EX-99.1 4 dex991.htm PRESS RELEASE DATED 10/23/2001 Press Release Dated 10/23/2001
 
Exhibit 99.1
 
LOGO
 
AMAZON.COM ANNOUNCES 2001 THIRD QUARTER RESULTS;
EXPECTS PRO FORMA OPERATING PROFITABILITY IN FOURTH QUARTER; LOOKS
FORWARD TO SEVENTH HOLIDAY SEASON
 
          SEATTLE—(BUSINESS WIRE)—Oct. 23, 2001—Amazon.com, Inc. (NASD: AMZN) today announced financial results for its third quarter ended September 30, 2001. Net sales were $639 million compared to net sales of $638 million in the third quarter of 2000. Pro forma loss from operations improved 60 percent to $27 million, or 4 percent of net sales, compared with $68 million, or 11 percent of net sales in the third quarter of 2000.
 
          Pro forma net loss, which includes net interest expense, improved 35 percent to $58 million, or $0.16 per share, compared with $89 million, or $0.25 per share in the third quarter of 2000. Net loss (GAAP) for the quarter improved 29 percent to $170 million, or $0.46 per share, from $241 million, or $0.68 per share. A reconciliation of GAAP to pro forma is included in the attached financial statements.
 
          “We are pleased that our quarterly results were again in line with our guidance, and with our recent order trends,” said Warren Jenson, Amazon.com’s chief financial officer. “We continue to expect pro forma operating profitability for the fourth quarter, and while there are no guarantees, we are well positioned to achieve this important milestone.”
 
          “We’ve lowered our operating costs 20 percent and can now afford to drive growth by lowering prices for customers,” said Jeff Bezos, founder and CEO of Amazon.com. “If you’re buying books over $20 from anywhere but Amazon.com, you’re probably wasting money.”
 
Highlights of Third Quarter Results (comparisons are with the third quarter of 2000)
 
 
•
 
Pro forma loss from operations improved 60 percent to $27 million, or 4 percent of net sales, compared with $68 million, or 11 percent of net sales.
 
 
•
 
The U.S. (U.S. Retail and Services segments combined) was slightly profitable on a pro forma operating basis for the second straight quarter; results improved to a $1 million profit, from a loss of $29 million.
 
 
•
 
U.S. Books, Music and DVD/Video segment was profitable for the sixth consecutive quarter.
 
 
•
 
Net sales were $639 million compared to $638 million, which in 2000 included a $20 million sale of inventory, at cost, to Toysrus.com.
 
 
•
 
Net sales from international sites rose 58 percent to $138 million, from $88 million.
 
 
•
 
Used orders were approximately 17 percent of total U.S. orders, compared to zero (Used launched November 2000).
 
 
•
 
Annualized inventory turns improved to 15, compared with 11, a 31 percent improvement.
 
 
•
 
Pro forma net loss, which includes $31 million of net interest and other expense, improved 35 percent to $58 million, or $0.16 per share, compared with $89 million, or $0.25 per share.
 
 
•
 
Net loss (GAAP) narrowed to $170 million, or $0.46 per share, down from $241 million, or $0.68 per share, an improvement of 29 percent.
 
 
•
 
Cash and marketable securities were $668 million at September 30, 2001.
 
 
•
 
Worldwide, 2.9 million new customers ordered, including 1 million new International customers.  
 
 
•
 
Gross profit was $162 million compared to $167 million.  
 
 
•
 
Fulfillment costs improved to 13 percent of net sales, from 15 percent of net sales.  
 
Business Outlook  
 
          The following forward-looking statements reflect Amazon.com’s expectations as of October 23, 2001. Given the potential changes in general economic conditions and consumer spending (including any future declines related to the events of September 11, 2001, or similar events), the emerging nature and rate of growth of the Internet and online commerce 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.  
 
Fourth Quarter 2001 Expectations  
 
 
•
 
Net sales are expected to be flat to up 10 percent compared to the fourth quarter of 2000, or between $970 million and $1.07 billion.  
 
 
•
 
Gross margin is expected to be between 22 percent and 25 percent of net sales.  
 
 
•
 
A pro forma operating profit is expected for the quarter.  
 
 
•
 
Cash and marketable securities are expected to be approximately $900 million at December 31, 2001; cash and marketable securities are expected to be over $550 million at March 31, 2002, and the Company expects to generate cash and marketable securities for the nine months ending December 31, 2002, combined.  
 
          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 economy in general, 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 with 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, foreign currency exchange risks, 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, 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, and all subsequent filings, including Quarterly Reports on Form 10-Q.  
 
Pro Forma Results  
 
          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, amortization of goodwill and other intangibles, and restructuring-related and other. Management measures the progress of the business using this pro forma information.  

2  
 
          Pro forma net loss excludes stock-based compensation, amortization of goodwill and other intangibles, restructuring-related and other, other gains (losses), equity in losses of equity-method investees, and the cumulative effect of change in accounting principle.  
 
Conference Call  
 
          A conference call will be Webcast live on Tuesday, October 23, 2001, at 5:00 p.m. EDT/2:00 p.m. PDT and will contain forward-looking statements and other material information. This conference call will be available at www.amazon.com/ir through December 28, 2001.  
 
About Amazon.com  
 
          Amazon.com 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 and sellers list millions of unique new and used items in categories such as electronics, computers, kitchen and housewares, books, music, DVDs, videos, camera and photo items, toys, baby and baby registry, software, computer and video games, cell phones and service, tools and hardware, travel services, and outdoor living products. Through Amazon Marketplace, zShops and Auctions, any business or individual can sell virtually anything to Amazon.com’s more than 38 million customers (cumulative customer accounts), 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.co.uk, www.amazon.de, www.amazon.fr 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 275,000 movies and entertainment titles and 1 million cast and crew members dating from the birth of film.  
 
CONTACT:  
 
Amazon.com Investor Relations  
Tim Halladay, 206/266-2171  
ir@amazon.com  
 
Amazon.com Public Relations  
Bill Curry, 206/266-7180  
 

3  
 
AMAZON.COM, INC.  
 
STATEMENTS OF OPERATIONS  
(in thousands, except per share data)  
(unaudited)  
 
  
Three Months Ended
September 30,  
   
Nine Months Ended
September 30,  
  
2001  
   
2000  
   
2001  
   
2000  
Net sales  
   
$639,281
 
   
$637,858
 
   
$2,007,262
 
   
$1,789,623
 
Cost of sales  
   
477,089
 
   
470,579
 
   
1,482,753
 
   
1,358,146
 
  
  
  
  
Gross profit  
   
162,192
 
   
167,279
 
   
524,509
 
   
431,477
 
Operating expenses:  
   
 
  
 
  
 
  
 
          Fulfillment  
   
81,400
 
   
96,421
 
   
265,231
 
   
283,481
 
          Marketing  
   
32,537
 
   
41,921
 
   
103,833
 
   
124,785
 
          Technology and content  
   
53,846
 
   
71,159
 
   
188,840
 
   
199,535
 
          General and administrative  
   
21,481
 
   
26,217
 
   
70,287
 
   
80,730
 
          Stock-based compensation  
   
(2,567
)  
   
4,091
 
   
2,700
 
   
25,909
 
          Amortization of goodwill and other intangibles  
   
41,835
 
   
79,194
 
   
143,496
 
   
242,562
 
          Restructuring-related and other  
   
3,994
 
   
11,791
 
   
176,904
 
   
16,259
 
  
  
  
  
                   Total operating expenses  
   
232,526
 
   
330,794
 
   
951,291
 
   
973,261
 
  
  
  
  
Loss from operations  
   
(70,334
)  
   
(163,515
)  
   
(426,782
)  
   
(541,784
)  
Interest income  
   
6,316
 
   
9,402
 
   
23,073
 
   
29,842
 
Interest expense  
   
(35,046
)  
   
(33,809
)  
   
(103,942
)  
   
(94,827
)  
Other income (expense), net  
   
(2,203
)  
   
3,353
 
   
(7,265
)  
   
(4,693
)  
Other gains (losses), net  
   
(63,625
)  
   
12,366
 
   
(18,453
)  
   
12,366
 
  
  
  
  
                   Net interest expense and other  
   
(94,558
)  
   
(8,688
)  
   
(106,587
)  
   
(57,312
)  
  
  
  
  
Loss before equity in losses of equity-method investees  
   
(164,892
)  
   
(172,203
)  
   
(533,369
)  
   
(599,096
)  
Equity in losses of equity-method investees, net  
   
(4,982
)  
   
(68,321
)  
   
(28,472
)  
   
(267,037
)  
  
  
  
  
Loss before change in accounting principle  
   
(169,874
)  
   
(240,524
)  
   
(561,841
)  
   
(866,133
)  
Cumulative effect of change in accounting principle  
   
—  
 
   
—  
 
   
(10,523
)  
   
—  
 
  
  
  
  
Net loss  
   
$(169,874
)  
   
$(240,524
)  
   
$    (572,364
)  
   
$    (866,133
)  
  
  
  
  
Basic and diluted loss per share:  
   
 
  
 
  
 
  
 
          Prior to cumulative effect of change in accounting
               principle  
   
$        (0.46
)  
   
$        (0.68
)  
   
$            (1.55
)  
   
$            (2.48
)  
          Cumulative effect of change in accounting principle  
   
—  
 
   
—  
 
   
(0.03
)  
   
—  
 
  
  
  
  
  
$        (0.46
)  
   
$        (0.68
)  
   
$            (1.58
)  
   
$            (2.48
)  
  
  
  
  
Shares used in computation of basic and diluted loss per
     share  
   
368,052
 
   
353,954
 
   
361,782
 
   
349,258
 
  
  
  
  
 
 
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

4  
 
AMAZON.COM, INC.  
 
PRO FORMA STATEMENTS OF OPERATIONS  
(in thousands, except per share data)  
(unaudited)  
 
 
  
Three Months Ended  
  
September 30, 2001  
   
September 30, 2000  
  
As
Reported  
   
Pro Forma
Adjustments  
   
Pro
Forma  
   
As
Reported  
   
Pro Forma
Adjustments  
   
Pro
Forma  
Net sales  
   
$639,281
 
     
$          —  
 
     
$639,281
 
   
$637,858
 
     
$          —  
 
     
$637,858
 
Cost of sales  
   
477,089
 
     
—  
 
     
477,089
 
   
470,579
 
     
—  
 
     
470,579
 
  
    
    
  
    
    
Gross profit  
   
162,192
 
     
—  
 
     
162,192
 
   
167,279
 
     
—  
 
     
167,279
 
Operating expenses:  
   
 
    
 
    
 
  
 
    
 
    
 
     Fulfillment  
   
81,400
 
     
—  
 
     
81,400
 
   
96,421
 
     
—  
 
     
96,421
 
     Marketing  
   
32,537
 
     
—  
 
     
32,537
 
   
41,921
 
     
—  
 
     
41,921
 
     Technology and content  
   
53,846
 
     
—  
 
     
53,846
 
   
71,159
 
     
—  
 
     
71,159
 
     General and administrative  
   
21,481
 
     
—  
 
     
21,481
 
   
26,217
 
     
—  
 
     
26,217
 
     Stock-based compensation  
   
(2,567
)  
     
2,567
 
     
—  
 
   
4,091
 
     
(4,091
)  
     
—  
 
     Amortization of goodwill and
          other intangibles  
   
41,835
 
     
(41,835
)  
     
—  
 
   
79,194
 
     
(79,194
)  
     
—  
 
     Restructuring-related and other  
   
3,994
 
     
(3,994
)  
     
—  
 
   
11,791
 
     
(11,791
)  
     
—  
 
  
    
    
  
    
    
          Total operating expenses  
   
232,526
 
     
(43,262
)  
     
189,264
 
   
330,794
 
     
(95,076
)  
     
235,718
 
  
    
    
  
    
    
Loss from operations  
   
(70,334
)  
     
43,262
 
     
(27,072
)  
   
(163,515
)  
     
95,076
 
     
(68,439
)  
Interest income  
   
6,316
 
     
—  
 
     
6,316
 
   
9,402
 
     
—  
 
     
9,402
 
Interest expense  
   
(35,046
)  
     
—  
 
     
(35,046
)  
   
(33,809
)  
     
—  
 
     
(33,809
)  
Other income (expense), net  
   
(2,203
)  
     
—  
 
     
(2,203
)  
   
3,353
 
     
—  
 
     
3,353
 
Other gains (losses), net  
   
(63,625
)  
     
63,625
 
     
—  
 
   
12,366
 
     
(12,366
)  
     
—  
 
  
    
    
  
    
    
          Net interest expense and other  
   
(94,558
)  
     
63,625
 
     
(30,933
)  
   
(8,688
)  
     
(12,366
)  
     
(21,054
)  
  
    
    
  
    
    
Loss before equity in losses of
     equity-method investees  
   
(164,892
)  
     
106,887
 
     
(58,005
)  
   
(172,203
)  
     
82,710
 
     
(89,493
)  
Equity in losses of equity-method
     investees, net  
   
(4,982
)  
     
4,982
 
     
—  
 
   
(68,321
)  
     
68,321
 
     
—  
 
  
    
    
  
    
    
Net loss  
   
$(169,874
)  
     
$111,869
 
     
$  (58,005
)  
   
$(240,524
)  
     
$151,031
 
     
$  (89,493
)  
  
    
    
  
    
    
Net cash used in operating activities  
   
$   (64,403
)  
     
 
    
$  (64,403
)  
   
$     (3,688
)  
     
 
    
$     (3,688
)  
  
         
  
         
Basic and diluted loss per share  
   
$        (0.46
)  
     
 
    
$        (0.16
)  
   
$        (0.68
)  
     
 
    
$        (0.25
)  
  
         
  
         
Shares used in computation of basic
     and diluted loss per share  
   
368,052
 
     
 
    
368,052
 
   
353,954
 
     
 
    
353,954
 
  
         
  
         
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

5  
 
AMAZON.COM, INC.  
 
PRO FORMA STATEMENTS OF OPERATIONS  
(in thousands, except per share data)  
(unaudited)  
 
Nine Months Ended  
September 30, 2001  
   
September 30, 2000  
As
Reported  
   
Pro Forma
Adjustments  
   
Pro Forma  
   
As
Reported  
   
Pro Forma
Adjustments  
   
Pro Forma  
Net sales  
$2,007,262
 
     
$          —  
 
     
$2,007,262
 
   
$1,789,623
 
     
$          —  
 
     
$1,789,623
 
Cost of sales  
1,482,753
 
     
—  
 
     
1,482,753
 
   
1,358,146
 
     
—  
 
     
1,358,146
 
    
    
  
    
    
Gross profit  
524,509
 
     
—  
 
     
524,509
 
   
431,477
 
     
—  
 
     
431,477
 
Operating expenses:  
 
    
 
    
 
  
 
    
 
    
 
    Fulfillment  
265,231
 
     
—  
 
     
265,231
 
   
283,481
 
     
—  
 
     
283,481
 
    Marketing  
103,833
 
     
—  
 
     
103,833
 
   
124,785
 
     
—  
 
     
124,785
 
    Technology and content  
188,840
 
     
—  
 
     
188,840
 
   
199,535
 
     
—  
 
     
199,535
 
    General and administrative  
70,287
 
     
—  
 
     
70,287
 
   
80,730
 
     
—  
 
     
80,730
 
    Stock-based compensation  
2,700
 
     
(2,700
)  
     
—  
 
   
25,909
 
     
(25,909
)  
     
—  
 
    Amortization of goodwill and other
        intangibles  
143,496
 
     
(143,496
)  
     
—  
 
   
242,562
 
     
(242,562
)  
     
—  
 
    Restructuring-related and other  
176,904
 
     
(176,904
)  
     
—  
 
   
16,259
 
     
(16,259
)  
     
—  
 
    
    
  
    
    
         Total operating expenses  
951,291
 
     
(323,100
)  
     
628,191
 
   
973,261
 
     
(284,730
)  
     
688,531
 
    
    
  
    
    
Loss from operations  
(426,782
)  
     
323,100
 
     
(103,682
)  
   
(541,784
)  
     
284,730
 
     
(257,054
)  
Interest income  
23,073
 
     
—  
 
     
23,073
 
   
29,842
 
     
—  
 
     
29,842
 
Interest expense  
(103,942
)  
     
—  
 
     
(103,942
)  
   
(94,827
)  
     
—  
 
     
(94,827
)  
Other expense, net  
(7,265
)  
     
—  
 
     
(7,265
)  
   
(4,693
)  
     
—  
 
     
(4,693
)  
Other gains (losses), net  
(18,453
)  
     
18,453
 
     
—  
 
   
12,366
 
     
(12,366
)  
     
—  
 
    
    
  
    
    
         Net interest expense and other  
(106,587
)  
     
18,453
 
     
(88,134
)  
   
(57,312
)  
     
(12,366
)  
     
(69,678
)  
    
    
  
    
    
Loss before equity in losses of equity-
    method investees  
(533,369
)  
     
341,553
 
     
(191,816
)  
   
(599,096
)  
     
272,364
 
     
(326,732
)  
Equity in losses of equity-method
    investees, net  
(28,472
)  
     
28,472
 
     
—  
 
   
(267,037
)  
     
267,037
 
     
—  
 
    
    
  
    
    
Loss before change in accounting
    principle  
(561,841
)  
     
370,025
 
     
(191,816
)  
   
(866,133
)  
     
539,401
 
     
(326,732
)  
Cumulative effect of change in
    accounting principle  
(10,523
)  
     
10,523
 
     
—  
 
   
—  
 
     
—  
 
     
—  
 
    
    
  
    
    
Net loss  
$    (572,364
)  
     
$380,548
 
     
$    (191,816
)  
   
$    (866,133
)  
     
$539,401
 
     
$    (326,732
)  
    
    
  
    
    
Net cash used in operating activities  
$    (468,902
)  
     
 
    
$    (468,902
)  
   
$    (378,095
)  
     
 
    
$    (378,095
)  
         
  
         
Basic and diluted loss per share:  
 
    
 
    
 
  
 
    
 
    
 
    Prior to cumulative effect of change
        in accounting principle  
$(1.55)
 
     
 
    
$            (0.53
)  
   
$            (2.48
)  
     
 
    
$            (0.94
)  
    Cumulative effect of change in
        accounting principle  
(0.03)
 
     
 
    
—  
 
   
—  
 
     
 
    
 
         
  
         
$            (1.58
)  
     
 
    
$            (0.53
)  
   
$            (2.48
)  
     
 
    
$            (0.94
)  
         
  
         
Shares used in computation of basic and
    diluted loss per share  
361,782
 
     
 
    
361,782
 
   
349,258
 
     
 
    
349,258
 
         
  
         
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

6  
 
AMAZON.COM, INC.  
 
SEGMENT INFORMATION  
(in thousands)  
(unaudited)  
 
  
Three Months Ended September 30, 2001  
  
U.S. Retail  
         
  
Books,
Music and
DVD/Video  
   
Electronics,
Tools and
Kitchen  
   
Total  
   
Services  
   
International  
   
Consolidated  
Net sales  
     
$351,431
 
       
$103,112
 
     
$454,543
 
   
$46,247
 
     
$138,491
 
       
$639,281
 
  
Gross profit  
     
93,354
 
       
13,327
 
     
106,681
 
   
27,348
 
     
28,163
 
       
162,192
 
  
Pro forma income (loss) from
     operations  
     
26,223
 
       
(33,107
)  
     
(6,884
)  
   
7,812
 
     
(28,000
)  
       
(27,072
)  
  
Other non-cash and restructuring-
     related operating expenses  
     
 
      
 
    
 
  
 
    
 
      
(43,262
)  
  
Net interest expense and other  
     
 
      
 
    
 
  
 
    
 
      
(94,558
)  
  
Equity in losses of equity-method
     investees, net  
     
 
      
 
    
 
  
 
    
 
      
(4,982
)  
  
                               
 
Net loss  
     
 
      
 
    
 
  
 
    
 
      
$(169,874
)  
  
                               
 
                                 
Segment highlights:  
     
 
      
 
    
 
  
 
    
 
      
 
 
          Y / Y net sales growth  
     
(12
%)  
       
6
%  
     
(9
%)  
   
(12
%)  
     
58
%  
       
0
%  
  
          Y / Y gross profit growth  
     
(14
%)  
       
49
%  
     
(9
%)  
   
(11
%)  
     
49
%  
       
(3
%)  
  
          Gross margin  
     
27
%  
       
13
%  
     
23
%  
   
59
%  
     
20
%  
       
25
%  
  
          Pro forma operating margin  
     
7
%  
       
(32
%)  
     
(2
%)  
   
17
%  
     
(20
%)  
       
(4
%)  
  
          Net sales mix  
     
55
%  
       
16
%  
     
71
%  
   
7
%  
     
22
%  
       
100
%  
  
                                 
  
Three Months Ended September 30, 2000  
  
U.S. Retail  
         
  
Books,
Music and
DVD/Video  
   
Electronics,
Tools and
Kitchen  
   
Total  
   
Services  
   
International  
   
Consolidated  
Net sales  
     
$399,905
 
       
$   97,597
 
     
$497,502
 
   
$52,691
 
     
$   87,665
 
       
$637,858
 
  
Gross profit  
     
108,746
 
       
8,940
 
     
117,686
 
   
30,711
 
     
18,882
 
       
167,279
 
  
Pro forma income (loss) from
     operations  
     
24,688
 
       
(60,839
)  
     
(36,151
)  
   
7,281
 
     
(39,569
)  
       
(68,439
)  
  
Other non-cash and restructuring-
     related operating expenses  
     
 
      
 
    
 
  
 
    
 
      
(95,076
)  
  
Net interest expense and other  
     
 
      
 
    
 
  
 
    
 
      
(8,688
)  
  
Equity in losses of equity-method
     investees, net  
     
 
      
 
    
 
  
 
    
 
      
(68,321
)  
  
                               
 
Net loss  
     
 
      
 
    
 
  
 
    
 
      
$(240,524
)  
  
                               
 
Segment highlights:  
     
 
      
 
    
 
  
 
    
 
      
 
 
          Y / Y net sales growth  
     
33
%  
       
681
%  
     
59
%  
   
N/A
 
     
121
%  
       
79
%  
  
          Y / Y gross profit growth  
     
70
%  
       
N/A
 
     
98
%  
   
N/A
 
     
110
%  
       
137
%  
  
          Gross margin  
     
27
%  
       
9
%  
     
24
%  
   
58
%  
     
22
%  
       
26
%  
  
          Pro forma operating margin  
     
6
%  
       
(62
%)  
     
(7
%)  
   
14
%  
     
(45
%)  
       
(11
%)  
  
          Net sales mix  
     
63
%  
       
15
%  
     
78
%  
   
8
%  
     
14
%  
       
100
%  
  
 
 

7  
 
AMAZON.COM, INC.  
 
SEGMENT INFORMATION  
(in thousands)  
(unaudited)  
 
 
  
Nine Months Ended September 30, 2001  
  
U.S. Retail  
         
  
Books,
Music and
DVD/Video  
   
Electronics,
Tools and
Kitchen  
   
Total  
   
Service  
   
International  
   
Consolidated  
Net sales  
   
$1,150,740
 
   
$330,576
 
   
$1,481,316
 
   
$127,004
 
     
$398,942
 
     
$2,007,262
 
Gross profit  
   
313,317
 
   
43,706
 
   
357,023
 
   
81,908
 
     
85,578
 
     
524,509
 
Pro forma income (loss) from
     operations  
   
92,815
 
   
(120,262
)  
   
(27,447
)  
   
16,327
 
     
(92,562
)  
     
(103,682
)  
Other non-cash and restructuring-
     related operating expenses  
   
 
  
 
  
 
  
 
    
 
    
(323,100
)  
Net interest expense and other  
   
 
  
 
  
 
  
 
    
 
    
(106,587
)  
Equity in losses of equity-method
     investees, net  
   
 
  
 
  
 
  
 
    
 
    
(28,472
)  
Cumulative effect of change in
     accounting principle  
   
 
  
 
  
 
  
 
    
 
    
(10,523
)  
Net loss  
   
 
  
 
  
 
  
 
    
 
    
$    (572,364
)  
                     
Segment highlights:  
   
 
  
 
  
 
  
 
    
 
    
 
Y / Y net sales growth  
   
(3
%)  
   
25
%  
   
2
%  
   
23
%  
     
69
%  
     
12
%  
Y / Y gross profit growth  
   
13
%  
   
96
%  
   
19
%  
   
3
%  
     
67
%  
     
22
%  
Gross margin  
   
27
%  
   
13
%  
   
24
%  
   
64
%  
     
21
%  
     
26
%  
Pro forma operating margin  
   
8
%  
   
(36
%)  
   
(2
%)  
   
13
%  
     
(23
%)  
     
(5
%)  
Net sales mix  
   
57
%  
   
16
%  
   
74
%  
   
6
%  
     
20
%  
     
100
%  
 
  
 
Nine Months Ended September 30, 2000  
   
  
  
  
  
  
U.S. Retail  
   
  
        
  
Books,
Music and
DVD/Video  
   
Electronics,
Tools and
Kitchen  
   
Total  
   
Services  
   
International  
   
Consolidated  
Net sales  
   
$1,186,595
 
   
$263,948
 
   
$1,450,543
 
   
$102,890
 
     
$236,190
 
     
$1,789,623
 
Gross profit  
   
278,463
 
   
22,248
 
   
300,711
 
   
79,562
 
     
51,204
 
     
431,477
 
Pro forma income (loss) from
     operations  
   
32,319
 
   
(197,165
)  
   
(164,846
)  
   
9,312
 
     
(101,520
)  
     
(257,054
)  
Other non-cash and restructuring-
     related operating expenses  
   
 
  
 
  
 
  
 
    
 
    
(284,730
)  
Net interest expense and other  
   
 
  
 
  
 
  
 
    
 
    
(57,312
)  
Equity in losses of equity-method
     investees, net  
   
 
  
 
  
 
  
 
    
 
    
(267,037
)  
                     
Net loss  
   
 
  
 
  
 
  
 
    
 
    
$    (866,133
)  
                     
Segment highlights:  
   
 
  
 
  
 
  
 
    
 
    
 
          Y/Y net sales growth  
   
40
%  
   
N/A
 
   
68
%  
   
N/A
 
     
144
%  
     
86
%  
          Y/Y gross profit growth  
   
50
%  
   
N/A
 
   
68
%  
   
N/A
 
     
147
%  
     
113
%  
          Gross margin  
   
23
%  
   
8
%  
   
21
%  
   
77
%  
     
22
%  
     
24
%  
          Pro forma operating margin  
   
3
%  
   
(75
%)  
   
(11
%)  
   
9
%  
     
(43
%)  
     
(14
%)  
          Net sales mix  
   
66
%  
   
15
%  
   
81
%  
   
6
%  
     
13
%  
     
100
%  

8  
 
AMAZON.COM, INC.  
 
SEGMENT INFORMATION  
(in thousands)  
(unaudited)  
 
Supplemental geographical segment information is as follows (in thousands):  
 
 
  
Three Months Ended
September 30, 2001  
     
Three Months Ended
September 30, 2000  
  
Net Sales  
   
Pro Forma Income
(Loss) from
Operations  
     
Net Sales  
     
Pro Forma Income
(Loss) from
Operations  
          U.S.  
        
 
             
 
 
                   Books, Music and DVD/Video  
   
$    351,431  
     
$   26,223
 
       
$    399,905  
       
$   24,688
 
  
                   Electronics, Tools and Kitchen  
   
103,112  
     
(33,107
)  
       
97,597  
       
(60,839
)  
  
  
    
      
      
 
                             U.S. Retail  
   
454,543  
     
(6,884
)  
       
497,502  
       
(36,151
)  
  
                   Services  
   
46,247  
     
7,812
 
       
52,691  
       
7,281
 
  
  
    
      
      
 
                             Total U.S.  
   
500,790  
     
928
 
       
550,193  
       
(28,870
)  
  
          International  
   
138,491  
     
(28,000
)  
       
87,665  
       
(39,569
)  
  
  
    
      
      
 
Total Consolidated  
   
$    639,281  
     
$   (27,072
)  
       
$    637,858  
       
$   (68,439
)  
  
  
    
      
      
 
                       
  
Nine Months Ended
September 30, 2001  
     
Nine Months Ended
September 30, 2000  
  
Net Sales  
   
Pro Forma Income
(Loss) from
Operations  
     
Net Sales  
     
Pro Forma Income
(Loss) from
Operations  
          U.S.  
        
 
             
 
 
                   Books, Music and DVD/Video  
   
$1,150,740  
     
$   92,815
 
       
$1,186,595  
       
$   32,319
 
  
                   Electronics, Tools and Kitchen  
   
330,576  
     
(120,262
)  
       
263,948  
       
(197,165
)  
  
  
    
      
      
 
                             U.S. Retail  
   
1,481,316  
     
(27,447
)  
       
1,450,543  
       
(164,846
)  
  
                   Services  
   
127,004  
     
16,327
 
       
102,890  
       
9,312
 
  
  
    
      
      
 
                             Total U.S.  
   
1,608,320  
     
(11,120
)  
       
1,553,433  
       
(155,534
)  
  
          International  
   
398,942  
     
(92,562
)  
       
236,190  
       
(101,520
)  
  
  
    
      
      
 
Total Consolidated  
   
$2,007,262  
     
$(103,682
)  
       
$1,789,623  
       
$(257,054
)  
  
  
    
      
      
 
 
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

9  
 
AMAZON.COM, INC.  
 
BALANCE SHEETS  
(in thousands, except per share data)  
(unaudited)  
 
  
September 30,
2001  
   
December 31,
2000,  
ASSETS  
   
 
  
 
Current assets:  
   
 
  
 
          Cash and cash equivalents  
   
$    432,307
 
   
$    822,435
 
          Marketable securities  
   
235,793
 
   
278,087
 
          Inventories  
   
130,739
 
   
174,563
 
          Prepaid expenses and other current assets  
   
71,437
 
   
86,044
 
  
  
                   Total current assets  
   
870,276
 
   
1,361,129
 
Fixed assets, net  
   
288,373
 
   
366,416
 
Goodwill, net  
   
62,788
 
   
158,990
 
Other intangibles, net  
   
48,273
 
   
96,335
 
Investments in equity-method investees  
   
7,242
 
   
52,073
 
Other equity investments  
   
18,105
 
   
40,177
 
Other assets  
   
51,311
 
   
60,049
 
  
  
                   Total assets  
   
$1,346,368
 
   
$2,135,169
 
  
  
LIABILITIES AND STOCKHOLDERS’ DEFICIT  
   
 
  
 
Current liabilities:  
   
 
  
 
          Accounts payable  
   
$    236,992
 
   
$    485,383
 
          Accrued expenses and other current liabilities  
   
243,229
 
   
272,683
 
          Unearned revenue  
   
90,288
 
   
131,117
 
          Interest payable  
   
41,635
 
   
69,196
 
          Current portion of long-term debt and other  
   
16,054
 
   
16,577
 
  
  
                   Total current liabilities  
   
628,198
 
   
974,956
 
Long-term debt and other  
   
2,172,164
 
   
2,127,464
 
Commitments and contingencies  
   
 
  
 
Stockholders’ 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—371,766 and 357,140 shares at
                        September 30, 2001 and December 31, 2000, respectively  
   
3,718
 
   
3,571
 
          Additional paid-in capital  
   
1,455,693
 
   
1,338,303
 
          Deferred stock-based compensation  
   
(11,306
)  
   
(13,448
)  
          Accumulated other comprehensive loss  
   
(36,434
)  
   
(2,376
)  
          Accumulated deficit  
   
(2,865,665
)  
   
(2,293,301
)  
  
  
                   Total stockholders’ deficit  
   
(1,453,994
)  
   
(967,251
)  
  
  
                             Total liabilities and stockholders’ deficit  
   
$1,346,368
 
   
$2,135,169
 
  
  
 
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

10  
 
AMAZON.COM, INC.  
 
STATEMENTS OF CASH FLOWS  
(in thousands)  
(unaudited)  
 
  
Three Months Ended
September 30,  
   
Nine Months Ended
September 30,  
  
2001  
   
2000  
   
2001  
   
2000  
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD  
   
$462,949
 
   
$720,377
 
   
$822,435
 
   
$133,309
 
OPERATING ACTIVITIES:  
   
 
  
 
  
 
  
 
Net loss  
   
(169,874
)  
   
(240,524
)  
   
(572,364
)  
   
(866,133
)  
Adjustments to reconcile net loss to net cash used in operating activities:  
   
 
  
 
  
 
  
 
    Depreciation of fixed assets and other amortization  
   
19,795
 
   
22,857
 
   
63,662
 
   
61,719
 
    Stock-based compensation  
   
(2,567
)  
   
4,091
 
   
2,700
 
   
25,909
 
    Equity in losses of equity-method investees, net  
   
4,982
 
   
68,321
 
   
28,472
 
   
267,037
 
    Amortization of goodwill and other intangibles  
   
41,835
 
   
79,194
 
   
143,496
 
   
242,562
 
    Non-cash restructuring-related and other  
   
1,881
 
   
11,791
 
   
70,410
 
   
16,259
 
    Gain on sale of marketable securities, net  
   
(1,351
)  
   
(3,205
)  
   
(1,137
)  
   
(4,157
)  
    Other losses (gains), net  
   
63,625
 
   
(12,366
)  
   
18,453
 
   
(12,366
)  
    Non-cash interest expense and other  
   
6,834
 
   
6,227
 
   
20,119
 
   
18,316
 
    Cumulative effect of change in accounting principle  
   
—  
 
   
—  
 
   
10,523
 
   
—  
 
Changes in operating assets and liabilities:  
   
 
  
 
  
 
  
 
    Inventories  
   
(659
)  
   
8,480
 
   
44,441
 
   
56,766
 
    Prepaid expenses and other current assets  
   
2,960
 
   
(13,034
)  
   
18,091
 
   
(11,997
)  
    Accounts payable  
   
(22,594
)  
   
18,470
 
   
(253,984
)  
   
(158,317
)  
    Accrued expenses and other current liabilities  
   
(9,721
)  
   
12,887
 
   
(15,212
)  
   
(19,407
)  
    Unearned revenue  
   
33,443
 
   
64,466
 
   
76,640
 
   
66,091
 
    Amortization of previously unearned revenue  
   
(30,100
)  
   
(26,870
)  
   
(95,400
)  
   
(65,558
)  
    Interest payable  
   
(2,892
)  
   
(4,473
)  
   
(27,812
)  
   
5,181
 
  
  
  
  
         Net cash used in operating activities  
   
(64,403
)  
   
(3,688
)  
   
(468,902
)  
   
(378,095
)  
INVESTING ACTIVITIES:  
   
 
  
 
  
 
  
 
Sales and maturities of marketable securities  
   
141,724
 
   
72,619
 
   
303,061
 
   
521,913
 
Purchases of marketable securities  
   
(223,817
)  
   
(44,954
)  
   
(280,938
)  
   
(95,740
)  
Purchases of fixed assets, including internal-use software and web-site
    development  
   
(12,925
)  
   
(41,948
)  
   
(42,787
)  
   
(97,427
)  
Investments in equity-method investees and other investments  
   
—  
 
   
(5,760
)  
   
—  
 
   
(61,842
)  
  
  
  
  
         Net cash provided by (used in) investing activities  
   
(95,018
)  
   
(20,043
)  
   
(20,664
)  
   
266,904
 
FINANCING ACTIVITIES:  
   
 
  
 
  
 
  
 
Proceeds from exercise of stock options  
   
1,101
 
   
4,564
 
   
14,578
 
   
39,717
 
Proceeds from issuance of common stock, net of issuance costs  
   
99,831
 
   
—  
 
   
99,831
 
   
—  
 
Proceeds from long-term debt and other  
   
—  
 
   
500
 
   
10,000
 
   
681,499
 
Repayment of long-term debt and other  
   
(6,466
)  
   
(3,777
)  
   
(15,135
)  
   
(12,997
)  
Financing costs  
   
—  
 
   
—  
 
   
—  
 
   
(16,122
)  
  
  
  
  
         Net cash provided by financing activities  
   
94,466
 
   
1,287
 
   
109,274
 
   
692,097
 
Effect of exchange-rate changes on cash and cash equivalents  
   
34,313
 
   
(50,885
)  
   
(9,836
)  
   
(67,167
)  
  
  
  
  
Net increase (decrease) in cash and cash equivalents  
   
(30,642
)  
   
(73,329
)  
   
(390,128
)  
   
513,739
 
  
  
  
  
CASH AND CASH EQUIVALENTS, END OF PERIOD  
   
$432,307
 
   
$647,048
 
   
$432,307
 
   
$647,048
 
  
  
  
  
SUPPLEMENTAL CASH FLOW INFORMATION:  
   
 
  
 
  
 
  
 
Fixed assets acquired under capital leases  
   
$      2,014
 
   
$          —  
 
   
$      4,483
 
   
$      4,346
 
Fixed assets acquired under financing agreements  
   
—  
 
   
—  
 
   
—  
 
   
4,844
 
Equity securities received for commercial agreements  
   
—  
 
   
9,009
 
   
331
 
   
106,848
 
Stock issued in connection with business acquisitions  
   
—  
 
   
2,130
 
   
—  
 
   
32,130
 
Cash paid for interest  
   
30,275
 
   
33,640
 
   
110,990
 
   
65,382
 
 
Note: The attached “Financial and Operational Highlights” are an integral part of the press release financial statements.  

11  
 
AMAZON.COM, INC.  
 
SUPPLEMENTAL FINANCIAL INFORMATION AND BUSINESS METRICS  
(unaudited)  
(in millions, except per share data)  
 
  
Q3
2000  
   
Q4
2000  
   
Q1
2001  
   
Q2
2001  
   
Q3
2001  
     
Y / Y  
Growth %  
Results of Operations  
   
 
  
 
  
 
  
 
  
 
      
 
 
Net sales  
   
$    638
 
   
$    972
 
   
$    700
 
   
$    668
 
   
$    639
 
       
0
%  
  
Net sales—trailing twelve months (TTM)  
   
$2,466
 
   
$2,762
 
   
$2,888
 
   
$2,978
 
   
$2,980
 
       
21
%  
  
Net sales outside the U.S. (including U.S. export sales)—% of
    net sales  
   
23
%  
   
$      21
%  
   
26
%  
   
28
%  
   
29
%  
       
N/A
 
  
Gross profit  
   
$    167
 
   
$    224
 
   
$    183
 
   
$    180
 
   
$    162
 
       
(3
%)  
  
Gross margin—% of net sales  
   
26.2
%  
   
23.1
%  
   
26.1
%  
   
26.9
%  
   
25.4
%  
       
N/A
 
  
Fulfillment costs—% of net sales  
   
15.1
%  
   
13.5
%  
   
14.0
%  
   
12.8
%  
   
12.7
%  
       
N/A
 
  
Fulfillment costs—% of U.S. Retail and International combined
    net sales  
   
16.5
%  
   
14.9
%  
   
14.9
%  
   
13.6
%  
   
13.7
%  
       
N/A
 
  
Pro forma operating expenses  
   
$    236
 
   
$    284
 
   
$    231
 
   
$    208
 
   
$    189
 
       
(20
%)  
  
Pro forma operating loss  
   
$     (68
)  
   
$     (60
)  
   
$     (49
)  
   
$     (28
)  
   
$     (27
)  
       
(60
%)  
  
Pro forma operating loss—% of net sales  
   
(10.7
%)  
   
(6.2
%)  
   
(6.9
%)  
   
(4.2
%)  
   
(4.2
%)  
       
N/A
 
  
GAAP operating loss before depreciation and amortization  
   
$     (61
)  
   
$   (220
)  
   
$   (143
)  
   
$     (68
)  
   
$       (9
)  
       
(86
%)  
  
Pro forma net loss  
   
$     (89
)  
   
$     (90
)  
   
$     (76
)  
   
$     (58
)  
   
$     (58
)  
       
(35
%)  
  
Pro forma net loss per share  
   
$  (0.25
)  
   
$  (0.25
)  
   
$  (0.21
)  
   
$  (0.16
)  
   
$  (0.16
)  
       
(36
%)  
  
GAAP net loss  
   
$   (241
)  
   
$   (545
)  
   
$   (234
)  
   
$   (168
)  
   
$   (170
)  
       
(29
%)  
  
GAAP net loss per share  
   
$  (0.68
)  
   
$  (1.53
)  
   
$  (0.66
)  
   
$  (0.47
)  
   
$  (0.46
)  
       
(32
%)  
  
U.S. books, music and DVD/video (US BMVD) segment:  
   
 
  
 
  
 
  
 
  
 
      
 
 
       US BMVD net sales  
   
$    400
 
   
$    512
 
   
$    410
 
   
$    390
 
   
$    351
 
       
(12
%)  
  
       US BMVD net sales—TTM  
   
$1,646
 
   
$1,698
 
   
$1,706
 
   
$1,711
 
   
$1,662
 
       
1
%  
  
       US BMVD gross profit  
   
$    109
 
   
$    139
 
   
$    109
 
   
$    111
 
   
$     93
 
       
(14
%)  
  
       US BMVD pro forma operating income—% of US BMVD net
           sales  
   
6
%  
   
8
%  
   
7
%  
   
10
%  
   
7
%  
       
N/A
 
  
U.S. electronics, tools and kitchen (US ETK) segment:  
   
 
  
 
  
 
  
 
  
 
      
 
 
       US ETK net sales  
   
$     98
 
   
$    220
 
   
$    117
 
   
$    111
 
   
$    103
 
       
6
%  
  
       US ETK net sales—TTM  
   
$    400
 
   
$    484
 
   
$    526
 
   
$    545
 
   
$    551
 
       
38
%  
  
       US ETK gross profit  
   
$       9
 
   
$     22
 
   
$     17
 
   
$     13
 
   
$     13
 
       
49
%  
  
       US ETK pro forma operating loss—% of US ETK net sales  
   
(62
%)  
   
(33
%)  
   
(39
%)  
   
(37
%)  
   
(32
%)  
       
N/A
 
  
Services segment:  
   
 
  
 
  
 
  
 
  
 
      
 
 
       Services net sales  
   
$     53
 
   
$     96
 
   
$     42
 
   
$     39
 
   
$     46
 
       
(12
%)  
  
       Services net sales—TTM  
   
$    112
 
   
$    198
 
   
$    218
 
   
$    229
 
   
$    223
 
       
99
%  
  
       Services gross profit  
   
$     31
 
   
$     37
 
   
$     28
 
   
$     26
 
   
$     27
 
       
(11
%)  
  
       Services pro forma operating income—% of Services net
           sales  
   
14
%  
   
18
%  
   
10
%  
   
11
%  
   
17
%  
       
N/A
 
  
U.S. Retail and Services combined pro forma operating income
    (loss)—% of U.S. Retail and Services net sales  
   
(5
%)  
   
(2
%)  
   
(2
%)  
   
0
%  
   
0
%  
       
N/A
 
  
International segment:  
   
 
  
 
  
 
  
 
  
 
      
 
 
       International net sales  
   
$     88
 
   
$    145
 
   
$    132
 
   
$    128
 
   
$    138
 
       
58
%  
  
       International net sales—TTM  
   
$    307
 
   
$    381
 
   
$    438
 
   
$    493
 
   
$    544
 
       
77
%  
  
       International gross profit  
   
$     19
 
   
$     26
 
   
$     28
 
   
$     29
 
   
$     28
 
       
49
%  
  
       International pro forma operating loss—% of International net
           sales  
   
(45
%)  
   
(30
%)  
   
(26
%)  
   
(23
%)  
   
(20
%)  
       
N/A
 
  
 
Note: The attached “Financial and Operational Highlights” are an integral part of this Supplemental Financial Information and Business Metrics.  

12  
AMAZON.COM, INC.  
 
SUPPLEMENTAL FINANCIAL INFORMATION AND BUSINESS METRICS (unaudited)  
(in millions, except, net sales per active customer account, cost per new customer account, inventory turnover, accounts payable days, and employee data)  
 
  
Q3
2000  
   
Q4
2000  
   
Q1
2001  
   
Q2
2001  
   
Q3
2001  
   
Y / Y
Growth %  
Customer Data *  
   
 
  
 
  
 
  
 
  
 
      
New customer accounts  
   
2.9
 
   
4.1
 
   
3.0
 
   
2.6
 
   
2.9
 
     
0%  
  
Cumulative customer accounts  
   
25.4
 
   
29.5
 
   
32.5
 
   
35.1
 
   
37.9
 
     
49%  
  
Active customer accounts — TTM  
   
18.2
 
   
19.8
 
   
20.5
 
   
21.1
 
   
23.0
 
     
26%  
  
New customer accounts — international  
   
0.9
 
   
1.1
 
   
1.0
 
   
0.9
 
   
1.0
 
     
11%  
  
Cumulative customer accounts — international  
   
3.9
 
   
5.0
 
   
6.0
 
   
6.9
 
   
7.9
 
     
103%  
  
Active customer accounts — international — TTM  
   
3.3
 
   
4.2
 
   
4.9
 
   
5.4
 
   
6.1
 
     
85%  
  
Net sales (excluding catalog sales and inventory sales to
    Toysrus.com) per active customer account — TTM  
   
$    130
 
   
$    134
 
   
$    135
 
   
$    136
 
   
$    126
 
     
(3%)  
  
Cost per new customer account  
   
$       15
 
   
$       13
 
   
$       12
 
   
$       14
 
   
$       11
 
     
(27%)  
  
U.S. customers (excluding Marketplace, Auctions and
    zShops customers) ordering from non-US BMVD stores  
   
14
%  
   
36
%  
   
19
%  
   
21
%  
   
22
%  
     
        N/A  
  
Balance Sheet  
   
 
  
 
  
 
  
 
  
 
      
Cash and marketable securities  
   
$    900
 
   
$1,101
 
   
$    643
 
   
$    609
 
   
$    668
 
     
(26%)  
  
Inventory, net  
   
$    164
 
   
$    175
 
   
$    156
 
   
$    129
 
   
$    131
 
     
(20%)  
  
Inventory — % of net sales  
   
26
%  
   
18
%  
   
22
%  
   
19
%  
   
20
%  
     
N/A  
  
Inventory turnover — annualized  
   
11.2
 
   
17.7
 
   
12.6
 
   
13.7
 
   
14.7
 
     
31%  
  
Inventory turnover — TTM  
   
11.5
 
   
11.7
 
   
13.0
 
   
14.0
 
   
14.8
 
     
29%  
  
Fixed assets, net  
   
$    352
 
   
$    366
 
   
$    304
 
   
$    292
 
   
$    288
 
     
(18%)  
  
Accounts payable days — ending  
   
60
 
   
60
 
   
45
 
   
48
 
   
46
 
     
(23%)  
  
Cash Flows  
   
 
  
 
  
 
  
 
  
 
      
Cash generated by (used in) operations  
   
$         (4
)  
   
$    248
 
   
$    (407
)  
   
$         2
 
   
$      (64
)  
     
N/M  
  
Cash used in operations — TTM  
   
$    (347
)  
   
$    (130
)  
   
$    (217
)  
   
$    (161
)  
   
$    (221
)  
     
(36%)  
  
Purchases of fixed assets  
   
$      (42
)  
   
$      (37
)  
   
$      (19
)  
   
$      (10
)  
   
$      (13
)  
     
(69%)  
  
Purchases of fixed assets — TTM  
   
$    (203
)  
   
$    (135
)  
   
$    (128
)  
   
$    (109
)  
   
$      (80
)  
     
(61%)  
  
Other  
   
 
  
 
  
 
  
 
  
 
      
Options outstanding — % of common stock outstanding  
   
21
%  
   
20
%  
   
12
%  
   
12
%  
   
18
%  
     
N/A  
  
Employees (full-time and part-time)  
   
8,500
 
   
9,000
 
   
8,600
 
   
7,800
 
   
7,900
 
     
(7%)  
  
*
 
Our customer account and active customer calculation methodology was modified in the third quarter 2001, primarily to include all customers who order new and used products through Amazon Marketplace. Our prior methodology did not capture all such customers. If second quarter 2001 customer metrics were presented under the modified methodology, new customer accounts, cumulative customer accounts, active customer accounts, International customer accounts, International cumulative customers, International active customer accounts, trailing twelve-month net sales per active customer account, and cost per new customer account would have been 2.7 million, 35.0 million, 21.9 million, .8 million, 6.9 million, 5.5 million, $131, and $13, respectively. Amounts prior to the second quarter of 2001 have not been recalculated under the current methodology.  
 
Note: The attached “Financial and Operational Highlights” are an integral part of this Supplemental Financial Information and Business Metrics.  

13  
 
AMAZON.COM, INC  
 
FINANCIAL AND OPERATIONAL HIGHLIGHTS  
Third Quarter Ended September 30, 2001  
(unaudited)  
 
Results of Operations (all comparisons are with the third quarter of 2000)  
 
 
Net Sales  
 
 
•
 
Orders from repeat customers represented 79% of total, up from 77%.  
 
 
•
 
Consolidated shipping net sales were approximately $74 million, down from $78 million.  
 
 
•
 
Cash-based portion of Services revenues increased to approximately $41 million, or 89%, from $32 million, or 61%; non-cash Services revenues decreased to approximately $5 million, or 11%, from $21 million, or 39%.  
 
 
•
 
Excluding third quarter 2000 online sales of toys and video games, which since September 2000 are now sold at www.amazon.com through our strategic alliance with Toysrus.com, growth rates for our U.S. Electronics, Tools and Kitchen segment would have been 23%.  
 
 
•
 
The events of September 11, 2001 negatively impacted our net sales during the three months ended September 30, 2001. Immediately following the events of September 11, 2001, customer purchases significantly declined but have recovered. We estimate that the net sales impact as a result of the events of September 11, 2001 was between $25 million and $35 million.  
 
 
Gross Profit  
 
 
•
 
Gross margin, excluding the results of our Services segment, would have been 23%, flat with 23%.  
 
 
•
 
Costs associated with our service revenues classified as cost of services generally include fulfillment-related costs to ship products on behalf of our service partners, costs to provide customer service, credit-card fees and other related costs. Cost of sales for our Services segment associated with syndicated stores, such as www.borders.com, consists of only the purchase price of consumer products, inbound and outbound shipping charges and packaging supplies.  
 
 
•
 
Consolidated shipping gross loss was approximately $2 million. The International segment’s shipping gross loss was approximately $3 million. We continue to measure our shipping results relative to their impact on our overall financial results, with the viewpoint that shipping promotions are an effective marketing tool. We will from time to time continue offering shipping promotions to our customers and may continue to experience fluctuating shipping margins.  
 
 
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 bad debt costs; and responding to inquiries from customers.  
 
 
Stock-Based Compensation  
 
 
•
 
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 13 million stock options at September 30, 2001, which includes approximately 11 million options granted under the exchange offer with an exercise price of $13.375, and approximately 2 million options that were subject to the exchange offer but were not exchanged. Variable accounting treatment will result in unpredictable charges or credits, recorded to “Stock-based compensation,” dependent on fluctuations in quoted prices for our common stock.  

14  
 
 
•
 
During the three months ended September 30, 2001, we issued approximately 26 million employee stock options, with a weighted average exercise price of $7.93, in connection with our annual performance-based option-grant program. These options are not subject to variable accounting treatment as they were issued at least six months from the date the limited non-compulsory exchange concluded.  
 
 
Amortization of Goodwill and Other Intangibles  
 
 
•
 
The Financial Accounting Standards Board issued SFAS No. 142 “Goodwill and Other Intangible Assets” which requires use of a non-amortization approach to account for purchased goodwill and certain intangibles, effective January 1, 2002. We expect the adoption of this accounting standard will have the impact, commencing January 1, 2002, of substantially reducing our amortization of goodwill and intangibles; however, impairment reviews may result in future periodic write-downs.  
 
 
Restructuring-Related and Other  
 
 
•
 
We continued the 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 approximately $173 million during the first half of 2001, and $4 million in the third quarter ended September 30, 2001. This initiative involved 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. Each component of the restructuring plan has been substantially completed.  
 
 
•
 
Costs that relate to ongoing operations, including inventory adjustments, are not part of restructuring and other charges. There were no significant inventory write-downs resulting from the restructuring.  
 
 
•
 
We anticipate the restructuring charges will result in the following net cash outflows:  
 
  
Leases  
   
Termination
Benefits  
   
Other  
   
Total  
  
(in thousands)  
Year Ending December 31,  
                
          2001  
   
$35,678  
     
$12,707  
     
$4,773  
   
$   53,158  
          2002  
   
35,261  
     
78  
     
3,571  
   
38,910  
          2003  
   
4,643  
     
—    
     
—    
   
4,643  
          2004  
   
1,612  
     
—    
     
—    
   
1,612  
          2005  
   
1,563  
     
—    
     
—    
   
1,563  
          Thereafter  
   
6,473  
     
—    
     
—    
   
6,473  
  
    
    
  
Total estimated cash outflows  
   
$85,230  
     
$12,785  
     
$8,344  
   
$106,359  
  
    
    
  
 
 
Cash payments resulting from the restructuring, which are included in the above amounts, were $20 million in the first half of 2001, and $15 million in the third quarter ended September 30, 2001.  
 
 
Other Expense, Net  
 
 
•
 
Other expense primarily relates to net realized gains and losses on sales of marketable securities, miscellaneous operating taxes and foreign currency related transaction gains and losses.  

15  
 
 
Other Losses, Net  
 
 
•
 
Other losses, net were $64 million for the three months ended September 30, 2001, consisting of the following (in thousands):  
 
Foreign-currency loss on PEACS  
   
$(39,572
)  
Losses on sales of Euro-denominated investments, net  
   
(16,332
)  
Other-than-temporary impairment losses, equity investments  
   
(2,382
)  
Warrant remeasurements and other  
   
(5,339
)  
  
  
$(63,625
)  
  
 
 
•
 
Currency gains and losses arising from the remeasurement of the PEACS’s principal from Euros to U.S. dollars are recorded each quarter.  
 
 
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  
 
 
•
 
In July 2001, America Online made a $100 million investment in Amazon.com common stock, resulting in the issuance of 8.2 million shares, which was sold under a registration statement that we previously filed with the Securities and Exchange Commission.  
 
 
•
 
The effect of outstanding 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 388 million, compared with 368 million shares used in computation of basic and diluted loss per share for the three months ended September 30, 2001.  
 
 
•
 
Common stock subject to outstanding vested and unvested employee stock options was approximately 67 million shares as of September 30, 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 Euro investments, classified as available-for-sale, had a balance of 178 million Euros ($162 million, based on an exchange rate of .91 Euros per U.S. dollar, the exchange rate as of September 30, 2001).  
 
 
•
 
Our marketable securities, at fair value, consist of the following, as of September 30, 2001 (in thousands):  
 
Certificates of deposit  
   
$   18,587  
Corporate notes and bonds  
   
30,604  
Asset-backed and agency securities  
   
125,997  
Treasury notes and bonds  
   
51,153  
Equity securities  
   
9,452  
  
  
$235,793  
  

16  
 
Certain Definitions and Other  
 
 
•
 
Our segment reporting includes 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 the 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, DVD and video products, and includes amounts earned on sales of similar products, new or used, 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, computers, kitchen and housewares, camera and photo items, software, cell phones and service, tools and hardware, outdoor living, toys, and computer and video games products, sold other than through our Toysrus.com strategic alliance, and new initiatives, and includes amounts earned on sales of similar products, new or used, sold through Amazon Marketplace.  
 
 
•
 
The International segment includes all revenues, direct costs and cost allocations associated with the retail sales of our 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 our business-to-business strategic relationships, including our strategic alliance with Toysrus.com, product sales from syndicated stores such as www.borders.com, miscellaneous marketing and promotional revenues, and amounts from Amazon Auctions, zShops and Payments. Amounts earned from the Services segment are attributed to the U.S.  
 
 
•
 
All references to customers mean customer accounts, which are unique e-mail addresses, established either when a customer’s order is shipped or when a customer orders from a third-party seller. Customer accounts exclude Amazon Payments customers, our catalog businesses customers, and the customers of selected companies with whom we have strategic marketing and promotional relationships, but include customers of Amazon Marketplace, Auctions, and zShops services, and customer accounts shared with Toysrus.com and Borders.com.  
 
 
•
 
Trailing twelve-month net sales per active customer account figures include all amounts earned through Internet sales, including net sales earned from new or used products sold through Amazon Marketplace and our strategic relationships with selected companies, but exclude sales of inventory to Toysrus.com and catalog sales. A customer is considered active upon placing an order.  
 
 
•
 
Our customer account and active customer calculation methodology was modified in the third quarter 2001, primarily to include all customers who order new and used products through Amazon Marketplace. Our prior methodology did not capture all such customers. If second quarter 2001 customer metrics were presented under the modified methodology, new customer accounts, cumulative customer accounts, active customer accounts, International customer accounts, International cumulative customers, International active customer accounts, trailing twelve-month net sales per active customer account, and cost per new customer account would have been 2.7 million, 35.0 million, 21.9 million, .8 million, 6.9 million, 5.5 million, $131, and $13, respectively. Amounts prior to the second quarter of 2001 have not been recalculated under the current methodology.  

17