Amazon.com Announces 22% Sales Growth Fueled by Lower Prices, Free Shipping; Amazon Prime Memberships More Than Double from Year End; Raises Top Line and Lowers Bottom Line Guidance; Will Invest Heavily in Toy Category in Back Half of Year.SEATTLE Seattle (sēăt`əl), city (1990 pop. 516,259), seat of King co., W Wash., built on seven hills, between Elliott Bay of Puget Sound and Lake Washington; inc. 1869. -- Amazon.com (Amazon.com, Seattle, WA, www.amazon.com) The largest online shopping site and one of the most widely known e-commerce sites on the Web. Founded by Jeff Bezos in 1995, it had 11 employees by year's end. Within four years, it had more than 1,600 employees and four million customers. , Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :AMZN AMZN Amazon.com (NASDAQ symbol) ) today announced financial results for its second quarter ended June June: see month. 30, 2006. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. declined 2% to $610 million for the trailing twelve months In commerce, the trailing twelve months (TTM) is a moving measurement (for example, an average or a sum) over the 12 previous months, using the most recent data available. Also sometimes known as last twelve months (LTM). , compared with $624 million for the trailing twelve months ended June 30, 2005. Free cash flow decreased 23% to $375 million for the trailing twelve months, compared with $486 million for the trailing twelve months ended June 30, 2005. The primary driver of the free cash flow decline was our increased expenditure in technology and content. Free cash flow was also reduced by a $40 million patent litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement in third quarter 2005, $34 million from excess tax benefits for stock-based compensation now classified as financing cash flows, and investments in additional fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. capacity. Common shares outstanding plus shares underlying stock-based awards outstanding totaled 443 million at June 30, 2006, compared with 438 million a year ago. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight increased 22% to $2.14 billion in the second quarter, compared with $1.75 billion in second quarter 2005. Excluding the $24 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 23% compared with second quarter 2005. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. decreased 55% to $47 million in the second quarter, compared with $104 million in second quarter 2005. The decline in operating income was mainly due to technology and content investments, lower prices including free shipping and Amazon Amazon, in Greek mythology Amazon (ăm`əzŏn), in Greek mythology, one of a tribe of warlike women who lived in Asia Minor. Prime, and $20 million from a contract termination Defense procurement: the cessation or cancellation, in whole or in part, of work under a prime contract or a subcontract thereunder for the convenience of, or at the option of, the government, or due to failure of the contractor to perform in accordance with the terms of the contract (default). and related fee dispute. Net income was $22 million in the second quarter, or $0.05 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared with net income of $52 million, or $0.12 per diluted share in second quarter 2005. "We're we're Contraction of we are. we're we are investing in Amazon Prime and future technology initiatives," said Jeff Bezos Jeffrey Preston Bezos (born January 12, 1964 , Albuquerque ) is the founder, president, chief executive officer, and chairman of the board of Amazon.com. Bezos, a Phi Beta Kappa graduate of Princeton University, worked as a financial analyst for D. E. Shaw & Co. , founder and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Amazon.com. "Amazon Prime gets customers their products fast, and our investments in technology position us to innovate in·no·vate v. in·no·vat·ed, in·no·vat·ing, in·no·vates v.tr. To begin or introduce (something new) for or as if for the first time. v.intr. To begin or introduce something new. in seller platforms, web services (1) Loosely, any online service delivered over the Web. Such usage appears in articles from non-technical sources, but not in IT-oriented publications, because definition #2 below describes the correct use of the term. , and digital. We're looking forward to the coming decrease in our year-over-year growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. in technology spending in the second half of 2006." Amazon Prime, Amazon.com's first-ever membership program, was introduced in February February: see month. 2005. For a flat membership fee of $79 per year, Amazon Prime members get unlimited, express two-day shipping for free, with no minimum purchase requirement on over a million eligible items sold by Amazon.com. Members can order as late as 6:30 p.m. ET and still get their order the next day for only $3.99 per item, and they can share the benefits of Amazon Prime with up to four family members living in their household. Sign up for Amazon Prime at www.amazon.com/prime. Highlights --North America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. segment sales, representing the Company's U.S. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. sites, were $1.16 billion, up 21% from second quarter 2005. --International segment sales, representing the Company's U.K., German, Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and , French and Chinese Chinese, subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock. sites, were $982 million, up 24% from second quarter 2005. Excluding the unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, International net sales growth was 27%. --Worldwide Electronics & Other General Merchandise MERCHANDISE. By this term is understood all those things which merchants sell either wholesale or retail, as dry goods, hardware, groceries, drugs, &c. It is usually applied to personal chattels only, and to those which are not required for food or immediate support, but such as remain grew 37% to $624 million in second quarter 2006, and increased to 29% of worldwide net sales compared with 26% in second quarter 2005. --The Company launched its new Toy and Baby stores on www.amazon.com, featuring tens of thousands of products offered by Amazon and leading mass market and specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. retailers. This is the largest selection of Toy and Baby products ever offered through Amazon.com, and for the first time ever, Toy and Baby products are eligible for Free Super Saver Super saver may refer to:
--The Company launched a Grocery store on www.amazon.com, with over 14,000 dry goods dry goods pl.n. Textiles, clothing, and related articles of trade. Also called soft goods. dry goods npl (COMM) → mercería sg dry goods grocery products across more than 1,200 brands - all eligible for Free Super Saver Shipping and Amazon Prime. --Amazon's German website -- Amazon.de -- launched its Sporting Goods Noun 1. sporting goods - sports equipment sold as a commodity commodity, trade good, good - articles of commerce sports equipment - equipment needed to participate in a particular sport store, offering customers a selection of thousands of sporting goods in over 25 categories from top brands like Adidas ADIDAS All Day I Dream About Sex (song by Korn) ADIDAS Adolph (Adi) Dassler (founder of Adidas) , Burton Burton can mean: Places Australia
Quiksilver, Inc., is one of the world's largest manufacturers of surfwear and other boardsport-related equipment based in Huntington Beach, California. and Salomon Noun 1. Salomon - American financier and American Revolutionary War patriot who helped fund the army during the American Revolution (1740?-1785) Haym Salomon . --The Company extended its Enterprise Solutions agreement with Target.com through August 2010 and launched a new Sears Canada Sears Canada Inc. TSX: SCC (more commonly referred to as "Sears") is a retailer, headquartered in Toronto, Ontario, that operates in all provinces and territories across Canada with a network of 188 corporate stores, 180 dealer stores, 67 home improvement showrooms, 112 Sears branded website providing Sears Canada with the tools and services to control its brand, merchandising merchandising Element of marketing concerned especially with the sale of goods and services to customers. One aspect of merchandising is advertising, which aims to capture the interest of the segment of the population most likely to buy the product. and online business using Amazon Enterprise Solutions technology. --Amazon S3, a simple storage service for software developers, gained momentum in its first full quarter after launch, providing businesses of all sizes -- from Microsoft (Microsoft Corporation, Redmond, WA, www.microsoft.com) The most successful and influential software company. Microsoft's software and Intel's hardware pioneered the PC and revolutionized the computer industry. to SmugMug
Chris MacAskill (father) and Don MacAskill (son) started the original company to build a new video game-oriented web service in February 2002. -- with a web services solution for storing and retrieving any amount of data, at any time, from anywhere on the web. Developers continue to adopt Amazon's web services -- over 180,000 have registered to date, up greater than 60% year-over-year. Financial Guidance The following forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. reflect Amazon.com's expectations as of July July: see month. 25, 2006. Results may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. , world events, the rate of growth of the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the and online commerce, and the various factors detailed below. Third Quarter 2006 Guidance --Net sales are expected to be between $2.17 billion and $2.33 billion, or to grow between 17% and 25% compared with third quarter 2005. --Operating income is expected to be between $7 million and $42 million, or between (87%) decline and (24%) decline, compared with third quarter 2005. This guidance includes $38 million for stock-based compensation and amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions ReVisions is a 2004 anthology of alternate history short-stories. It is edited by Julie E. Czerneda and Isaac Szpindel. Contents Title Author The Resonance of Light James Alan Gardner Out of China Julie E. to stock-based compensation estimates. Full Year 2006 Expectations --Net sales are expected to be between $10.15 billion and $10.65 billion, or to grow between 20% and 25% compared with 2005. --Operating income is expected to be between $310 million and $440 million, or between (28%) decline and 2% growth, compared with 2005. This guidance includes $120 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional intangible assets are recorded and that there are no further revisions to stock-based compensation estimates. A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company's financial and operating results. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from products as compared with services, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings All actions that are authorized or sanctioned by law and instituted in a court or a tribunal for the acquisition of rights or the enforcement of remedies. and claims, fulfillment center optimization optimization Field of applied mathematics whose principles and methods are used to solve quantitative problems in disciplines including physics, biology, engineering, and economics. , risks of inventory management, seasonality, the degree to which the Company enters into, maintains and develops commercial agreements, acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput The speed with which a computer processes data. It is a combination of internal processing speed, peripheral speeds (I/O) and the efficiency of the operating system and other system software all working together. 1. and productivity. Other risks and uncertainties include, among others, risk of future losses, significant indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , system interruptions, consumer trends, limited operating history, government regulation and taxation, fraud, and new business areas. 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the year ended December December: see month. 31, 2005, and all subsequent filings. About Amazon.com Amazon.com (Nasdaq:AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com, Inc. seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as health and personal care, jewelry jewelry, personal adornments worn for ornament or utility, to show rank or wealth, or to follow superstitious custom or fashion. The most universal forms of jewelry are the necklace, bracelet, ring, pin, and earring. and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, toys and baby, and home and garden. Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo Joyo may refer to:
As used herein, "Amazon.com," "we," "our" and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.
AMAZON.COM, INC.
Consolidated Statements of Cash Flows
(in millions)
(unaudited)
Three Months Six Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
------------- -------------- ---------------
2006 2005 2006 2005 2006 2005
------ ------ ------ ------ ------ -------
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD $ 507 $ 533 $1,013 $1,303 $ 629 $ 701
OPERATING ACTIVITIES:
Net income 22 52 73 130 302 531
Adjustments to
reconcile net income
to net cash from
operating
activities:
Depreciation of fixed
assets, including
internal-use
software
and website
development, and
other amortization 43 26 83 55 149 95
Stock-based
compensation 30 26 41 45 84 74
Other operating
expense 3 2 6 3 10 2
Losses (gains) on
sales of marketable
securities, net (1) - 1 - - -
Remeasurements and
other (12) (18) (9) (32) (19) 5
Non-cash interest
expense and other 1 1 2 3 5 5
Deferred income taxes (2) 44 8 94 (15) (154)
Cumulative effect of
change in accounting
principle - - - (26) - (26)
Changes in operating
assets and liabilities:
Inventories 30 13 63 85 (128) (93)
Accounts receivable,
net and other
current assets 16 9 66 19 (37) 8
Accounts payable 4 54 (438) (370) 207 150
Accrued expenses and
other current
liabilities 1 28 (71) (66) 54 15
Additions to unearned
revenue 38 38 92 66 181 125
Amortization of
previously unearned
revenue (43) (31) (90) (56) (183) (113)
----- ----- ------ ------ ------- -------
Net cash provided by
(used in) operating
activities 130 244 (173) (50) 610 624
INVESTING ACTIVITIES:
Purchases of fixed
assets, including
internal-use
software and website
development (58) (46) (104) (73) (235) (138)
Acquisitions, net of
cash acquired - (5) (28) (20) (32) (91)
Sales and maturities
of marketable
securities and other
investments 249 142 537 490 883 1,305
Purchases of
marketable
securities (232) (235) (362) (738) (1,009) (1,568)
----- ----- ------ ------ ------- -------
Net cash provided by
(used in) investing
activities (41) (144) 43 (341) (393) (492)
FINANCING ACTIVITIES:
Proceeds from
exercises of stock
options 7 8 13 17 55 42
Excess tax benefit on
stock awards 21 1 29 2 34 2
Proceeds from long-
term debt and other 66 - 69 - 82 -
Repayments of long-
term debt and
capital lease
obligations (21) - (334) (266) (341) (267)
----- ----- ------ ------ ------- -------
Net cash provided by
(used in) financing
activities 73 9 (223) (247) (170) (223)
Foreign-currency
effect on cash and
cash equivalents 14 (13) 23 (36) 7 19
----- ----- ------ ------ ------- -------
Net increase
(decrease) in
cash and cash
equivalents 176 96 (330) (674) 54 (72)
----- ----- ------ ------ ------- -------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD $ 683 $ 629 $ 683 $ 629 $ 683 $ 629
===== ===== ====== ====== ======= =======
SUPPLEMENTAL CASH
FLOW INFORMATION:
Cash paid for
interest $ - $ - $ 63 $ 84 $ 84 $ 105
Cash paid for income
taxes 3 1 8 5 15 8
AMAZON.COM, INC.
Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2006 2005 2006 2005
------- ------- -------- -------
Net sales $ 2,139 $ 1,753 $ 4,418 $ 3,655
Cost of sales 1,630 1,303 3,361 2,746
------- ------- ------- -------
Gross profit 509 450 1,057 909
Operating expenses (1):
Fulfillment 189 158 383 324
Marketing 53 42 107 87
Technology and content 167 106 314 198
General and administrative 50 38 95 85
Other operating expense 3 2 6 3
------- ------- ------- -------
Total operating expenses 462 346 905 697
------- ------- ------- -------
Income from operations 47 104 152 212
Interest income 13 9 27 18
Interest expense (19) (22) (38) (48)
Other income (expense), net 1 (1) - 2
Remeasurements and other 12 18 9 32
------- ------- ------- -------
Total non-operating income
(expense) 7 4 (2) 4
------- ------- ------- -------
Income before income taxes 54 108 150 216
Provision for income taxes 32 56 77 112
------- ------- ------- -------
Income before cumulative effect
of change in accounting
principle 22 52 73 104
Cumulative effect of change in
accounting principle - - - 26
------- ------- ------- -------
Net income $ 22 $ 52 $ 73 $ 130
======= ======= ======= =======
Basic earnings per share:
Prior to cumulative effect of
change in accounting
principle $ 0.05 $ 0.13 $ 0.18 $ 0.25
Cumulative effect of change
in accounting principle - - - 0.07
------- ------- ------- -------
$ 0.05 $ 0.13 $ 0.18 $ 0.32
======= ======= ======= =======
Diluted earnings per share:
Prior to cumulative effect of
change in accounting
principle $ 0.05 $ 0.12 $ 0.17 $ 0.24
Cumulative effect of change
in accounting principle - - - 0.07
------- ------- ------- -------
$ 0.05 $ 0.12 $ 0.17 $ 0.31
======= ======= ======= =======
Weighted average shares used in
computation of earnings per share:
Basic 418 411 417 410
======= ======= ======= =======
Diluted 426 425 426 425
======= ======= ======= =======
(1) Includes stock-based
compensation as follows:
Fulfillment $ 7 $ 5 $ 10 $ 8
Marketing 1 2 2 3
Technology and content 16 13 23 23
General and administrative 6 6 6 11
AMAZON.COM, INC.
Segment Information
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- ---------------
2006 2005 2006 2005
------ ------ ------ ------
North America
Net sales $1,157 $ 960 $2,404 $1,987
Cost of sales 848 682 1,753 1,430
------ ------ ------ ------
Gross profit 309 278 651 557
Direct segment operating
expenses (1) 284 206 565 420
------ ------ ------ ------
Segment operating income 25 72 86 137
International
Net sales 982 793 2,014 1,668
Cost of sales 782 621 1,608 1,316
------ ------ ------ ------
Gross profit 200 172 406 352
Direct segment operating
expenses (1) 145 112 293 229
------ ------ ------ ------
Segment operating income 55 60 113 123
Consolidated
Net sales 2,139 1,753 4,418 3,655
Cost of sales 1,630 1,303 3,361 2,746
------ ------ ------ ------
Gross profit 509 450 1,057 909
Direct segment operating
expenses 429 318 858 649
------ ------ ------ ------
Segment operating income 80 132 199 260
Stock-based compensation (30) (26) (41) (45)
Other operating expense (3) (2) (6) (3)
------ ------ ------ ------
Income from operations 47 104 152 212
Total non-operating income
(expense), net 7 4 (2) 4
Provision for income taxes (32) (56) (77) (112)
Cumulative effect of change in
accounting principle - - - 26
------ ------ ------ ------
Net income $ 22 $ 52 $ 73 $ 130
====== ====== ====== ======
Segment Highlights:
Y/Y net sales growth:
North America 21% 21% 21% 21%
International 24 33 21 30
Consolidated 22 26 21 25
Y/Y gross profit growth:
North America 11% 27% 17% 25%
International 16 42 16 37
Consolidated 13 32 16 29
Y/Y segment operating income
growth:
North America (66%) 9% (37%) (3%)
International (8) 72 (8) 61
Consolidated (39) 31 (23) 20
Net sales mix:
North America 54% 55% 54% 54%
International 46 45 46 46
(1) A significant majority of our costs for "Technology and content"
are incurred in the United States and most of these costs are
allocated to our North America segment.
AMAZON.COM, INC.
Supplemental Net Sales Information
(in millions)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------- --------------
2006 2005 2006 2005
------ ------ ------ ------
North America
Media $ 730 $ 632 $1,545 $1,331
Electronics and other general
merchandise 365 278 738 559
Other 62 50 121 97
------ ------ ------ ------
Total North America 1,157 960 2,404 1,987
International
Media 718 614 1,481 1,289
Electronics and other general
merchandise 259 178 524 377
Other 5 1 9 2
------ ------ ------ ------
Total International 982 793 2,014 1,668
Consolidated
Media 1,448 1,246 3,026 2,620
Electronics and other general
merchandise 624 456 1,262 936
Other 67 51 130 99
------ ------ ------ ------
Total Consolidated $2,139 $1,753 $4,418 $3,655
====== ====== ====== ======
Y/Y Net Sales Growth:
North America:
Media 15% 17% 16% 17%
Electronics and other general
merchandise 32 23 32 24
Other 25 105 25 100
Total North America 21 21 21 21
International:
Media 17% 24% 15% 20%
Electronics and other general
merchandise 45 80 39 83
Other 354 35 388 49
Total International 24 33 21 30
Consolidated:
Media 16% 20% 16% 18%
Electronics and other general
merchandise 37 40 35 43
Other 32 103 31 99
Total Consolidated 22 26 21 25
Y/Y Net Sales Growth Excluding
Effect of Exchange Rates:
International:
Media 20% 20% 22% 17%
Electronics and other general
merchandise 48 75 46 77
Other 362 32 412 45
Total International 27 29 28 26
Consolidated:
Media 18% 18% 19% 17%
Electronics and other general
merchandise 38 39 38 41
Other 32 103 32 99
Total Consolidated 23 25 24 23
Consolidated Net Sales Mix:
Media 68% 71% 68% 71%
Electronics and other general
merchandise 29 26 29 26
Other 3 3 3 3
AMAZON.COM, INC.
Consolidated Balance Sheets
(in millions, except per share data)
June 30, December 31, June 30,
2006 2005 2005
----------- ----------- -----------
ASSETS (unaudited) (unaudited)
Current assets:
Cash and cash equivalents $683 $1,013 $629
Marketable securities 736 987 696
Inventories 521 566 383
Deferred tax assets, current
portion 66 89 63
Accounts receivable, net and other
current assets 225 274 155
----------- ----------- -----------
Total current assets 2,231 2,929 1,926
Fixed assets, net 405 348 267
Deferred tax assets, long-term
portion 208 223 206
Goodwill 193 159 154
Other assets 128 37 48
----------- ----------- -----------
Total assets $3,165 $3,696 $2,601
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable $943 $1,366 $735
Accrued expenses and other current
liabilities 515 563 409
----------- ----------- -----------
Total current liabilities 1,458 1,929 1,144
Long-term debt and other 1,324 1,521 1,521
Commitments and contingencies
Stockholders' Equity (Deficit):
Preferred stock, $0.01 par value:
Authorized shares -- 500
Issued and outstanding shares --
none - - -
Common stock, $0.01 par value:
Authorized shares -- 5,000
Issued and outstanding shares --
419, 416 and 412 4 4 4
Additional paid-in capital 2,334 2,263 2,161
Accumulated other comprehensive
(loss) income (2) 6 27
Accumulated deficit (1,953) (2,027) (2,256)
----------- ----------- -----------
Total stockholders' equity
(deficit) 383 246 (64)
----------- ----------- -----------
Total liabilities and
stockholders' equity (deficit) $3,165 $3,696 $2,601
=========== =========== ===========
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except per share data)
(unaudited)
----------------------------------------------------------------------
Y/Y %
Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Change
-----------------------------------------------
Cash Flows and Shares
Operating cash flow --
trailing twelve months
(TTM) (1) $ 624 $ 661 $ 733 $ 724 $ 610 (2%)
Purchase of fixed
assets (incl.
internal-use software
& website development)
-- TTM $ 138 $ 186 $ 204 $ 223 $ 235 70%
Free cash flow
(operating cash flow
less purchases of
fixed assets) -- TTM
(1) $ 486 $ 475 $ 529 $ 501 $ 375 (23%)
Common shares and
stock-based awards
outstanding 438 438 438 438 443 1%
Common shares
outstanding 412 414 416 417 419 2%
Stock-based awards
outstanding 26 24 22 21 24 (6%)
Stock-based awards
outstanding -- % of
common shares
outstanding 6.3% 5.8% 5.2% 4.9% 5.8% N/A
Results of Operations
Worldwide (WW) net
sales $1,753 $1,858 $2,977 $2,279 $2,139 22%
WW net sales -- Y/Y
growth, excluding the
effect of foreign
exchange rates 24.6% 27.6% 21.9% 24.8% 23.4% N/A
WW net sales -- TTM $7,658 $8,054 $8,490 $8,867 $9,253 21%
WW net sales -- TTM Y/Y
growth, excluding the
effect of foreign
exchange rates 24.4% 25.2% 23.7% 24.3% 24.0% N/A
Gross profit $ 450 $ 463 $ 667 $ 547 $ 509 13%
Gross margin -- % of WW
net sales 25.7% 24.9% 22.4% 24.0% 23.8% N/A
Gross profit -- TTM $1,809 $1,917 $2,039 $2,128 $2,187 21%
Gross margin -- TTM %
of WW net sales 23.6% 23.8% 24.0% 24.0% 23.6% N/A
Operating income (1)(3) $ 104 $ 55 $ 165 $ 106 $ 47 (55%)
Operating margin -- %
of WW net sales (1) 6.0% 3.0% 5.5% 4.6% 2.2% N/A
Operating income -- TTM
(1)(3) $ 456 $ 430 $ 432 $ 430 $ 372 (18%)
Operating margin -- TTM
% of WW net sales (1) 6.0% 5.3% 5.1% 4.8% 4.0% N/A
Net income (1)(2) $ 52 $ 30 $ 199 $ 51 $ 22 (58%)
Net income per diluted
share (1)(2) $ 0.12 $ 0.07 $ 0.47 $ 0.12 $ 0.05 (58%)
Net income -- TTM
(1)(2) $ 531 $ 507 $ 359 $ 332 $ 302 (43%)
Net income per diluted
share -- TTM (1)(2) $ 1.25 $ 1.19 $ 0.84 $ 0.78 $ 0.71 (43%)
Segments
North America Segment:
Net sales $ 960 $1,041 $1,683 $1,247 $1,157 21%
Net sales -- Y/Y
growth, excluding
the effect of
foreign exchange
rates 21.0% 27.4% 20.8% 21.3% 20.4% N/A
Net sales -- TTM $4,195 $4,420 $4,711 $4,931 $5,128 22%
Gross profit $ 278 $ 292 $ 418 $ 341 $ 309 11%
Gross margin -- % of
North America net
sales 29.0% 28.1% 24.8% 27.3% 26.7% N/A
Gross profit -- TTM $1,135 $1,204 $1,267 $1,329 $1,361 20%
Gross margin -- TTM %
of North America net
sales 27.1% 27.2% 26.9% 27.0% 26.5% N/A
Operating income (3) $ 72 $ 66 $ 92 $ 62 $ 25 (66%)
Operating margin -- %
of North America net
sales 7.5% 6.4% 5.5% 5.0% 2.1% N/A
Operating income --
TTM (3) $ 317 $ 326 $ 296 $ 292 $ 245 (23%)
Operating margin --
TTM % of North
America net sales 7.6% 7.4% 6.3% 5.9% 4.8% N/A
International Segment:
Net sales $ 793 $ 817 $1,294 $1,032 $ 982 24%
Net sales -- Y/Y
growth, excluding
the effect of
foreign exchange
rates 29.3% 27.8% 23.2% 28.9% 27.0% N/A
Net sales -- TTM $3,463 $3,634 $3,779 $3,936 $4,125 19%
Net sales -- TTM % of
WW net sales 45.2% 45.1% 44.5% 44.4% 44.6% N/A
Gross profit $ 172 $ 171 $ 249 $ 206 $ 200 16%
Gross margin -- % of
International net
sales 21.7% 20.9% 19.3% 20.0% 20.4% N/A
Gross profit -- TTM $ 674 $ 713 $ 772 $ 799 $ 827 23%
Gross margin -- TTM %
of International net
sales 19.5% 19.6% 20.4% 20.3% 20.0% N/A
Operating income $ 60 $ 55 $ 93 $ 58 $ 55 (8%)
Operating margin -- %
of International net
sales 7.6% 6.7% 7.1% 5.6% 5.6% N/A
Operating income --
TTM $ 216 $ 233 $ 270 $ 265 $ 260 21%
Operating margin --
TTM % of
International net
sales 6.2% 6.4% 7.1% 6.7% 6.3% N/A
----------------------------------------------------------------------
AMAZON.COM, INC.
Supplemental Financial Information and Business Metrics
(in millions, except inventory turnover, accounts payable days, and
employee data)
(unaudited)
----------------------------------------------------------------------
Y/Y %
Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Change
---------------------------------------------------
Segments
(continued)
Consolidated
Segments:
Operating
expenses $ 318 $ 342 $ 482 $ 427 $ 429 35%
Operating
expenses -- TTM $ 1,276 $ 1,358 $ 1,473 $ 1,570 $ 1,681 32%
Operating income
(3) $ 132 $ 121 $ 185 $ 120 $ 80 (39%)
Operating margin
-- % of
consolidated
sales 7.5% 6.5% 6.2% 5.3% 3.7% N/A
Operating income
-- TTM (3) $ 533 $ 559 $ 566 $ 558 $ 506 (5%)
Operating margin
-- TTM % of
consolidated
net sales 7.0% 6.9% 6.7% 6.3% 5.5% N/A
Supplemental North
America Segment
Net Sales:
Media $ 632 $ 684 $ 1,030 $ 815 $ 730 15%
Media -- TTM $ 2,780 $ 2,901 $ 3,046 $ 3,163 $ 3,260 17%
Electronics and
other general
merchandise $ 278 $ 304 $ 580 $ 374 $ 365 32%
Electronics and
other general
merchandise --
TTM $ 1,236 $ 1,311 $ 1,443 $ 1,534 $ 1,622 31%
Electronics and
other general
merchandise --
TTM % of North
America net
sales 29% 30% 31% 31% 32% N/A
Other $ 50 $ 53 $ 73 $ 58 $ 62 25%
Other -- TTM $ 178 $ 208 $ 222 $ 234 $ 246 38%
Supplemental
International
Segment Net
Sales:
Media $ 614 $ 629 $ 968 $ 763 $ 718 17%
Media -- TTM $ 2,730 $ 2,828 $ 2,885 $ 2,972 $ 3,077 13%
Electronics and
other general
merchandise $ 178 $ 187 $ 321 $ 265 $ 259 45%
Electronics and
other general
merchandise --
TTM $ 730 $ 801 $ 886 $ 952 $ 1,033 42%
Electronics and
other general
merchandise --
TTM % of
International
net sales 21% 22% 23% 24% 25% N/A
Other $ 1 $ 1 $ 5 $ 4 $ 5 354%
Other -- TTM $ 3 $ 4 $ 8 $ 11 $ 15 399%
Supplemental
Worldwide Net
Sales:
Media $ 1,246 $ 1,313 $ 1,998 $ 1,578 $ 1,448 16%
Media -- TTM $ 5,510 $ 5,730 $ 5,931 $ 6,135 $ 6,337 15%
Electronics and
other general
merchandise $ 456 $ 491 $ 901 $ 639 $ 624 37%
Electronics and
other general
merchandise --
TTM $ 1,966 $ 2,113 $ 2,329 $ 2,486 $ 2,655 35%
Electronics and
other general
merchandise --
TTM % of WW net
sales 26% 26% 27% 28% 29% N/A
Other $ 51 $ 54 $ 78 $ 62 $ 67 32%
Other -- TTM $ 181 $ 211 $ 230 $ 245 $ 261 44%
Balance Sheet
Cash and
marketable
securities $ 1,325 $ 1,419 $ 2,000 $ 1,334 $ 1,419 7%
Inventory, net --
ending $ 383 $ 456 $ 566 $ 538 $ 521 36%
Inventory --
average inventory
% of TTM net
sales 5.0% 5.2% 5.4% 5.3% 5.3% N/A
Inventory
turnover, average
-- TTM 15.3 14.8 14.1 14.4 14.3 (6%)
Fixed assets, net $ 267 $ 322 $ 348 $ 361 $ 405 52%
Accounts payable
days -- ending $ 51 $ 58 $ 54 $ 48 $ 53 3%
Other
Employees (full-
time and part-
time; excludes
contractors &
temporary
personnel) 10,200 11,200 12,000 12,400 12,700 24%
----------------------------------------------------------------------
Note: The attached "Financial and Operational Summary" is an integral
part of this Supplemental Financial Information and Business Metrics.
(1) The Company settled a patent lawsuit on terms including a one-time
payment of $40 million in Q3 2005. This negatively impacts TTM
operating cash flow and free cash flow by $40 million for all
periods that include Q3 2005. The settlement negatively affected
Q3 2005 operating income by $40 million, and Q3 2005 net income by
$20 million after tax.
(2) Q4 2005 net income includes a tax benefit of $90 million related
to determining that certain of our deferred tax assets are
realizable.
(3) In Q2 2006, a fee dispute with Toysrus.com reduced our operating
income by $20 million.
Amazon.com, Inc. Financial and Operational Summary (unaudited) Quarterly Results of Operations (comparisons are with the equivalent period of the prior year, unless otherwise stated) Net Sales --Shipping revenue was $128 million, up 24% from $103 million. --Amounts paid in advance for subscription services, including amounts received from online DVD rentals Online DVD rentals allow a person to rent DVDs by mail. Generally, all interaction between the renter and the rental company takes place through the company's website. How it works Most companies operate on the following model: --Net sales include fixed fees, commissions and per-unit fees earned from third-party sellers and similar amounts earned through Amazon Enterprise Solutions. Cost of Sales --Cost of sales consists of the purchase price of products sold by us, inbound in·bound 1 adj. Bound inward; incoming: inbound commuter traffic. Adj. 1. inbound and outbound out·bound adj. Outward bound; headed away: outbound trains. Adj. 1. outbound - that is going out or leaving; "the departing train"; "an outward journey"; "outward-bound ships" shipping charges, packaging supplies, amortization of our DVD DVD: see digital versatile disc. DVD in full digital video disc or digital versatile disc Type of optical disc. The DVD represents the second generation of compact-disc (CD) technology. rental RENTAL. A roll or list of the rents of an estate containing the description of the lands let, the names of the tenants, and other particulars connected with such estate. This is the same as rent roll, from which it is said to be corrupted. library and service costs such as those incurred in operating and staffing our fulfillment and customer service centers on behalf of third parties. --Inbound shipping charges to receive products from our suppliers are included in inventory cost and recognized as cost of sales upon sale to our customers. --Outbound shipping costs totaled $188 million, up 27% from $148 million. Net shipping loss was $60 million, or 2.8% of net sales, up 33% from a net shipping loss of $45 million, or 2.6% of net sales, resulting primarily from our free shipping offers and Amazon Prime. To the extent our customers use our free shipping offers at an increasing rate, including memberships in Amazon Prime, our net cost of shipping will increase. --While costs associated with free shipping, including Amazon Prime, are not included in marketing expense, we view our free shipping offers as an effective worldwide marketing tool and intend to continue offering them indefinitely in·def·i·nite adj. Not definite, especially: a. Unclear; vague. b. Lacking precise limits: an indefinite leave of absence. c. . We offer free membership trials for Amazon Prime and expect to continue to offer these trials in the future. Operating Expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. --Depreciation expense for fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → , including amortization of internal-use software and website development, was $41 million, up from $26 million. Depreciation is recorded on a straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. basis over the estimated useful lives of the assets--generally two years or less for assets such as internal-use software and our DVD rental library, three years for our technology infrastructure, five years for furniture and fixtures and ten years for heavy equipment. Depreciation expense is generally classified within operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. categories on the consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: statements of operations, and certain assets, such as our DVD rental library, are amortized to cost of sales. --Stock-based compensation was $30 million compared to $26 million in the prior year. The estimation estimation In mathematics, use of a function or formula to derive a solution or make a prediction. Unlike approximation, it has precise connotations. In statistics, for example, it connotes the careful selection and testing of a function called an estimator. of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. --Operating expenses with and without stock-based compensation are as follows:
Three Months Ended Three Months Ended
June 30, 2006 June 30, 2005
-------------------------- --------------------------
As Stock-Based As Stock-Based
Reported Compensation Net Reported Compensation Net
-------- ----------------- -------- -----------------
Operating
Expenses:
Fulfillment $ 189 $ (7) $182 $ 158 $ (5) $153
Marketing 53 (1) 52 42 (2) 40
Technology and
content 167 (16) 151 106 (13) 93
General and
administrative 50 (6) 44 38 (6) 32
Other operating
expense 3 - 3 2 - 2
------- -------- ---- ------- -------- ----
Total operating
expenses $ 462 $ (30) $432 $ 346 $ (26) $320
======= ======== ==== ======= ======== ====
Year-over-year
Percentage
Growth:
Fulfillment 20% 20% 25% 25%
Marketing 26 28 24 26
Technology and
content 58 63 49 59
General and
administrative 32 37 25 19
Percent of Net
Sales:
Fulfillment 8.9% 8.5% 9.0% 8.7%
Marketing 2.5 2.4 2.4 2.3
Technology and
content 7.8 7.1 6.0 5.3
General and
administrative 2.4 2.1 2.2 1.8
Fulfillment --Fulfillment costs represent those costs incurred in operating and staffing our fulfillment and customer service centers, including costs attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to buying, receiving, inspecting and warehousing inventories; picking, packaging and preparing customer orders for shipment; and payment processing fees and transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). , including costs associated with our guarantee of certain third-party seller transactions and responding to inquiries from customers. Fulfillment costs also include amounts paid to third parties who assist us in fulfillment and customer service operations. --Payment processing fees charged to us associated with third-party seller sales are based on the gross purchase price of underlying transactions, and transaction costs, such as our A to Z Guarantee, are higher as a percentage of revenue versus our retail sales. Accordingly, third-party sales have higher fulfillment costs as a percentage of net sales. --The increase in fulfillment costs in absolute dollars relates to costs from expanding fulfillment capacity and variable costs. Variable costs correspond with sales volume and inventory levels, our mix of product sales, and payment processing and related transaction costs, including mix of payment methods and costs from our guarantee for certain third-party seller transactions. --We expanded our fulfillment capacity in the first half of 2006 and throughout 2005 through gains in efficiencies as well as increases in leased warehouse space. We plan to continue expanding our worldwide fulfillment capacity--although to add less space than in 2005--in order to accommodate greater selection and to meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment. We expect absolute amounts spent in fulfillment and fulfillment-related cost of sales to increase over time. Marketing --Marketing costs increased in absolute terms (Alg.) such as are known, or which do not contain the unknown quantity. See also: Absolute , primarily corresponding with revenue growth as we utilized variable online marketing channels, such as our Associates program, sponsored search and other variable marketing initiatives. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense or its effect. We expect absolute amounts spent in marketing to increase over time. Technology and Content --Technology and content expenses consist principally of payroll payroll a list of employees, their salary rates, tax deductions, amounts paid, payroll tax, long service leave entitlements. and related expenses for employees involved in research and development, including application development, editorial content, merchandising selection, and systems and telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. support, as well as costs associated with systems and telecommunications infrastructure. --In 2005, we added a significant number of computer scientists, software engineers and employees involved in editorial content, merchandising selection and systems support. We are investing in several areas of technology including seller platforms, web services and digital initiatives. In addition, we increased spending on our technology infrastructure so that we can continue to enhance the customer experience and improve our process efficiency. --We expect the year-over-year percentage growth in technology and content, excluding stock-based compensation, to decrease in the second half of 2006. --A significant majority of our technology costs are incurred in the U.S. and are allocated to our North America North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. segment. --Certain costs relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the development of internal-use software and website development, including software to upgrade and enhance our websites and processes supporting our business, are capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. and depreciated Depreciated may refer to:
--We expect absolute amounts spent in technology and content to increase over time. General and Administrative --The increase in general and administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. in Q2 2006 is primarily due to increases in payroll and related expenses. --Additionally, in Q1 2005 we recorded a charge of $8 million related to possible settlements of outstanding litigation, and in Q2 2005 the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. resolution of one of these matters resulted in a $3 million expense reduction. --We expect absolute amounts spent in general and administrative to increase over time. Stock-Based Compensation --Stock-based compensation was $30 million, up from $26 million, reflecting grants to new employees and our annual performance-based awards that are granted in Q2 of each year. --As of January January: see month. 1, 2005, we adopted SFAS SFAS Statement of Financial Accounting Standards SFAS Special Forces Assessment and Selection SFAS Student Financial Aid Services SFAS Sport Fishing Association of Singapore SFAS Safety Features Actuation System SFAS Statewide Fixed Assets System 123(R), which requires measurement of compensation cost for stock-based awards at grant date fair value. The fair value of restricted stock and restricted stock units Restricted stock units Similar to restricted stock. However, the unit represents a promise that employees will receive stock in the future. The units do not pay dividends until the stock is vested. is determined based on the number of shares granted and the quoted price of our common stock, while the fair value of stock options is determined using a Black-Scholes valuation model. The fair value is recognized as an expense over the service period, net of estimated forfeitures, using the accelerated method under SFAS 123(R). The adoption of SFAS 123(R) in Q1 2005 resulted in a cumulative benefit from accounting change of $26 million, which reflects the net cumulative impact of estimating forfeitures in the determination of period expense, rather than recording forfeitures when they occur as previously permitted. --Stock-based awards generally vest over service periods of between two and five years. --Payroll tax expense resulting from exercises of stock-based awards is a cash expense and is not categorized cat·e·go·rize tr.v. cat·e·go·rized, cat·e·go·riz·ing, cat·e·go·riz·es To put into a category or categories; classify. cat as stock-based compensation. --We granted stock awards, substantially all of which have been restricted stock units since October October: see month. 2002, of 6 million shares in the quarter. Our annual stock awards are granted in the second quarter. --As of June 30, 2006, there were 24 million shares underlying outstanding stock awards, consisting of 10 million shares underlying stock options with a $15 weighted-average exercise price and 14 million shares underlying restricted stock units. As of June 30, 2005, there were 26 million shares underlying outstanding stock awards. --As of June 30, 2006, outstanding common shares plus shares underlying outstanding stock-based awards were 443 million, up 1% from 438 million as of June 30, 2005. This total includes all stock-based awards outstanding, without regard for estimated forfeitures, consisting of vested vested adj. referring to having an absolute right or title, when previously the holder of the right or title only had an expectation. Examples: after 20 years of employment Larry Loyal's pension rights are now vested. (See: vest, vested remainder) and unvested awards and in-the-money In-the-money A put option that has a strike price higher than the underlying futures price, or a call option with a strike price lower than the underlying futures price. For example, if the March COMEX silver futures contract is trading at $6 an ounce, a March call with a strike and out-of-the-money out-of-the-money Used to describe a call option with a strike price above the price of the underlying asset or a put option with a strike price below the price of the underlying asset. stock options. Other Operating Expense --Other operating expense primarily includes costs related to intangibles Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. amortization. --We acquired one company during Q1 2006 for a purchase price of $47 million, including a $28 million cash payment in Q1 2006 and $19 million due in 2007. The excess of purchase price over the fair value of the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. acquired was $33 million and is classified as goodwill on our consolidated balance sheets consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. . Acquired other intangibles totaled $14 million and have estimated useful lives of between one and ten years. The results of operations of the acquired business have been included in our consolidated results from the closing date forward. The effect of this acquisition on consolidated net sales and operating income during the first half of 2006 was not significant. Remeasurements and Other --The remeasurement of our 6.875% PEACS PEACS Portable Environmental/Acoustic Collection System and intercompany balances can result in significant gains and charges associated with the effect of movements in currency exchange rates. --Remeasurement of the principal amount of our 6.875% PEACS from Euros to U.S. dollars resulted in a foreign-currency loss of $16 million, compared with a gain of $42 million. --Remeasurement of foreign-currency intercompany balances that are to be repaid among subsidiaries represented a $26 million gain, compared with a loss of $25 million. Income Taxes --Our tax provision for interim periods is determined using an estimate of the annual effective tax rate. Our provision for income taxes was $32MM in Q2 - or a 59% rate for the quarter - which includes a $4 million year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. adjustment to reflect our current estimate of our annual effective tax rate of 51%. --There is a potential for significant volatility Volatility 1. A statistical measure of the tendency of a market or security to rise or fall sharply within a period of time. 2. A variable in option pricing formulas that denotes the extent to which the return of the underlying asset will fluctuate between now and the of our 2006 effective tax rate due to several factors, including from variability in accurately predicting our taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. and the taxable jurisdictions to which it relates. --The effective tax rate was higher than the 35% statutory rate, resulting from steps we initiated to establish our European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. headquarters in Luxembourg Luxembourg, province, Belgium Luxembourg, Du. Luxemburg, province (1991 pop. 232,813), 1,706 sq mi (4,419 sq km), SE Belgium, in the Ardennes, bordering on the Grand Duchy of Luxembourg in the east and on France in the south. , which we expect will benefit our effective tax rate over time. --We expect cash taxes paid in 2006 to be approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $25 million compared with $12 million in 2005. We endeavor See Endevor. to optimize optimize - optimisation our global taxes on a cash basis, rather than on a financial reporting basis. Foreign Exchange --Our financial reporting currency Reporting Currency The currency used in published reports and financial documents. Notes: All annual and quarterly reports state the currency in which their results are listed. is the U.S. dollar, and changes in exchange rates significantly affect our reported results and consolidated trends. For example, during Q2 2006 our consolidated revenue and operating income were negatively affected by the strengthening of the U.S. dollar in comparison to the currencies of internationally focused websites, but our consolidated revenue and operating income from Q2 2002 through Q2 2005 benefited from weakness in the U.S. dollar in comparison to the same currencies. --The effect on our consolidated statements of operations from year-over-year changes in exchange rates versus the U.S. dollar throughout the period is as follows:
Three Months Ended June 30,
-----------------------------------------------------
2006 2005
------------------------- -------------------------
At At
Prior Exchange Prior Exchange
Year Rate Year Rate
Rates Effect As Rates Effect As
(1) (2) Reported (1) (2) Reported
------- -------- --------- ------- -------- ---------
(in millions, except per share amounts)
Net sales $2,163 $ (24) $ 2,139 $1,728 $ 25 $ 1,753
Gross profit 514 (5) 509 445 5 450
Operating
expenses 460 2 462 343 3 346
Income from
operations 49 (2) 47 102 2 104
Net interest
expense and
other (4) (1) (5) (14) - (14)
Remeasurements
and other (3) 2 10 12 1 17 18
Net income 19 3 22 43 9 52
Diluted earnings
per share $ 0.04 $ 0.01 $ 0.05 $ 0.10 $ 0.02 $ 0.12
(1) Represents the outcome that would have resulted had currency
exchange rates in the current period been the same as those in
effect in the comparable prior year period for operating
results, and if we did not incur the variability associated
with remeasurements for our 6.875% PEACS and intercompany
balances.
(2) Represents the increase (decrease) in reported amounts
resulting from changes in exchange rates from those in effect
in the comparable prior year period for operating results, and
if we did not incur the variability associated with
remeasurements for our 6.875% PEACS and intercompany balances.
(3) Includes foreign-currency gains (losses) on remeasurement of
6.875% PEACS and intercompany balances compared to prior
quarter, and realized currency-related gains associated with
sales of Euro-denominated investments held by a U.S.
subsidiary.
Other --In March 2006, the Superior Court of New Jersey terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: our contract with Toysrus.com LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control but declined to award damages to either party. We continued to provide services to Toysrus.com during the contractual wind-down period in Q2 2006, but Toysrus.com is contesting the amount of fees owed to compensate us for that work. This fee dispute reduced our income from operations for Q2 2006 by approximately $20 million, and the fee dispute together with the termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. of the Toysrus.com contract reduced our operating cash flows and free cash flows for Q2 2006 by approximately $20 million. Had we not retained $13 million against payments otherwise due to Toysrus.com, our operating cash flows and free cash flows for Q2 2006 would have been lower by that amount. We are appealing the trial court's initial rulings in Toysrus.com's favor regarding the contract termination and the fee dispute. Cash Flows and Balance Sheet --Operating cash flows and free cash flows can be volatile With regard to computer memory, it means "temporary" and not "highly changeable," which is the usual meaning of the word. See volatile memory. 1. (programming) volatile - volatile variable. 2. (storage) volatile - See non-volatile storage. and are sensitive to many factors, including changes in working capital and timing of capital expenditures. Working capital at any specific point in time is subject to many variables, including seasonality, the timing of expense payments, discounts offered by vendors, vendor payment terms and fluctuations in foreign exchange rates. --Additionally, prior to our adoption of SFAS 123(R), cash retained as a result of excess tax deductions Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. relating to stock-based compensation was presented in operating cash flows, along with other tax cash flows. SFAS 123(R) requires benefits relating to excess stock-based compensation deductions to be presented as financing cash inflows--effectively a reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. between operating cash flows and financing cash flows. Tax benefits resulting from stock-based compensation deductions in excess of amounts reported for financial reporting purposes--which negatively impacted operating cash flow--were $21 million in Q2 2006 and $34 million for the trailing twelve months; such amounts should be less than $100 million in 2006 - compared with $7 million for 2005 - but are subject to considerable variability. Accordingly, amounts presented for operating cash flows and free cash flows for 2006 will be negatively affected in comparison to prior results; however, there is no change in economic substance resulting from this change in reporting classification. --Our cash, cash equivalents and marketable securities Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price. Notes: Marketable securities are very liquid as they tend to have maturities less than one year, and the rate at which these securities can be bought or sold has of $1.42 billion, at fair value, primarily consist of cash, investment grade securities and AAA-rated money market mutual funds. Included are amounts held in foreign currencies of $738 million, primarily in Euros, British Pounds and Japanese Yen “Yen” redirects here. For the other use, see Yen (disambiguation). “JPY” redirects here. For the Australian singer with the same moniker, see John Paul Young. . --Accounts receivable, net and other current assets Other Current Assets A balance sheet item that includes the value of non-cash assets due within one year. Notes: Examples are things like prepaid expenses and accounts receivable. include accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying from merchant partners, vendors and credit card companies, interest receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed and prepaid expenses Prepaid Expense An asset that arises on a balance sheet because of the payment of something in advance (prepayment). Services for the payment will be received in the near future. . --Fixed assets include assets such as furniture and fixtures, heavy equipment, technology infrastructure, internal-use software and website development, and our DVD rental library. --Other assets include, among other things, $85 million of restricted long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. marketable securities, $9 million of deferred issuance costs on long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. , $8 million of certain equity investments, and $21 million of other intangibles, net. Marketable securities restricted for longer than one year are related to collateralization In medicine, collateralization, also vessel collaterlization and blood vessel collateralization, is the growth of a blood vessel or several blood vessels that serve the same end organ or vascular bed as another blood vessel that cannot adequately supply that end organ of debt for our international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. - such amounts at December 31, 2005 were insignificant. --Accrued expenses and other current liabilities Other Current Liabilities A balance sheet entry used by companies to group together current liabilities that are not assigned to common liabilities such as debt obligations or accounts payable. include, among other things, liabilities for gift certificates of $126 million, professional fees, marketing activities, workforce costs--including accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. payroll, vacation VACATION. That period of time between the end of one term and beginning of another. During vacation, rules and orders are made in such cases as are urgent, by a judge at his chambers. and other benefits--and unearned revenue Unearned Revenue When an individual or company receives money for a service or product that has yet to be fulfilled. Notes: For example, prepayment on a lease contract - the revenue is a liability until it has been earned. See also: Earned Income, Passive Income of $53 million, which is recorded when payments are received or due in advance of performing our service obligations and is amortized over the service period. --Long-term debt and other primarily include the following (in millions):
Principal Interest Principal
at Maturity Rate Due Date
-----------------------------------------
Convertible Subordinated Notes $ 900 (1) 4.750% February 2009
Premium Adjustable Convertible
Securities ("PEACS") 307 (2) (4) 6.875% February 2010
----------
$1,207 (3)
==========
(1) Convertible at the holders' option into our common stock at
$78.0275 per share. We have the right to redeem the Convertible
Subordinated Notes, in whole or in part, at a redemption price of
101.425% of the principal, which decreases every February 1 by
47.5 basis points until maturity, plus any accrued and unpaid
interest.
(2) EUR 240 million principal amount, convertible at the holders'
option into our common stock at EUR 84.883 per share ($109 per
share based on the Euro/U.S. dollar exchange rate as of June 30,
2006). We have the right to redeem the PEACS, in whole or in part,
by paying the principal amount, plus any accrued and unpaid
interest. We do not hedge any portion of the PEACS. The U.S.
dollar equivalent principal, interest and conversion price
fluctuate based on the Euro/U.S. dollar exchange ratio.
(3) The "if converted" number of shares associated with our
convertible debt instruments (approximately 14 million total
shares) is excluded from diluted shares as they are antidilutive.
(4) As previously announced, in Q1 2006 we redeemed EUR 250
million--or $300 million at the Euro to U.S. dollar exchange rate
on the redemption date--in principal amount of our PEACS at par.
Certain Definitions and Other --We present segment information for North America and International. We measure operating results of our segments using an internal performance measure of direct segment operating expenses that excludes stock-based compensation and other operating expense, each of which is not allocated to segment results. Other centrally incurred operating costs operating costs npl → gastos mpl operacionales are fully allocated to segment results. Our operating results, particularly for the International segment, are affected by movements in foreign exchange rates. --The North America segment consists of amounts earned from retail sales of consumer products (including from third-party sellers) and subscriptions through North America-focused websites such as www.amazon.com and www.amazon.ca; from North America-focused Syndicated Stores, such as www.borders.com; from our mail-order mail order n. An order for goods to be shipped through the mail.  -or tool catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. phone
orders; from our Amazon Prime membership program; and from non-retail
activities such as North America-focused Amazon Enterprise Solutions
program, and marketing and promotional agreements. This segment includes
export sales from www.amazon.com and www.amazon.ca.--The International segment consists of amounts earned from retail sales of consumer products (including from third-party sellers) and subscriptions through internationally focused websites such as www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, and www.joyo.com; from internationally focused Syndicated Stores; from our DVD rental service; and from non-retail activities such as internationally focused marketing and promotional agreements. This segment includes export sales from these internationally based sites (including export sales from these sites to customers in the U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of ) but excludes export sales from www.amazon.com and www.amazon.ca. --We provide supplemental sales information within each segment for three categories: Media, Electronics and Other General Merchandise, and Other. Media consists of amounts earned from DVD rentals and retail sales from all sellers of books, music, DVD/video, magazine subscriptions, software, video games See video game console. and video-game consoles. Electronics and Other General Merchandise consists of amounts earned from retail sales from all sellers of items not included in Media, such as electronics and office, camera and photo, toys and baby, tools, home and garden, apparel, sports and outdoors, kitchen and housewares house·wares pl.n. Cooking utensils, dishes, and other small articles used in a household, especially in the kitchen. , gourmet food, jewelry, health and personal care, beauty and musical instruments. The Other category consists of non-retail activities, such as the Amazon Enterprise Solutions program and miscellaneous marketing and promotional activities, such as our co-branded credit card programs. --Operating cash flow is net cash provided by (used in) operating activities, including cash outflows for interest and excluding proceeds from the exercise of stock-based employee awards. Free cash flow is operating cash flow less cash outflows for purchases of fixed assets, including internal-use software and website development. --Operating cycle is number of days of sales in inventory plus number of days of sales in accounts receivable minus accounts payable days. Accounts payable days are calculated as the quotient quotient - The number obtained by dividing one number (the "numerator") by another (the "denominator"). If both numbers are rational then the result will also be rational. of accounts payable to cost of sales, multiplied mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. by the number of days in the period. Inventory turns are calculated as the quotient of trailing twelve month cost of sales to average inventory over five quarter ends. --Return on invested capital is trailing-twelve-month free cash flow divided by average total assets less current liabilities Current Liabilities Usually appearing on a company's balance sheet, it represents the amount owed for interest, accounts payable, short-term loans, expenses incurred but unpaid, and other debts due within one year. over five quarter ends. --References to customers mean customer accounts, which are unique e-mail addresses See Internet address. e-mail address - electronic mail address , established either when a customer's initial order is shipped or when a customer orders from certain third-party sellers on our websites. Customer accounts include customers of Amazon Marketplace Amazon Marketplace ( i.e:Third-party Marketplace ) is Amazon.com's fixed-price online marketplace that allows sellers to survey their goods alongside Amazon's offerings. Buyers can buy new and used items sold directly by a third party through Amazon. , Auctions and zShops, and our Merchants@ and Syndicated Stores programs, but exclude certain customers, including DVD rental customers, customers associated with certain of our acquisitions (including Joyo.com customers), Amazon Enterprise Solutions program customers, Amazon.com Payments customers, our catalog customers and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period. --References to sellers or merchants mean active seller accounts, which are established when a seller receives an order from a customer account. Seller accounts include sellers in Amazon Marketplace, Auctions, zShops, and Merchants@ platforms, but exclude Amazon Enterprise Solutions sellers. Sellers are considered active when they have received an order during the preceding twelve-month period. --References to units mean units sold (net of returns and cancellations) by us and by third-party sellers at Amazon.com domains worldwide--such as www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr and www.amazon.ca--and at Syndicated Stores domains, as well as Amazon.com-owned items sold through catalogs and at non-Amazon.com domains, such as books, music and DVD/video items ordered from Amazon.com's store at www.target.com. Units sold do not include units associated with certain of our acquisitions (including Joyo.com units), Amazon.com gift certificates or DVD rentals. |
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