 60,049 ----------- ----------- Total assets $ 1,470,155 $ 2,135,169 =========== ===========LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities: Accounts payable $ 257,411 $ 485,383 Accrued expenses and other current liabilities 217,613 272,683 Unearned revenue 93,661 131,117 Interest payable 16,720 69,196 Current portion of long-term debt and other 19,305 16,577 ----------- ----------- Total current liabilities 604,710 974,956Long-term debt and other 2,118,856 2,127,464Commitments and contingenciesStockholders' 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 -- 358,847 and 357,140 shares at March 31, 2001 and December 31, 2000, respectively 3,588 3,571 Additional paid-in capital 1,344,083 1,338,303 Deferred stock-based compensation (10,532) (13,448) Accumulated other comprehensive loss (63,118) (2,376) Accumulated deficit (2,527,432) (2,293,301) ----------- ----------- Total stockholders' deficit (1,253,411) (967,251) ----------- ----------- Total liabilities and stockholders' deficit $ 1,470,155 $ 2,135,169 =========== ===========Note: The attached "Financial and Operational Highlights" are anintegral part of the press release financial statements. AMAZON.COM, INC. Statements of Cash Flows (in thousands) (unaudited) THREE MONTHS ENDED MARCH 31, ----------------------- 2001 2000 -----------------------CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD OPERATING ACTIVITIES: $ 822,435 $ 133,309Net loss (234,131) (308,425)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of fixed assets 23,073 18,180 Stock-based compensation 2,916 13,652 Equity in losses of equity-method investees, net 13,175 88,264 Amortization of goodwill and other intangibles 50,831 82,955 Non-cash impairment-related and other costs 62,004 2,019 Amortization of previously unearned revenue (33,392) (18,485) Loss (gain) on sale of marketable securities 27 (2,600) Non-cash gains and losses, net (33,857) -- Non-cash interest expense and other 6,572 5,881 Cumulative effect of change in accounting principle 10,523 --Changes in operating assets and liabilities: Inventories 19,823 48,389 Prepaid expenses and other current assets 27,334 (3,067) Accounts payable (229,758) (207,229) Accrued expenses and other current liabilities (57,762) (31,538) Unearned revenue 18,005 614 Interest payable (52,367) (8,988) --------- ---------Net cash used in operating activities (406,984) (320,378)INVESTING ACTIVITIES: Sales and maturities of marketable securities 94,366 380,345Purchases of marketable securities (30,378) (28,856)Purchases of fixed assets (19,437) (26,601)Investments in equity-method investees and other investments -- (47,487) --------- --------- Net cash provided by investing activities 44,551 277,401FINANCING ACTIVITIES:Proceeds from exercise of stock options 5,833 21,359Proceeds from long-term debt and other 10,000 679,374Repayment of long-term debt and other (4,575) (4,023)Financing costs -- (15,895) --------- --------- Net cash provided by financing activities 11,258 680,815Effect of exchange rate changes on cash and cash equivalents (24,316) (16,014) --------- ---------Net increase (decrease) in cash and cash equivalents (375,491) 621,824 --------- ---------CASH AND CASH EQUIVALENTS, END OF PERIOD $ 446,944 $ 755,133 ========= =========SUPPLEMENTAL CASH FLOW INFORMATION:Fixed assets acquired under capital leases $ 2,298 $ 3,502Fixed assets acquired under financing agreements -- 4,551Equity securities received for commercial agreements 331 97,839Cash paid for interest 86,224 35,835Note: The attached "Financial and Operational Highlights" are anintegral part of the press release financial statements. AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except per share, inventory turnover, cost per new customer, and net sales per active customer data) (unaudited)---------------------------------------------------------------------- 2000 ------------------------------------- Q4 1999 Q1 Q2 Q3 Q4 ------------------------------------------------Results of OperationsNet sales $ 676 $ 574 $ 578 $ 638 $ 972Net sales -- trailing twelve months (TTM) $ 1,640 $ 1,920 $ 2,184 $ 2,466 $ 2,762Gross profit $ 88 $ 128 $ 136 $ 167 $ 224Gross margin -- % of net sales 13.0% 22.3% 23.5% 26.2% 23.1%Fulfillment costs -- % of net sales 15.8% 17.3% 15.2% 15.1% 13.5%Pro forma operating loss $ (175) $ (99) $ (89) $ (68) $ (60)Pro forma operating loss -- % of net sales (25.9%) (17.3%) (15.5%) (10.7%) (6.2%)Pro forma net loss $ (185) $ (122) $ (116) $ (89) $ (90)Pro forma net loss per share $ (0.55) $ (0.35) $ (0.33) $ (0.25) $ (0.25)GAAP net loss $ (323) $ (308) $ (317) $ (241) $ (545)GAAP net loss per share $ (0.96) $ (0.90) $ (0.91) $ (0.68) $ (1.53)U.S. books, music and DVD/video pro forma operating income (loss) -- % of U.S. books, music and DVD/video net sales (4%) (1%) 3% 6% 8%U.S. electronics, tools and kitchen pro forma operating loss -- % of U.S. electronics, tools and kitchen net sales (78%) (90%) (75%) (62%) (33%)U.S. retail pro forma operating loss -- % of U.S. retail net sales (21%) (15%) (12%) (7%) (5%)International pro forma operating loss -- % of international net sales (43%) (37%) (47%) (45%) (30%)Services pro forma operating income (loss) -- % of services net sales (238%) (9%) 15% 14% 18%Customer DataNew customers 3.8 3.1 2.5 2.9 4.1Cumulative customers 16.9 20.0 22.5 25.4 29.5Active customers -- TTM 14.1 15.9 17.0 18.2 19.8New customers -- international 0.6 0.6 0.6 0.9 1.1Cumulative customers -- international 1.8 2.4 3.0 3.9 5.0Active customers -- international -- TTM 1.7 2.2 2.7 3.3 4.2Cost per new customer $ 19 $ 13 17 15 13Net sales (excluding catalog sales and inventory sales to toysrus.com) per active customer -- TTM $ 113 $ 117 $ 125 $ 130 $ 134U.S. customers purchasing from non-books, music and DVD/video stores 24% 11% 13% 14% 36%Balance SheetCash and marketable securities $ 706 $ 1,009 $ 908 $ 900 $ 1,101Inventory, net $ 221 $ 172 $ 172 $ 164 $ 175Inventory -- % of net sales 33% 30% 30% 26% 18%Inventory turnover -- annualized 13.9 9.1 10.3 11.2 17.7Fixed assets, net $ 318 $ 334 $ 344 $ 352 $ 366Cash FlowsCash generated by (used in) operations $ 32 $ (320) $ (54) $ (4) $ 248Purchases of fixed assets $ (105) $ (27) $ (29) $ (42) $ (37) ------------------- Y / Y Q1 2001 Growth % ------------------- Results of Operations Net sales $ 700 22% Net sales -- trailing twelve months (TTM) $ 2,888 50% Gross profit $ 183 43% Gross margin -- % of net sales 26.1% N/A Fulfillment costs -- % of net sales 14.0% N/A Pro forma operating loss $ (49) (51%) Pro forma operating loss -- % of net sales (6.9%) N/A Pro forma net loss $ (76) (38%) Pro forma net loss per share $ (0.21) (40%) GAAP net loss $ (234) (24%) GAAP net loss per share $ (0.66) (27%) U.S. books, music and DVD/video pro forma operating income (loss) -- % of U.S. books, music and DVD/video net sales 7% N/A U.S. electronics, tools and kitchen pro forma operating loss -- % of U.S. electronics, tools and kitchen net sales (39%) N/A U.S. retail pro forma operating loss -- % of U.S. retail net sales (3%) N/A International pro forma operating loss -- % of international net sales (26%) N/A Services pro forma operating income (loss) -- % of services net sales 10% N/A Customer Data New customers 3.0 (3%) Cumulative customers 32.5 63% Active customers -- TTM 20.5 29% New customers -- international 1.0 67% Cumulative customers -- international 6.0 150% Active customers -- international -- TTM 4.9 123% Cost per new customer $ 12 (8%) Net sales (excluding catalog sales and inventory sales to toysrus.com) per active customer -- TTM $ 135 15% U.S. customers purchasing from non-books, music and DVD/video stores 19% N/ABalance Sheet Cash and marketable securities $ 643 (36%)Inventory, net $ 156 (10%)Inventory -- % of net sales 22% N/AInventory turnover -- annualized 12.6 38%Fixed assets, net $ 304 (9%) Cash Flows Cash generated by (used in) operations $(407) 27%Purchases of fixed assets $ (19) (30%) AMAZON.COM, INC. Financial and Operational Highlights First Quarter 2001 (unaudited)
Results of Operations (all comparisons are to the prior year quarter)
Net Sales
Orders from repeat customers represented 78% of total, up from 76%.
Shipping revenue across all segments was approximately $82 million, up from $75 million.
Cash-based portion of Services revenues was approximately 79%, up from 25%.
Sales to customers outside the U.S., including export sales from www.amazon.com, increased to approximately 26% of net sales, from approximately 24% of net sales. Gross Profit
Gross margin, excluding the results of our Services segment, would have been 23%, up from 19%.
Shipping gross loss was approximately $5 million, down from slightly positive. We will continue to offer shipping promotions to our customers; accordingly, shipping gross margins may fluctuate. Fulfillment
Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers, including costs attributable to receiving, inspecting and warehousing inventories; picking, packaging and preparing customers' orders for shipment; credit card fees; and responding to inquiries from customers.
Fulfillment costs amounted to approximately 14% of net sales, down from 17% of net sales; excluding net sales from our Services segment, fulfillment costs were approximately 15%, down from 18%. Stock-Based Compensation
Stock-based compensation comprises the portion of acquisition-related consideration conditioned on the continued tenure of key employees of certain of our acquired businesses, which must be classified as compensation expense rather than as a component of purchase price under accounting principles generally accepted in the United States. Stock-based compensation also includes stock-based charges such as option-related deferred compensation recorded at our initial public offering, as well as certain other compensation and severance arrangements.
During the first quarter of 2001, we offered a limited non-compulsory exchange of employee stock options. This option exchange offer results in variable accounting treatment for approximately 15 million stock options, which includes approximately 12 million options granted under the exchange offer with an exercise price of $13.375, and options that were subject to the exchange offer but were not exchanged. Variable accounting treatment will result in unpredictable charges, recorded to "Stock-based compensation," dependent on fluctuations in quoted prices for our common stock. As the quoted price of our common stock at March 31, 2001, did not exceed the exercise price of any option subject to variable accounting treatment, no compensation expense was recorded in the first quarter of 2001. Impairment-Related and Other
We began implementation of our operational restructuring plan to reduce our operating costs, streamline our organizational structure and consolidate certain of our fulfillment and customer service operations. As a result of this initiative, we recorded restructuring and other charges of $114 million during the first quarter, and anticipate additional charges of over $50 million during the second quarter of 2001. This initiative involves the reduction of employee staff by approximately 1,300 positions throughout the Company in managerial, professional, clerical, technical and fulfillment roles; consolidation of our Seattle corporate office locations; closure of our McDonough, Georgia, fulfillment center; seasonal operation of our Seattle fulfillment center; closure of our customer service centers in Seattle and The Hague, Netherlands; and migration of a large portion of our technology infrastructure to a Linux-based operating platform, which entails ongoing lease obligations for equipment no longer utilized. We anticipate that each component of the restructuring plan will be substantially complete by June 30, 2001.
Costs that relate to ongoing operations are not part of restructuring and other charges. All inventory adjustments that may result from the closure or seasonal operation of our fulfillment centers are classified in "Cost of goods sold" on the consolidated statements of operations. As of March 31, 2001, there have been no significant inventory write-downs resulting from the restructuring, and none are anticipated.
For the quarter ended March 31, 2001, the charges associated with our restructuring were as follows (in thousands):
Asset impairments $ 58,748Continuing lease obligations 34,292Termination benefits 15,088Broker commissions, professional fees and other miscellaneous restructuring costs 6,132 --------- $114,260 =========
Asset impairments primarily relate to the closure of the McDonough, Georgia, fulfillment center, the write-off of leasehold improvements in vacated corporate office space, and the other-than-temporary decline in the fair value of assets in the Seattle fulfillment center. For assets to be disposed, we estimated the fair value based on expected salvage value less costs to sell. For assets held for continued use, the decline in fair value was measured using discounted estimates of future cash flows. We are actively seeking third-party buyers for the assets held for disposal.
Continuing lease obligations primarily relate to heavy equipment previously used in the McDonough, Georgia, fulfillment center, vacated corporate office space, technology hardware removed from service as part of the migration to a Linux-based operating platform, and unutilized overcapacity at our backup data center. Where possible, we are actively seeking third parties to sublease abandoned equipment and facilities. Amounts expensed represent estimates of undiscounted future cash outflows, offset by anticipated third-party subleases.
Termination benefits comprise severance-related payments for all employees to be terminated in connection with the operational restructuring, as well as the contribution of common stock to a trust for the benefit of terminated employees. Termination benefits do not include any amounts for employment-related services prior to termination. Other restructuring costs include professional fees, decommissioning costs of vacated facilities, broker commissions and other miscellaneous expenses directly attributable to the restructuring.
First quarter 2001 cash payments resulting from the restructuring were $10 million.
We anticipate the restructuring charges, including over $50 million of charges expected to be recorded during the three months ending June 30, 2001, will result in the following net cash outflows (in thousands):
Termination Leases Benefits Other Total ------- ------- ------- -------Year Ending December 31, 2001 $33,728 $ 12,160 $ 9,186 $ 55,074 2002 30,258 78 1,024 31,360 2003 4,078 -- 2 4,080 2004 1,514 -- 1 1,515 2005 1,474 -- -- 1,474 Thereafter 6,007 -- -- 6,007 ------- ------- ------- -------Total estimated cash outflows $77,059 $12,238 $ 10,213 $ 99,510 ======= ======= ======== ========
Net Interest Expense and Other
Other gains and losses primarily relate to miscellaneous taxes and foreign currency transaction losses. Non-Cash Gains and Losses
Non-cash gains and losses includes a gain of $22 million associated with the termination of our services contract with Kozmo.com, and a gain of $46 million on the remeasurement of our Euro-denominated debt due to fluctuations in currency exchange rates. These gains were offset by non-cash impairment losses of $36 million relating to other-than-temporary declines in the fair value of Webvan Group, Inc., Sotheby's Holdings, Inc., WeddingChannel.com and drugstore.com, inc. Other non-cash gains recorded during the first quarter of 2001 were primarily related to the acquisitions of certain investees by unrelated third parties, and the recording to fair value of our warrant investments consistent with SFAS 133.
In connection with the termination of our commercial agreement with Kozmo.com in February 2001, we recorded a non-cash gain of $22 million, representing the amount of unearned revenue associated with the contract. Since services had not yet been performed under the contract, no amounts associated with this commercial agreement were recognized in "Net sales" during any period. Furthermore, during 1999, we made a cash investment of $60 million to acquire preferred stock of Kozmo.com and accounted for our investment under the equity method of accounting. Pursuant to the equity method of accounting, we recorded our share of Kozmo.com losses, which, during 2000, reduced the basis in our investment to zero. Accordingly, at the time Kozmo.com announced its intentions to cease operations in April 2001, we did not have any further loss exposure relating to our investment. We do not expect to recover any portion of our investment in Kozmo.com. Equity in Losses of Equity-Method Investees
Equity in losses of equity-method investees represents our share of losses of companies in which we have investments that give us the ability to exercise significant influence, but not control, over an investee. Equity-method losses reduce our underlying investment balances until the recorded basis is reduced to zero. Loss Per Share
The effect of stock options is antidilutive and, accordingly, is excluded from diluted loss per share. If the effect of stock options was included, the number of shares used in computation of diluted loss per share would have been approximately 374 million, compared to 357 million shares used in computation of basic and diluted loss per share for the three months ended March 31, 2001. Financial Condition Cash and Marketable Securities
Cash and marketable securities are impacted by the effect of quarterly fluctuations in foreign currency exchange rates, particularly the Euro.
Our marketable securities, by major security type, as of March 31, 2001, were as follows (at fair value; in thousands):
Corporate notes and bonds $ 15,548Asset-backed and agency securities 37,729Treasury notes and bonds 120,862Equity securities 21,890 -------- $ 196,029 ========
Accounts Payable
Ending accounts payable days were approximately 45 days, a decrease of approximately 7 days, primarily attributable to our changing mix of business. Certain Definitions and Other
In January 2001, the Company reorganized its segment reporting to include four segments: U.S. Books, Music and DVD/Video; U.S. Electronics, Tools and Kitchen; International; and Services. Allocation methodologies are consistent with past presentations, and prior period amounts have been reclassified to conform with current period presentation.
The U.S. Books, Music and DVD/Video segment includes revenues, direct costs and cost allocations associated with retail sales from www.amazon.com for books, music and DVD/video products, and includes amounts earned on sales of similar products sold through Amazon Marketplace.
The U.S. Electronics, Tools and Kitchen segment includes revenues, direct costs, and cost allocations associated with www.amazon.com retail sales of Electronics (consumer electronics, camera and photo items, software, computer and video games, and wireless products), Tools (tools and hardware) and Kitchen (kitchen and housewares products and outdoor living items) products, toys sold other than through our Toysrus.com strategic alliance, and new initiatives, and includes amounts earned on sales of similar products sold through Amazon Marketplace.
U.S. Retail represents the combination of the U.S. Books, Music and DVD/Video segment and the U.S. Electronics, Tools and Kitchen segment.
The International segment includes all revenues, direct costs and cost allocations associated with the retail sales of the Company's four internationally focused sites: www.amazon.de, www.amazon.fr, www.amazon.co.jp and www.amazon.co.uk.
The Services segment includes revenues, direct costs and cost allocations associated with the Company's business-to-business strategic relationships, including our strategic alliance with Toysrus.com, and miscellaneous advertising revenues, as well as amounts from Amazon Auctions, zShops and Payments.
Trailing twelve-month sales per active customer figures include all amounts earned through Internet sales, including revenue earned from our strategic relationships with selected companies, but exclude catalog sales and sales of inventory to Toysrus.com.
Customer accounts exclude the customers of selected companies with whom we have strategic relationships and customers of Amazon.com's catalog businesses, but include customers shared with Toysrus.com and customers of Amazon Auctions, zShops and Marketplace services.