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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

     
(Mark One)
   
þ
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended September 30, 2003
 
or
 
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
   91-1646860
(State or Other Jurisdiction of
Incorporation or Organization)		   (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 þ          No o

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

          401,075,452 shares of common stock, par value $0.01 per share outstanding as of October 14, 2003

 

AMAZON.COM, INC.

FORM 10-Q

For the Three Months Ended September 30, 2003
 
INDEX
             
Page
PART I.  FINANCIAL INFORMATION
Item 1.
  Financial Statements        
      Consolidated Balance Sheets — September 30, 2003 and December 31,
   2002 		    2  
      Consolidated Statements of Operations — Three months and nine months
   ended September 30, 2003 and 2002 		    3  
      Consolidated Statements of Cash Flows — Three months and nine months
   ended September 30, 2003 and 2002 		    4  
      Consolidated Statements of Cash Flows — Twelve months ended
   September 30, 2003 and 2002 		    5  
      Notes to Consolidated Financial Statements — September 30, 2003     6  
Item 2.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     19  
Item 3.
  Quantitative and Qualitative Disclosures About Market Risk     49  
Item 4.
  Controls and Procedures     51  
PART II.  OTHER INFORMATION
Item 1.
  Legal Proceedings     52  
Item 2.
  Changes in Securities and Use of Proceeds     53  
Item 3.
  Defaults Upon Senior Securities     53  
Item 4.
  Submission of Matters to a Vote of Security Holders     53  
Item 5.
  Other Information     53  
Item 6.
  Exhibits and Reports on Form 8-K     53  
Signatures     54  

1

 

PART I.     FINANCIAL INFORMATION

 
Item 1. Financial Statements

AMAZON.COM, INC.

 
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
                       
September 30, December 31,
2003 2002
(unaudited)
ASSETS
Current assets:
               
 
Cash and cash equivalents
  $ 666,418     $ 738,254  
 
Marketable securities
    398,242       562,715  
 
Inventories
    241,667       202,425  
 
Accounts receivable, net and other current assets
    103,873       112,282  
     
     
 
   
Total current assets
    1,410,200       1,615,676  
Fixed assets, net
    221,459       239,398  
Goodwill, net
    69,121       70,811  
Other intangibles, net
    659       3,460  
Other equity investments
    12,949       15,442  
Other assets
    35,297       45,662  
     
     
 
     
Total assets
  $ 1,749,685     $ 1,990,449  
     
     
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
               
 
Accounts payable
  $ 499,189     $ 618,128  
 
Accrued expenses and other current liabilities
    236,184       314,935  
 
Unearned revenue
    40,843       47,916  
 
Interest payable
    44,476       71,661  
 
Current portion of long-term debt and other
    6,058       13,318  
     
     
 
   
Total current liabilities
    826,750       1,065,958  
 
Long-term debt and other
    2,080,969       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 — 400,422 and 387,906 shares
    4,004       3,879  
 
Additional paid-in capital
    1,852,308       1,649,946  
 
Deferred stock-based compensation
    (3,525 )     (6,591 )
 
Accumulated other comprehensive income
    36,761       9,662  
 
Accumulated deficit
    (3,047,582 )     (3,009,710 )
     
     
 
   
Total stockholders’ deficit
    (1,158,034 )     (1,352,814 )
     
     
 
     
Total liabilities and stockholders’ deficit
  $ 1,749,685     $ 1,990,449  
     
     
 

See accompanying notes to consolidated financial statements.

2

 

AMAZON.COM, INC.

 
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
                                       
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Net sales
  $ 1,134,456     $ 851,299     $ 3,317,927     $ 2,504,326  
Cost of sales
    848,635       635,132       2,487,596       1,846,867  
     
     
     
     
 
Gross profit
    285,821       216,167       830,331       657,459  
Operating expenses:
                               
 
Fulfillment
    107,057       90,342       318,217       265,908  
 
Marketing
    28,943       26,728       82,496       87,804  
 
Technology and content
    53,775       52,907       155,998       166,569  
 
General and administrative
    22,393       18,698       65,318       59,034  
 
Stock-based compensation(1)
    20,936       (832 )     72,712       33,247  
 
Amortization of other intangibles
    786       1,212       2,611       4,565  
 
Restructuring-related and other
    —       36,757       —       46,731  
     
     
     
     
 
   
Total operating expenses
    233,890       225,812       697,352       663,858  
     
     
     
     
 
Income (loss) from operations
    51,931       (9,645 )     132,979       (6,399 )
Interest income
    4,324       5,600       16,625       16,902  
Interest expense
    (29,802 )     (35,922 )     (100,680 )     (106,817 )
Other income, net
    252       3,183       6,796       2,876  
Remeasurement of 6.875% PEACS and other
    (11,142 )     2,261       (93,156 )     (55,677 )
     
     
     
     
 
 
Total non-operating expenses, net
    (36,368 )     (24,878 )     (170,415 )     (142,716 )
     
     
     
     
 
Income (loss) before equity in losses of equity-method investees
    15,563       (34,523 )     (37,436 )     (149,115 )
Equity in losses of equity-method investees, net
    —       (557 )     (436 )     (3,469 )
     
     
     
     
 
Income (loss) before change in accounting principle
    15,563       (35,080 )     (37,872 )     (152,584 )
Cumulative effect of change in accounting principle
    —       —       —       801  
     
     
     
     
 
Net income (loss)
  $ 15,563     $ (35,080 )   $ (37,872 )   $ (151,783 )
     
     
     
     
 
Basic and diluted earnings (loss) per share:
                               
 
Prior to cumulative effect of change in accounting principle
  $ 0.04     $ (0.09 )   $ (0.10 )   $ (0.41 )
 
Cumulative effect of change in accounting principle
    —       —       —       0.01  
     
     
     
     
 
    $ 0.04     $ (0.09 )   $ (0.10 )   $ (0.40 )
     
     
     
     
 
Weighted average shares used in computation of earnings (loss) per share:
                               
 
Basic
    397,912       379,650       393,477       376,564  
     
     
     
     
 
 
Diluted
    422,802       379,650       393,477       376,564  
   
     
     
     
 
(1) Components of stock-based compensation:
                               
     
Fulfillment
  $ 4,374     $ (98 )   $ 16,221     $ 5,512  
     
Marketing
    1,582       115       4,167       2,419  
     
Technology and content
    12,013       (765 )     39,807       17,305  
     
General and administrative
    2,967       (84 )     12,517       8,011  
     
     
     
     
 
    $ 20,936     $ (832 )   $ 72,712     $ 33,247  
     
     
     
     
 

See accompanying notes to consolidated financial statements.

3

 

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
(unaudited)
                                     
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
  $ 641,728     $ 270,438     $ 738,254     $ 540,282  
OPERATING ACTIVITIES:
                               
Net income (loss)
    15,563       (35,080 )     (37,872 )     (151,783 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                               
 
Depreciation of fixed assets and other amortization
    18,338       20,501       57,091       62,411  
 
Stock-based compensation
    20,936       (832 )     72,712       33,247  
 
Equity in losses of equity-method investees, net
    —       557       436       3,469  
 
Amortization of other intangibles
    786       1,212       2,611       4,565  
 
Non-cash restructuring-related and other
    —       2,370       —       2,370  
 
Gain on sale of marketable securities, net
    (141 )     (3,020 )     (9,393 )     (3,833 )
 
Remeasurement of 6.875% PEACS and other
    11,142       (2,261 )     93,156       55,677  
 
Non-cash interest expense and other
    1,343       7,911       12,752       22,436  
 
Cumulative effect of change in accounting principle
    —       —       —       (801 )
Changes in operating assets and liabilities:
                               
 
Inventories
    (62,147 )     (24,029 )     (34,001 )     (2,935 )
 
Accounts receivable, net and other current assets
    (14,844 )     (14,670 )     18,303       (31,420 )
 
Accounts payable
    49,535       49,408       (131,584 )     (106,296 )
 
Accrued expenses and other current liabilities
    (5,109 )     40,895       (99,312 )     (37,455 )
 
Additions to unearned revenue
    29,932       26,237       78,652       75,641  
 
Amortization of previously unearned revenue
    (27,816 )     (29,487 )     (85,719 )     (97,741 )
 
Interest payable
    (701 )     (1,604 )     (26,773 )     (25,840 )
     
     
     
     
 
   
Net cash provided by (used in) operating activities
    36,817       38,108       (88,941 )     (198,288 )
 
                                
INVESTING ACTIVITIES: