AMAZON COM INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the quarterly period ended June 30, 2003


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the transition period from to .

Commission File No. 000-22513

Amazon.com, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		91-1646860 (I.R.S. Employer Identification No.)

1200 12th Avenue South, Suite 1200, Seattle, Washington 98144-2734
(206) 266-1000
(Address and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

396,987,619 shares of common stock, par value $0.01 per share outstanding, as of July 15, 2003

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 12.1
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3
EXHIBIT 99.4

AMAZON.COM, INC.

FORM 10-Q
For the Three Months Ended June 30, 2003

INDEX


					Page

			PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
		Consolidated Balance Sheets — June 30, 2003 and December 31, 2002				3
		Consolidated Statements of Operations — Three months and six months ended June 30, 2003 and 2002				4
		Consolidated Statements of Cash Flows — Three months and six months ended June 30, 2003 and 2002				5
		Notes to Consolidated Financial Statements — June 30, 2003				6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations					18
Item 3.	Quantitative and Qualitative Disclosure About Market Risk					44
Item 4.	Controls and Procedures					45
				PART II. OTHER INFORMATION
Item 1.	Legal Proceedings					45
Item 2.	Changes in Securities and Use of Proceeds					46
Item 3.	Defaults Upon Senior Securities					46
Item 4.	Submission of Matters to a Vote of Security Holders					46
Item 5.	Other Information					47
Item 6.	Exhibits and Reports on Form 8-K					47
Signatures						48

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMAZON.COM, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)


					June 30,			December 31,
					2003			2002

					(unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	641,728		$	738,254
	Marketable securities					347,044			562,715
	Inventories					178,107			202,425
	Accounts receivable, net and other current assets					84,375			112,282

		Total current assets				1,251,254			1,615,676
Fixed assets, net						221,674			239,398
Goodwill, net						70,811			70,811
Other intangibles, net						1,635			3,460
Other equity investments						12,764			15,442
Other assets						38,716			45,662

				Total assets	$	1,596,854		$	1,990,449

			LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
	Accounts payable				$	445,098		$	618,128
	Accrued expenses and other current liabilities					232,231			314,935
	Unearned revenue					38,733			47,916
	Interest payable					45,179			71,661
	Current portion of long-term debt and other					8,143			13,318

		Total current liabilities				769,384			1,065,958
Long-term debt and other						2,074,306			2,277,305
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 — 396,730 and 387,906 shares				3,967			3,879
	Additional paid-in capital					1,790,835			1,649,946
	Deferred stock-based compensation					(4,201	)		(6,591	)
	Accumulated other comprehensive income					25,708			9,662
	Accumulated deficit					(3,063,145	)		(3,009,710	)

		Total stockholders’ deficit				(1,246,836	)		(1,352,814	)

				Total liabilities and stockholders’ deficit	$	1,596,854		$	1,990,449

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

Net sales			$	1,099,912		$	805,605		$	2,183,471		$	1,653,027
Cost of sales				825,984			587,438			1,638,961			1,211,735

Gross profit				273,928			218,167			544,510			441,292
Operating expenses:
	Fulfillment			107,455			85,751			211,160			175,566
	Marketing			25,326			28,832			53,553			61,076
	Technology and content			52,135			58,165			102,223			113,662
	General and administrative			21,823			19,425			42,925			40,336
	Stock-based compensation (1)			24,453			23,148			51,776			34,079
	Amortization of other intangibles			913			1,374			1,825			3,353
	Restructuring-related and other			—			—			—			9,974

		Total operating expenses		232,105			216,695			463,462			438,046

Income from operations				41,823			1,472			81,048			3,246
Interest income				5,761			5,650			12,301			11,302
Interest expense				(34,367	)		(35,651	)		(70,878	)		(70,895	)
Other income (expense), net				3,685			(402	)		6,544			(307	)
Remeasurement of 6.875% PEACS and other				(60,216	)		(63,454	)		(82,014	)		(57,938	)

	Total non-operating expenses, net			(85,137	)		(93,857	)		(134,047	)		(117,838	)

Loss before equity in losses of equity-method investees				(43,314	)		(92,385	)		(52,999	)		(114,592	)
Equity in losses of equity-method investees, net				—			(1,168	)		(436	)		(2,912	)

Loss before change in accounting principle				(43,314	)		(93,553	)		(53,435	)		(117,504	)
Cumulative effect of change in accounting principle				—			—			—			801

Net loss			$	(43,314	)	$	(93,553	)	$	(53,435	)	$	(116,703	)

Basic and diluted loss per share:
	Prior to cumulative effect of change in accounting principle		$	(0.11	)	$	(0.25	)	$	(0.14	)	$	(0.31	)
	Cumulative effect of change in accounting principle			—			—			—			—

			$	(0.11	)	$	(0.25	)	$	(0.14	)	$	(0.31	)

Weighted average shares used in computation of loss per share:
		Basic and diluted		393,876			376,937			391,223			374,995



(1)		Components of stock-based compensation:
		Fulfillment	$	4,862		$	3,839		$	11,847		$	5,610
		Marketing		1,606			1,430			2,585			2,304
		Technology and content		13,578			12,245			27,794			18,070
		General and administrative		4,407			5,634			9,550			8,095

			$	24,453		$	23,148		$	51,776		$	34,079

See accompanying notes to consolidated financial statements.

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


			Three Months Ended						Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			$	495,773		$	296,689		$	738,254		$	540,282
OPERATING ACTIVITIES:
Net loss				(43,314	)		(93,553	)		(53,435	)		(116,703	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Depreciation of fixed assets and other amortization			19,003			20,970			38,753			41,910
	Stock-based compensation			24,453			23,148			51,776			34,079
	Equity in losses of equity-method investees, net			—			1,168			436			2,912
	Amortization of other intangibles			913			1,374			1,825			3,353
	Gain on sale of marketable securities, net			(5,272	)		(437	)		(9,252	)		(813	)
	Remeasurement of 6.875% PEACS and other			60,216			63,454			82,014			57,938
	Non-cash interest expense and other			3,532			7,464			11,409			14,525
	Cumulative effect of change in accounting principle			—			—			—			(801	)
Changes in operating assets and liabilities:
	Inventories			(2,479	)		16,420			28,146			21,094
	Accounts receivable, net and other current assets			5,914			(13,430	)		33,147			(16,750	)
	Accounts payable			45,486			(27,418	)		(181,119	)		(155,704	)
	Accrued expenses and other current liabilities			(7,138	)		(12,489	)		(94,203	)		(78,350	)
	Additions to unearned revenue			25,752			20,688			48,720			49,404
	Amortization of previously unearned revenue			(29,998	)		(30,921	)		(57,903	)		(68,254	)
	Interest payable			28,956			28,199			(26,072	)		(24,236	)

		Net cash provided by (used in) operating activities		126,024			4,637			(125,758	)		(236,396	)

INVESTING ACTIVITIES:
Sales and maturities of marketable securities				350,068			213,336			559,023			349,911
Purchases of marketable securities				(109,259	)		(299,877	)		(342,314	)		(434,104	)
Purchases of fixed assets, including internal-use software and Website development				(7,141	)		(7,440	)		(13,535	)		(12,294	)

		Net cash provided by (used in) investing activities		233,668			(93,981	)		203,174			(96,487	)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options and other				53,042			42,866			91,597			50,275
Repayment of long-term debt				(277,249	)

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