NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 — Description of
Business and Accounting Policies
Description
of Business
Amazon.com, Inc., a Fortune 500 company,
commenced operations on the World Wide Web in July 1995.
The Company seeks to offer Earth’s Biggest Selection and to
be Earth’s most customer-centric company, where customers
can find and discover anything they may want to buy online. The
Company and its sellers list new, used and collectible items in
categories such as apparel and accessories, electronics,
computers, kitchen and housewares, books, music, DVDs, videos,
cameras and photo items, office products, toys, baby items and
baby registry, software, computer and video games, cell phones
and service, tools and hardware, travel services, magazine
subscriptions and outdoor living items. Through Amazon
Marketplace, the Merchants@ program, zShops and Auctions,
participating businesses or individuals can sell their products
to Amazon.com’s customers.
The Company operates six global Web sites:
www.amazon.com, www.amazon.co.uk, www.amazon.de,
www.amazon.fr, www.amazon.co.jp
and
www.amazon.ca
.
The Company also owns and operates the Internet Movie Database
at
www.imdb.com
(“IMDb”), which is a source of
information on movie and entertainment titles and cast and crew
members. IMDb offers IMDb Pro, a subscription service designed
for the entertainment industry.
Principles of
Consolidation
The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated.
Use of
Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and
accompanying notes. Estimates are used for, but not limited to,
inventory valuation, depreciable lives, sales returns,
receivables valuation, restructuring-related liabilities,
incentive discount offers, valuation of investments, taxes and
contingencies. Actual results could differ materially from those
estimates.
Business
Combinations
For business combinations that have been
accounted for under the purchase method of accounting, the
Company includes the results of operations of the acquired
business from the date of acquisition. Net assets of the
companies acquired are recorded at their fair value at the date
of acquisition. The excess of the purchase price over the fair
value of tangible and identifiable intangible net assets
acquired is included in goodwill on the accompanying
consolidated balance sheets.
Cash and Cash
Equivalents
The Company classifies all highly liquid
instruments with an original maturity of three months or less at
the time of purchase as cash equivalents.
Inventories
Inventories, consisting of products available for
sale, are valued at the lower of cost or market value. The
Company makes judgments, based on currently-available
information, about the likely method of disposition (whether
through sales to individual customers, returns to product
vendors or liquidations), and
50
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
expected recoverable values of each disposition
category. Based on this evaluation, which is applied
consistently from period to period, the Company records a
valuation allowance to adjust the carrying amount of its
inventories to lower of cost or market value.
Accounting
Changes
Inventories
Effective January 1, 2002, the Company
prospectively changed its inventory costing method to the
first-in first-out (“FIFO”) method of accounting. This
change resulted in a cumulative increase in inventory of
$0.8 million, with a corresponding amount recorded to
“Cumulative effect of change in accounting principle”
on the consolidated statements of operations. The Company
evaluated the effect of the change on each quarter of 2001 and
determined such effect to be less than $1.2 million
individually and in the aggregate. The Company determined this
change to be preferable under accounting principles generally
accepted in the United States since, among other reasons, it
facilitates the Company’s record keeping process,
significantly improves its ability to provide cost-efficient
fulfillment services to third-party companies as part of its
services offering and results in increased consistency with
others in the industry. The Company received a letter of
preferability for this change in inventory costing from its
independent auditors.
Goodwill and Other Intangibles
Effective July 1, 2001, the Company adopted
certain provisions of Financial Accounting Standards Board
(“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 141, “Business
Combinations,” and effective January 1, 2002, the
Company adopted the full provisions of SFAS No. 141 and
SFAS No. 142, “Goodwill and Other Intangible
Assets.” SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for
recording intangible assets apart from goodwill. The Company
evaluated its goodwill and intangibles acquired prior to
June 30, 2001 using the criteria of SFAS No. 141,
which resulted in $25 million of other intangibles
(comprised entirely of assembled workforce intangibles) being
subsumed into goodwill at January 1, 2002. SFAS
No. 142 requires that purchased goodwill and certain
indefinite-lived intangibles no longer be amortized, but instead
be tested for impairment at least annually. The Company
evaluated its intangible assets and determined that all such
assets have determinable lives.
SFAS No. 142 prescribes a two-phase process
for impairment testing of goodwill. The first phase screens for
impairment; while the second phase (if necessary) measures the
impairment. The Company completed its first phase impairment
analysis during the first quarter of 2002 and found no instances
of impairment of its recorded goodwill; accordingly, the second
testing phase was not necessary. No subsequent indicators of
impairment have been noted by the Company.
In accordance with Accounting Principles Board
(“APB”) Opinion No. 20, “Accounting
Changes,” the effect of these accounting changes is
reflected prospectively. Supplemental comparative disclosure, as
if the change had been retroactively applied, is as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss
|
|
$
|
(149,132
|
)
|
|
$
|
(567,277
|
)
|
|
$
|
(1,411,273
|
)
|
|
|
Goodwill amortization(1)
|
|
|
—
|
|
|
|
172,159
|
|
|
|
310,679
|
|
|
|
Inventory costing change(2)
|
|
|
(801
|
)
|
|
|
380
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss
|
|
$
|
(149,933
|
)
|
|
$
|
(394,738
|
)
|
|
$
|
(1,100,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported loss per share
|
|
$
|
(0.39
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(4.02
|
)
|
|
|
Goodwill amortization(1)
|
|
|
—
|
|
|
|
0.48
|
|
|
|
0.88
|
|
|
|
Inventory costing change(2)
|
|
|
(0.01
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted basic and diluted loss per share
|
|
$
|
(0.40
|
)
|
|
$
|
(1.08
|
)
|
|
$
|
(3.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes $54 million and $69 million,
or $0.15 and $0.20 per share, for 2001 and 2000, respectively,
related to amortization of other intangibles that are classified
as goodwill effective January 1, 2002.
|
|
|
|
(2)
|
The inventory costing change in 2000 reflects the
cumulative adjustment through that date.
|
Fixed
Assets
Fixed assets are stated at cost less accumulated
depreciation, which includes the amortization of assets recorded
under capital leases. Fixed assets, including assets purchased
under capital leases, are depreciated on a straight-line basis
over the estimated useful lives of the assets (generally two to
ten years).
Included in fixed assets is the cost of
internal-use software, including software used to upgrade and
enhance the Company’s Web sites. The Company expenses all
costs related to the development of internal-use software other
than those incurred during the application development stage.
Costs incurred during the application development stage are
capitalized and amortized over the estimated useful life of the
software (generally two years).
Goodwill and
Other Intangibles
Other intangibles consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
December 31, 2001
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Other
|
|
Gross
|
|
|
|
Other
|
|
|
|
Carrying
|
|
Accumulated
|
|
Intangibles,
|
|
Carrying
|
|
Accumulated
|
|
Intangibles,
|
|
|
|
Amount
|
|
Amortization
|
|
Net
|
|
Amount
|
|
Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract-based
|
|
$
|
16,584
|
|
|
$
|
(14,414
|
)
|
|
$
|
2,170
|
|
|
$
|
16,584
|
|
|
$
|
(11,170
|
)
|
|
$
|
5,414
|
|
|
Marketing-related
|
|
|
5,617
|
|
|
|
(5,010
|
)
|
|
|
607
|
|
|
|
5,617
|
|
|
|
(3,793
|
)
|
|
|
1,824
|
|
|
Technology-based
|
|
|
4,386
|
|
|
|
(4,331
|
)
|
|
|
55
|
|
|
|
4,386
|
|
|
|
(3,808
|
)
|
|
|
578
|
|
|
Customer-related
|
|
|
2,021
|
|
|
|
(1,393
|
)
|
|
|
628
|
|
|
|
2,021
|
|
|
|
(899
|
)
|
|
|
1,122
|
|
|
Assembled workforce(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
193,271
|
|
|
|
(167,827
|
)
|
|
|
25,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangibles
|
|
$
|
28,608
|
|
|
$
|
(25,148
|
)
|
|
$
|
3,460
|
|
|
$
|
221,879
|
|
|
$
|
(187,497
|
)
|
|
$
|
34,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of January 1, 2002, in accordance with
SFAS No. 142, the Company reclassified its assembled
workforce intangibles into goodwill.
|
At December 31, 2002 and 2001, goodwill was
$71 million and $45 million, respectively, stated net
of accumulated amortization of $740 million (of which
$168 million of accumulated amortization was reclassified
with the adoption of SFAS No. 141 on January 1, 2002)
and $572 million, respectively. During 2002, no goodwill or
other intangibles were acquired, impaired, or disposed, and
consistent with SFAS No. 142, no goodwill amortization was
recorded.
52
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The net carrying amount of intangible assets at
December 31, 2002 is scheduled to be fully amortized by the
end of 2004. Amortization expense for the net carrying amount of
intangible assets at December 31, 2002 is estimated to be
$3 million in 2003, and less than $1 million in 2004.
Investments
Investments are accounted for using the equity
method of accounting if the investment gives the Company the
ability to exercise significant influence, but not control, over
an investee. Significant influence is generally deemed to exist
if the Company has an ownership interest in the voting stock of
the investee of between 20% and 50%, although other factors,
such as representation on the investee’s Board of Directors
and the effect of commercial arrangements, are considered in
determining whether the equity method of accounting is
appropriate. The Company records its equity in the income or
losses of these investees generally one month in arrears for
private companies and three months in arrears for public
companies. The Company records its investments in equity-method
investees on the consolidated balance sheets as “Other
equity investments” and its share of the investees’
earnings or losses as “Equity in losses of equity-method
investees, net” on the consolidated statements of
operations.
All other equity investments, which consist of
investments for which the Company does not have the ability to
exercise significant influence, are accounted for under the cost
method. Under the cost method of accounting, investments in
private companies are carried at cost and are adjusted only for
other-than-temporary declines in fair value, distributions of
earnings and additional investments. For public companies that
have readily determinable fair values, the Company classifies
its equity investments as available-for-sale and, accordingly,
records these investments at their fair values with unrealized
gains and losses included in “Accumulated other
comprehensive income (loss).” Such investments are included
in “Marketable securities” on the accompanying
consolidated balance sheets if the Company does not have the
intent to hold the investment for over one year from the balance
sheet date. In cases where the Company has the intent to hold
such investments for over one year from the balance sheet date,
such investments are included in “Other equity
investments.”
The Company also invests in certain marketable
debt securities, which consist primarily of high-quality short-
to intermediate-term fixed income securities that are classified
as available-for-sale securities. Such investments are included
in “Marketable securities” on the accompanying
consolidated balance sheets and are reported at fair value with
unrealized gains and losses included in “Accumulated other
comprehensive income (loss).” The weighted average method
is used to determine the cost of Euro-denominated securities
sold and the specific identification method is used to determine
the cost of all other securities.
The initial cost of the Company’s
investments is determined based on the fair value of the
investment at the time of its acquisition. The Company has
received equity securities as consideration for services to be
performed for the issuer under commercial agreements. In such
cases, the Company has estimated the fair value of the equity
securities received. For securities of public companies, the
Company generally determines fair value based on the quoted
market price at the time the Company enters into the underlying
agreement, and adjusts such market price appropriately if
significant restrictions on marketability exist. As an
observable market price does not exist for equity securities of
private companies, estimates of fair value of such securities
are more subjective than for securities of public companies. For
significant transactions involving equity securities in private
companies, the Company obtains and considers independent, third
party valuations where appropriate. Such valuations use a
variety of methodologies to estimate fair value, including
comparing the security with securities of publicly traded
companies in similar lines of business, applying price multiples
to estimated future operating results for the private company,
and estimating discounted cash flows for that company. These
valuations also reduce the fair value to account for
restrictions on control and marketability where appropriate.
Using these valuations and other
53
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
information available to the Company, such as the
Company’s knowledge of the industry and knowledge of
specific information about the investee, the Company determines
the estimated fair value of the securities received. To the
extent that equity securities are subject to forfeiture or
vesting provisions and no significant performance commitment
exists upon signing of the agreements, the fair value of the
securities is determined as of the date of the respective
forfeiture or as vesting provisions lapse.
The Company periodically evaluates whether the
declines in fair value of its investments are
other-than-temporary. This evaluation consists of a review of
qualitative and quantitative factors by members of senior
management. For investments with publicly quoted market prices,
the Company generally considers a decline to be an
other-than-temporary impairment if the quoted market price is
less than its accounting basis for two consecutive quarters,
absent evidence to the contrary. The Company considers
additional factors to determine whether declines in fair value
are other-than-temporary, such as the investee’s financial
condition, results of operations, operating trends and other
financial ratios. The evaluation also considers publicly
available information regarding the investee companies,
including reports from investment analysts and other publicly
available investee-specific news or general market conditions.
For investments in private companies with no quoted market
price, the Company considers similar qualitative and
quantitative factors and also considers the implied value from
any recent rounds of financing completed by the investee, as
well as market prices of comparable public companies. The
Company generally requires its private investees to deliver
monthly, quarterly and annual financial statements to assist in
reviewing relevant financial data and to assist in determining
whether such data may indicate other-than-temporary declines in
fair value below the Company’s accounting basis.
Long-Lived
Assets
Long-lived assets, other than goodwill, are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets
might not be recoverable. The Company does not perform a
periodic assessment of assets for impairment in the absence of
such information or indicators. Conditions that would
necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a
significant change in the extent or manner in which an asset is
used, or a significant adverse change that would indicate that
the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the
Company recognizes an impairment loss only if its carrying
amount is not recoverable through its undiscounted cash flows
and measures the impairment loss based on the difference between
the carrying amount and fair value. Long-lived assets held for
sale are reported at the lower of cost or fair value less costs
to sell.
Other
Assets
Other assets consist primarily of fees incurred
in connection with the issuance of the Company’s debt.
These fees are amortized ratably as a component of interest
expense over the life of the underlying debt.
Unearned
Revenue
Unearned revenue is recorded when payments,
whether received in cash or equity securities, are received in
advance of the Company’s performance in the underlying
agreement. Unearned revenue is amortized ratably over the period
in which services are provided.
In instances where the Company receives equity
securities as compensation for services to be provided under
commercial arrangements, the fair value of these securities,
less the net amount of cash paid for them, is then recorded as
unearned revenue. Pursuant to Emerging Issues Task Force Issue
No. 00-8, “Accounting by a Grantee for an Equity
Instrument to Be Received in Conjunction with Providing Goods or
Services,” the Company does not adjust unearned revenue to
give effect to either increases or decreases
54
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in value of the equity securities subsequent to
their initial measurement (to the extent that such securities
are not subject to vesting or forfeiture).
The Company recognizes deferred tax assets and
liabilities based on differences between the financial reporting
basis and tax basis of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a
valuation allowance against its deferred tax assets to the
extent such assets are not expected to be realized.
The Company generally recognizes revenue from
product sales or services rendered when the following four
revenue recognition criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been
rendered, the selling price is fixed or determinable, and
collectibility is reasonably assured.
The Company evaluates the criteria outlined in
Emerging Issues Task Force (“EITF”) Issue
No. 99-19, “Reporting Revenue Gross as a Principal
Versus Net as an Agent,” in determining whether it is
appropriate to record the gross amount of product sales and
related costs or the net amount earned as commissions.
Generally, when the Company is the primary obligor in a
transaction, is subject to inventory risk, has latitude in
establishing prices and selecting suppliers, or has several but
not all of these indicators, revenue is recorded gross. If the
Company is not the primary obligor and amounts earned are
determined using a fixed percentage, a fixed-payment schedule,
or a combination of the two, the Company generally records the
net amounts as commissions earned.
Product sales, net of promotional discounts,
rebates and return allowances, are recorded when the products
are shipped and title passes to customers. Retail items sold to
customers are made pursuant to a sales contract that provides
for transfer of both title and risk of loss upon the
Company’s delivery to the carrier (commonly referred to as
“F.O.B. Shipping Point”). Return allowances (which
reduce product revenue by management’s best estimate of
expected product returns) are estimated using historical
experience.
The Company periodically provides incentive
offers to its customers to encourage purchases. Such offers
include percentage discounts off current purchases
(“current discount offers”), offers for future
discounts subject to a minimum current purchase
(“inducement offers”) and other similar offers.
Current discount offers, when accepted by customers, are treated
as a reduction to the purchase price of the related transaction
and are presented as a net amount in “Net sales.”
Inducement offers, when accepted by customers, are treated as a
reduction to purchase price based on estimated redemption rates.
Redemption rates are estimated using the Company’s
historical experience for similar inducement offers.
Commissions received on sales of products through
Amazon Marketplace, as well as commissions earned through the
Company’s Merchants@ program (see
“Note 15 — Segment Information”), are
recorded as a net amount since the Company is acting as an agent
in such transactions. In addition, the Company recognizes
amounts earned through its Merchant program (see
“Note 15 — Segment Information”) as a
net amount. Amounts earned are recognized as net sales when the
item is sold by the third-party seller and collectibility is
reasonably assured. The Company records an allowance for refunds
on such commissions using historical experience.
The Company earns revenues from services
primarily by entering into commercial agreements, including
providing its technology services such as search, browse, and
personalization; permitting third parties to offer products or
services through its Web sites; and powering third-party Web
sites, either with our without providing accompanying
fulfillment services. These commercial agreements also include
55
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
miscellaneous marketing and promotional
agreements. As compensation for the services the Company
provides under these agreements, the Company receives cash,
equity securities, or a combination thereof. Generally, the fair
value of the equity consideration received is measured when the
agreement is executed, but to the extent that the equity
consideration is subject to forfeiture or vesting provisions and
no significant performance commitment exists upon execution of
the agreement, the fair value of the equity consideration and
corresponding revenue is determined as of the date that the
forfeiture provision lapses or as the vesting provision lapses.
Subsequent to initial measurement of fair value, appreciation or
decline in the fair value of such securities will affect the
Company’s ultimate realization of equity securities
received as compensation; however, any such change does not
affect the amount of revenue to be recognized over the term of
the agreement. The Company generally recognizes revenue from
these marketing and promotional services (including revenue
associated with non-refundable advance payments) on a
straight-line basis over the period during which the Company
performs services under these agreements, commencing at the
launch date of the service. If the Company receives
non-refundable advance payments, such amounts are deferred for
revenue recognition purposes until service commences.
Included in Services segment revenues are
equity-based service revenues of $13 million,
$27 million and $79 million for 2002, 2001 and 2000,
respectively.
The Company has in the past, and may in the
future, amend its agreements with certain of the companies with
which it has commercial agreements to modify future cash
proceeds to be received by the Company, modify the service term
of its commercial agreements, or both. Although these amendments
generally do not affect the amount of unearned revenue
previously recorded by the Company (if any), the timing of
future revenue recognition changes to correspond with the terms
of amended agreements. These amendments or future amendments
will affect the timing and amount of revenues recognized in
connection with these commercial agreements. To the extent the
Company believes any such amendments cause or may cause the
compensation to be received under an agreement to no longer be
fixed or determinable, the Company limits its revenue
recognition to amounts received, excluding any future amounts
not deemed fixed or determinable. As future amounts are
subsequently received, such amounts are incorporated into
revenue recognition over the remaining term of the agreement.
Outbound shipping charges to customers are
included in net sales and amounted to $365 million,
$357 million and $339 million in 2002, 2001 and 2000,
respectively.
Cost of sales consists of the purchase price of
consumer products sold by the Company, inbound and outbound
shipping charges, packaging supplies and certain costs
associated with service revenues. Costs associated with service
revenues classified as cost of services generally include direct
and allocated indirect fulfillment-related costs to ship
products on behalf of third-party sellers, costs to provide
customer service, credit card fees and other related costs.
Outbound shipping charges and the cost of
tangible supplies used to package products for shipment to
customers totaled $404 million, $376 million, and
$340 million in 2002, 2001 and 2000, respectively.
Fulfillment costs represent those costs incurred
in operating and staffing the Company’s fulfillment and
customer service centers, including costs attributable to:
receiving, inspecting and warehousing inventories; picking,
packaging and preparing customers’ orders for shipment;
credit card fees and bad debt costs; and responding to inquiries
from customers. Fulfillment costs also include amounts paid to
third-party co-sourcers that assist the Company in fulfillment
and customer service operations. Certain Services
56
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
segment fulfillment-related costs incurred on
behalf of other businesses are classified as cost of sales
rather than fulfillment.
Marketing expenses consist of advertising,
promotional, and public relations expenditures, and payroll and
related expenses for personnel engaged in marketing and selling
activities. The Company expenses general media advertising costs
as incurred. The Company enters into certain online promotional
agreements with third parties to increase traffic to its Web
sites. Costs associated with these promotional agreements
consist of fixed payments, variable activity-based payments, or
a combination of the two. Fixed payments are amortized ratably
over the corresponding agreement term and variable payments are
expensed in the period incurred. The Company receives
reimbursements from vendors for certain general media and other
advertising costs. Such reimbursements are recorded as a
reduction of expense. Advertising expense and other promotional
costs were $114 million, $125 million and
$172 million in 2002, 2001 and 2000, respectively. Prepaid
advertising costs were $1 million and $2 million at
December 31, 2002 and 2001, respectively.
Technology and content expenses consist
principally of payroll and related expenses for development,
editorial, systems, and telecommunications operations personnel;
and systems and telecommunications infrastructure.
Technology and content costs are expensed as
incurred, except for certain costs relating to the development
of internal-use software, including upgrades and enhancements to
the Company’s Web sites, that are capitalized and
depreciated over two years. Fixed assets associated with
capitalized internal-use software, net of accumulated
depreciation, was $23 million and $24 million at
December 31, 2002 and 2001, respectively. Costs capitalized
during the application development stage for internal-use
software, offset by corresponding amortization, was a net
expense of $1 million in 2002, and net deferrals of
$3 million and $14 million in 2001 and 2000,
respectively.
Stock-based compensation includes stock-based
charges resulting from variable accounting treatment of certain
stock options, restricted stock issued to certain key employees
and amounts associated with the Company’s restricted stock
unit program, which commenced in the fourth quarter of 2002.
Stock-based compensation also includes, to a lesser extent, a
portion of acquisition-related consideration conditioned on the
continued tenure of certain key employees of acquired businesses.
The Company generally has four categories of
employee stock-based awards: restricted stock units, restricted
stock, fixed-award stock options and options subject to variable
accounting treatment. At December 31, 2002, the Company has
three stock-based employee compensation plans, which are more
fully described in “Note 8 —
Stockholders’ Equity (Deficit).” The Company accounts
for those plans under the intrinsic value method, which follows
the recognition and measurement principles of APB Opinion
No. 25,
Accounting for Stock Issued to Employees
,
and related Interpretations. The intrinsic value method of
accounting results in stock compensation expense to the extent
option exercise prices are set below market prices on the date
of grant. Also, to the extent employee stock awards have been
subject to an exchange offer or other modifications, such awards
are subject to variable accounting treatment. Variable
accounting treatment results in expense or contra-expense
recognition using the cumulative expense method, calculated
based on quoted prices of the Company’s common stock and
vesting schedules of underlying awards.
57
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Restricted stock and restricted stock units are
measured at fair value on the date of grant based on the number
of shares granted and the quoted price of the Company’s
common stock. Such value is recognized as an expense ratably
over the corresponding employee service period. To the extent
restricted stock or restricted stock units are forfeited prior
to vesting, the corresponding previously recognized expense is
reversed as an offset to “Stock-based compensation.”
Stock-based compensation associated with restricted stock units
was $4 million during 2002.
During the first quarter of 2001, the Company
offered a limited non-compulsory exchange of employee stock
options. The exchange resulted in the voluntary cancellation of
employee stock options to purchase 31 million shares of
common stock with varying exercise prices in exchange for
employee stock options to purchase 12 million shares of
common stock with an exercise price of $13.375. The option
exchange offer resulted in variable accounting treatment for, at
the time of the exchange, approximately 15 million stock
options, which includes options granted under the exchange offer
and 3 million options, with a weighted average exercise
price of $52.41, that were subject to the exchange offer but
were not exchanged. Variable accounting will continue until all
options subject to variable accounting treatment are exercised,
cancelled or expired. At December 31, 2002, approximately
5 million options remain under variable accounting
treatment, which includes 4 million options granted under
the exchange offer and 1 million options, with a weighted
average exercise price of $43.49, that were subject to the
exchange offer but were not exchanged.
The following table summarizes relevant
information as to reported results under the Company’s
intrinsic value method of accounting for stock awards, with
supplemental information as if the fair value recognition
provisions of SFAS No. 123, “Accounting for Stock
Based Compensation,” had been applied (in thousands, except
per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Net loss, as reported
|
|
$
|
(149,132
|
)
|
|
$
|
(567,277
|
)
|
|
$
|
(1,411,273
|
)
|
|
Add: Stock-based compensation, as reported
|
|
|
68,927
|
|
|
|
4,637
|
|
|
|
24,797
|
|
|
Deduct: Total stock-based compensation determined
under fair value based method for all awards
|
|
|
(148,083
|
)
|
|
|
(400,445
|
)
|
|
|
(333,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net loss, fair value method for all
stock-based awards
|
|
$
|
(228,288
|
)
|
|
$
|
(963,085
|
)
|
|
$
|
(1,720,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share — as
reported
|
|
$
|
(0.39
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(4.02
|
)
|
|
Basic and diluted loss per share — SFAS
No. 123 adjusted
|
|
$
|
(0.60
|
)
|
|
$
|
(2.64
|
)
|
|
$
|
(4.90
|
)
|
The fair value for each option granted was
estimated at the date of grant using a Black-Scholes
option-pricing model, assuming no expected dividends and the
following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Average risk-free interest rates
|
|
|
3.1
|
%
|
|
|
4.1
|
%
|
|
|
6.2
|
%
|
|
Average expected life (in years)
|
|
|
3.3
|
|
|
|
3.3
|
|
|
|
3.0
|
|
|
Volatility
|
|
|
81.8
|
%
|
|
|
98.0
|
%
|
|
|
89.6
|
%
|
The weighted average fair value of stock awards
(including restricted stock units granted in 2002) granted
during 2002, 2001 and 2000 was $14.99, $5.98 and $22.12,
respectively.
58
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has the following
internationally-focused Web sites:
www.amazon.co.uk,
www.amazon.de, www.amazon.fr, www.amazon.co.jp
and
www.amazon.ca.
Net sales generated from these Web sites,
as well as most of the related expenses incurred, are
denominated in the functional currencies of the Web sites.
Additionally, the functional currency of the Company’s
subsidiaries that either operate or support
www.amazon.co.uk,
www.amazon.de, www.amazon.fr, www.amazon.co.jp
and
www.amazon.ca
is the same as the local currency of the
United Kingdom, Germany, France, Japan and Canada, respectively.
Assets and liabilities of these subsidiaries are translated into
U.S. Dollars at year-end exchange rates, and revenues and
expenses are translated at average rates prevailing during the
year. Translation adjustments are included in “Accumulated
other comprehensive income (loss),” a separate component of
stockholders’ deficit. Transaction gains and losses arising
from transactions denominated in a currency other than the
functional currency of the entity involved, are included in
“Other income (expense), net” on the consolidated
statements of operations. See “Note 11 —
Other Income (Expense), Net.”
|
|
|
|
|
Derivative Financial
Instruments
|
Effective January 1, 2001, the Company
adopted SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” which requires that
all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are
recorded each period in current results of operations or other
comprehensive income (loss) depending on whether a
derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. For a derivative
designated as a fair value hedge, the gain or loss of the
derivative in the period of change and the offsetting loss or
gain of the hedged item attributed to the hedged risk are
recognized in results of operations. For a derivative designated
as a cash flow hedge, the effective portion of the
derivative’s gain or loss is initially reported as a
component of other comprehensive income (loss) and
subsequently reclassified into results of operations when the
hedged exposure affects results of operations. The ineffective
portion of the gain or loss of a cash flow hedge is recognized
currently in results of operations. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized currently in results of operations.
The Company is exposed to the risk of
fluctuations in foreign exchange rates between the
U.S. Dollar and the Euro associated with its 6.875%
Convertible Subordinated Notes due 2010 (“6.875%
PEACS”) (See “Note 6 — Long-Term Debt
and Other”). To minimize a portion of the risk from this
exposure, the Company has designated a swap agreement as a cash
flow hedge of a portion of the 6.875% PEACS’ principal and
interest based upon the criteria established by SFAS
No. 133. The terms of the hedge instrument have been
structured to match the related terms of the hedged portion of
the 6.875% PEACS. No net gains or losses resulting from hedge
ineffectiveness were recognized in results of operations during
the years ended December 31, 2002 and 2001, respectively.
The Company holds warrants to purchase equity
securities of other companies. Warrants that can be exercised
and settled by delivery of net shares such that the Company pays
no cash upon exercise are deemed derivative financial
instruments. Net share warrants are not designated as hedging
instruments; accordingly, gains or losses resulting from changes
in fair value are recognized on the consolidated statements of
operations, “Other gains (losses), net,” in the period
of change. The Company determines the fair value of its warrants
through option-pricing models using current market price and
volatility assumptions, including public-company market
comparables for its private-company warrants.
The adoption of SFAS No. 133 on
January 1, 2001 resulted in cumulative transition losses of
$11 million included in the results of operations and a
stockholders’ deficit adjustment of $12 million.
Transition losses included in “Cumulative effect of change
in accounting principle” are attributable to approximately
$3 million in losses reclassified from “Accumulated
other comprehensive income (loss)” on warrants previously
reported at fair value and classified as available-for-sale, and
approximately $8 million
59
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in losses on warrants previously reported at
cost. No warrant investments are designated as hedging
instruments. Transition losses in “Accumulated other
comprehensive income (loss)” are attributable to
approximately $15 million in losses on the swap agreement
designated as a cash flow hedge of a portion of the 6.875% PEACS
offset by the approximately $3 million in losses
reclassified to results of operations on derivative instruments
not designated as hedging instruments.
Effective January 1, 2001, currency gains
and losses arising from the remeasurement of the 6.875%
PEACS’ principal from Euros to U.S. Dollars each
period are recorded to “Other gains (losses), net.”
Prior to January 1, 2001, 6.875% PEACS’ principal of
615 million Euros was designated as a hedge of an
equivalent amount of Euro-denominated investments classified as
available-for-sale; accordingly, currency gains and losses on
the 6.875% PEACS were recorded to “Accumulated other
comprehensive income (loss)” on the consolidated balance
sheets as hedging offsets to currency gains and losses on the
Euro-denominated investments. As this hedge does not qualify for
hedge accounting under the provisions of SFAS No. 133,
commencing January 1, 2001, the foreign currency change
resulting from the portion of the 6.875% PEACS previously
hedging the available-for-sale securities is now being recorded
to “Other gains (losses), net” on the consolidated
statements of operations.
Basic earnings per share is computed using the
weighted average number of common shares outstanding during the
period, net of shares subject to restrictions, and excludes any
dilutive effects of options or warrants, restricted stock units
and convertible securities. Diluted earnings per share is
computed using the weighted average number of common and common
stock equivalent shares outstanding (including the effect of
restricted stock units) during the period; common stock
equivalent shares are excluded from the computation if their
effect is antidilutive.
|
|
|
|
|
Recent Accounting
Pronouncements
|
In August 2001, the FASB issued SFAS
No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” that is applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. The FASB’s new rules on asset
impairment supersede SFAS No. 121, “Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of,” and portions of Accounting Principles
Bulletin Opinion 30, “Reporting the Results of
Operations.” This Standard provides a single accounting
model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and
are stated at the lower of fair value and carrying amount. This
Standard also requires expected future operating losses from
discontinued operations to be displayed in the period(s) in
which the losses are incurred, rather than as of the measurement
date as presently required. The provisions of this Standard are
not expected to have a significant effect on the Company’s
financial position or operating results.
In November 2002, the EITF reached a consensus on
Issue 02-16, addressing the accounting of cash consideration
received by a customer from a vendor, including vendor rebates
and refunds. The consensus reached states that consideration
received should be presumed to be a reduction of the prices of
the vendor’s products or services and should therefore be
shown as a reduction of cost of sales in the income statement of
the customer. The presumption could be overcome if the vendor
receives an identifiable benefit in exchange for the
consideration or the consideration represents a reimbursement of
a specific incremental identifiable cost incurred by the
customer in selling the vendor’s product or service. If one
of these conditions is met, the cash consideration should be
characterized as a reduction of those costs in the income
statement of the customer. The consensus reached also concludes
that if rebates or refunds can be reasonably estimated, such
rebates or refunds should be recognized as a reduction of the
cost of sales
60
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
based on a systematic and rational allocation of
the consideration to be received relative to the transactions
that mark the progress of the customer toward earning the rebate
or refund. The provisions of this consensus are applied
prospectively and are consistent with the Company’s
existing accounting policy.
In November 2002, the EITF reached a consensus on
Issue 00-21, addressing how to account for arrangements that
involve the delivery or performance of multiple products,
services, and/or rights to use assets. Revenue arrangements with
multiple deliverables are divided into separate units of
accounting if the deliverables in the arrangement meet the
following criteria: (1) the delivered item has value to the
customer on a standalone basis; (2) there is objective and
reliable evidence of the fair value of undelivered items; and
(3) delivery of any undelivered item is probable.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values, with
the amount allocated to the delivered item being limited to the
amount that is not contingent on the delivery of additional
items or meeting other specified performance conditions. The
final consensus will be applicable to agreements entered into in
fiscal periods beginning after June 15, 2003 with early
adoption permitted. The provisions of this Consensus are not
expected to have a significant effect on the Company’s
financial position or operating results.
In December 2002, the FASB issued SFAS
No. 148, “Accounting for Stock-Based
Compensation — Transition and Disclosure.” This
Statement amends SFAS No. 123, “Stock-Based
Compensation,” to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of SFAS
No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method
used on reported results. The disclosure provisions of this
Standard are effective for fiscal years ending after
December 15, 2002 and have been incorporated into these
financial statements and accompanying footnotes.
Certain prior year amounts have been reclassified
to conform to the current year presentation.
Note 2 — Cash, Cash Equivalents and
Marketable Securities
The following tables summarize, by major security
type, the Company’s cash and marketable securities (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
|
|
|
|
|
|
Cost or
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
302,964
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
302,964
|
|
|
Commercial paper and short-term obligations
|
|
|
429,943
|
|
|
|
5,347
|
|
|
|
—
|
|
|
|
435,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
732,907
|
|
|
|
5,347
|
|
|
|
—
|
|
|
|
738,254
|
|
|
Certificates of deposit
|
|
|
19,494
|
|
|
|
2,832
|
|
|
|
—
|
|
|
|
22,326
|
|
|
Commercial paper and short-term obligations
|
|
|
2,073
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,073
|
|
|
Corporate notes and bonds
|
|
|
42,586
|
|
|
|
355
|
|
|
|
—
|
|
|
|
42,941
|
|
|
Asset-backed and agency securities
|
|
|
309,549
|
|
|
|
7,166
|
|
|
|
—
|
|
|
|
316,715
|
|
61
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2002
|
|
|
|
|
|
|
|
Cost or
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury notes and bonds
|
|
|
172,145
|
|
|
|
2,616
|
|
|
|
(35
|
)
|
|
|
174,726
|
|
|
Equity securities
|
|
|
3,934
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
549,781
|
|
|
|
12,969
|
|
|
|
(35
|
)
|
|
|
562,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,282,688
|
|
|
$
|
18,316
|
|
|
$
|
(35
|
)
|
|
$
|
1,300,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2001
|
|
|
|
|
|
|
|
Cost or
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Estimated
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
149,968
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
149,968
|
|
|
Commercial paper and short-term obligations
|
|
|
394,613
|
|
|
|
—
|
|
|
|
(4,299
|
)
|
|
|
390,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
544,581
|
|
|
|
—
|
|
|
|
(4,299
|
)
|
|
|
540,282
|
|
|
Certificates of deposit
|
|
|
18,692
|
|
|
|
—
|
|
|
|
(533
|
)
|
|
|
18,159
|
|
|
Commercial paper and short-term obligations
|
|
|
28,614
|
|
|
|
8
|
|
|
|
—
|
|
|
|
28,622
|
|
|
Corporate notes and bonds
|
|
|
37,370
|
|
|
|
240
|
|
|
|
(8
|
)
|
|
|
37,602
|
|
|
Asset-backed and agency securities
|
|
|
231,912
|
|
|
|
909
|
|
|
|
—
|
|
|
|
232,821
|
|
|
U.S. Treasury notes and bonds
|
|
|
125,687
|
|
|
|
260
|
|
|
|
—
|
|
|
|
125,947
|
|
|
Equity securities
|
|
|
12,395
|
|
|
|
832
|
|
|
|
(75
|
)
|
|
|
13,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
|
454,670
|
|
|
|
2,249
|
|
|
|
(616
|
)
|
|
|
456,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
999,251
|
|
|
$
|
2,249
|
|
|
$
|
(4,915
|
)
|
|
$
|
996,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes contractual
maturities of the Company’s cash equivalent and marketable
fixed-income securities as of December 31, 2002 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Estimated
|
|
|
|
Cost
|
|
Fair Value
|
|
|
|
|
|
|
|
Due within one year
|
|
$
|
463,544
|
|
|
$
|
471,886
|
|
|
Due after one year through three years
|
|
|
202,697
|
|
|
|
205,470
|
|
|
Asset-backed and agency securities with various
maturities
|
|
|
309,549
|
|
|
|
316,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
975,790
|
|
|
$
|
994,071
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains of $9 million, $9 million,
and $7 million and gross losses of $1 million,
$32 million and $11 million were realized on sales of
available-for-sale marketable securities for the years ended
December 31, 2002, 2001, and 2000 respectively.
The Company has pledged a portion of its
marketable securities as collateral for stand-by letters of
credit that guarantee certain of its contractual obligations, a
majority of which relates to property leases; the swap agreement
that hedges foreign exchange rate risk on a portion of its
6.875% PEACS; and some of its real estate lease agreements. See
“Note 6 — Long-Term Debt and Other” and
“Note 7 — Commitments and
Contingencies.”
62
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fixed assets, at cost, consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
Furniture, fixtures and leasehold improvements
|
|
$
|
112,943
|
|
|
$
|
109,227
|
|
|
Technology infrastructure and other computer
equipment
|
|
|
57,086
|
|
|
|
58,140
|
|
|
Software purchased or developed for internal use
|
|
|
94,561
|
|
|
|
70,944
|
|
|
Equipment and other fixed assets acquired under
capital leases
|
|
|
218,146
|
|
|
|
199,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482,736
|
|
|
|
438,143
|
|
|
Less accumulated depreciation
|
|
|
(222,731
|
)
|
|
|
(152,443
|
)
|
|
Less accumulated amortization on leased assets
|
|
|
(20,607
|
)
|
|
|
(13,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
$
|
239,398
|
|
|
$
|
271,751
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense on fixed assets was
$77 million, $83 million and $83 million, which
includes amortization of fixed assets acquired under capital
lease obligations of $7 million, $9 million and
$11 million for 2002, 2001 and 2000, respectively.
|
|
|
|
Note 4 —
|
Other Equity Investments
|
Activity in the Company’s equity-method and
cost-method investments for the years ended December 31,
2002 and 2001, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-
|
|
|
|
|
|
|
|
Method
|
|
Cost-Method
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2000
|
|
$
|
52,073
|
|
|
$
|
40,177
|
|
|
$
|
92,250
|
|
|
|
Investments — common stock
consideration
|
|
|
5,000
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
Fair value of equity securities received in
services-related transactions
|
|
|
331
|
|
|
|
—
|
|
|
|
331
|
|
|
|
Equity-method losses, net
|
|
|
(30,327
|
)
|
|
|
—
|
|
|
|
(30,327
|
)
|
|
|
Sales of investments at fair value
|
|
|
(800
|
)
|
|
|
(28
|
)
|
|
|
(828
|
)
|
|
|
Realized gains on sales of investments, net
|
|
|
800
|
|
|
|
—
|
|
|
|
800
|
|
|
|
Non-cash gains (losses) for acquisitions of
investees by a third party
|
|
|
1,242
|
|
|
|
(458
|
)
|
|
|
784
|
|
|
|
Losses resulting from other-than-temporary
declines in fair value
|
|
|
(16,696
|
)
|
|
|
(10,189
|
)
|
|
|
(26,885
|
)
|
|
|
Unrealized gains on available-for-sale
investments, net
|
|
|
—
|
|
|
|
227
|
|
|
|
227
|
|
|
|
Losses for change in fair value of warrant
investments, net
|
|
|
—
|
|
|
|
(5,293
|
)
|
|
|
(5,293
|
)
|
|
|
Loss from change in accounting principle
|
|
|
—
|
|
|
|
(7,700
|
)
|
|
|
(7,700
|
)
|
|
|
Investment reclassifications, net, at fair value
|
|
|
(1,236
|
)
|
|
|
1,236
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
|
10,387
|
|
|
|
17,972
|
|
|
|
28,359
|
|
|
|
Equity-method losses, net
|
|
|
(4,169
|
)
|
|
|
—
|
|
|
|
(4,169
|
)
|
|
|
Sales of investments at fair value
|
|
|
(2,940
|
)
|
|
|
(12,941
|
)
|
|
|
(15,881
|
)
|
|
|
Realized gains on sales of investments, net
|
|
|
2,326
|
|
|
|
10,844
|
|
|
|
13,170
|
|
63
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-
|
|
|
|
|
|
|
|
Method
|
|
Cost-Method
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Losses resulting from other-than-temporary
declines in fair value
|
|
|
(4,288
|
)
|
|
|
(794
|
)
|
|
|
(5,082
|
)
|
|
|
Unrealized losses on available-for-sale
investments, net
|
|
|
—
|
|
|
|
(652
|
)
|
|
|
(652
|
)
|
|
|
Losses for change in fair value of warrant
investments, net
|
|
|
—
|
|
|
|
(303
|
)
|
|
|
(303
|
)
|
|
|
Investment reclassifications, net, at fair value
|
|
|
(880
|
)
|
|
|
880
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
$
|
436
|
|
|
$
|
15,006
|
|
|
$
|
15,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective January 1, 2001, the
Company’s adoption of SFAS No. 133 resulted in the
recording of a loss totaling $8 million to report certain
warrants at fair value. Prior to adoption, such warrants were
carried at cost.
At December 31, 2002 and 2001, cost-method
investments recorded in “Other equity investments”
included $5 million and $3 million, respectively, of
investments recorded at fair value and $10 million and
$15 million, respectively, of investments carried at cost.
Gross unrealized gains and losses were not significant at
December 31, 2002 and 2001.
At December 31, 2002 and 2001, the fair
value of the Company’s investments in the common stock of
publicly held equity-method investees was $31 million and
$25 million, respectively.
|
|
|
|
Note 5 —
|
Unearned Revenue
|
Activity in unearned revenue was as follows (in
thousands):
|
|
|
|
|
|
|
|
Balance, December 31, 2000
|
|
$
|
131,117
|
|
|
|
Cash received or accounts receivable
|
|
|
114,738
|
|
|
|
Fair value of equity securities received
|
|
|
331
|
|
|
|
Amortization to revenue
|
|
|
(135,808
|
)
|
|
|
Contract termination
|
|
|
(22,400
|
)
|
|
|
|
|
|
|
|
Balance, December 31, 2001
|
|
|
87,978
|
|
|
|
Cash received or accounts receivable
|
|
|
95,404
|
|
|
|
Amortization to revenue
|
|
|
(135,466
|
)
|
|
|
|
|
|
|
|
Balance, December 31, 2002
|
|
$
|
47,916
|
|
|
|
|
|
|
|
All amounts recorded as accounts receivable,
including amounts associated with unearned revenue, are legally
due and contractually enforceable. At December 31, 2002
accounts receivable, net associated with unearned revenue was
$2 million.
During 2001, the Company recognized previously
unearned revenue associated with the termination of its
commercial agreement with Kozmo.com, which was included in
“Other gains (losses), net” on the accompanying
consolidated statements of operations. Since services had not
yet been performed under the contract, no amounts associated
with the Kozmo.com commercial agreement were previously
recognized in “Net sales” on the accompanying
consolidated statements of operations during any period.
64
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
Note 6 —
|
Long-Term Debt and Other
|
The Company’s long-term debt and other
long-term liabilities are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
4.75% Convertible Subordinated Notes
|
|
$
|
1,249,807
|
|
|
$
|
1,249,807
|
|
|
6.875% PEACS
|
|
|
724,500
|
|
|
|
608,787
|
|
|
Senior Discount Notes
|
|
|
255,597
|
|
|
|
231,830
|
|
|
Long-term restructuring liabilities
|
|
|
31,614
|
|
|
|
20,640
|
|
|
Euro currency swap
|
|
|
12,159
|
|
|
|
33,265
|
|
|
Capital lease obligations
|
|
|
8,491
|
|
|
|
16,415
|
|
|
Other long-term debt
|
|
|
8,456
|
|
|
|
10,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,290,624
|
|
|
|
2,171,125
|
|
|
Less current portion of capital lease obligations
|
|
|
(7,506
|
)
|
|
|
(9,922
|
)
|
|
Less current portion of other long-term debt
|
|
|
(5,813
|
)
|
|
|
(5,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,277,305
|
|
|
$
|
2,156,133
|
|
|
|
|
|
|
|
|
|
|
|
On February 16, 2000, the Company completed
an offering of 690 million Euros of 6.875% PEACS due 2010.
The 6.875% PEACS are convertible into the Company’s common
stock at a conversion price of 84.883 Euros per share. The
initial conversion price of 104.947 Euros per share was adjusted
down due to reset provisions in the note. Interest on the 6.875%
PEACS is payable annually in arrears in February of each year.
The 6.875% PEACS are unsecured and are subordinated to all of
the Company’s existing and future senior indebtedness. The
6.875% PEACS rank equally with the Company’s outstanding
4.75% Convertible Subordinated Notes. Subject to certain
conditions, the 6.875% PEACS may be redeemed at the
Company’s option on or after February 20, 2003, in
whole or in part, at the redemption price of 1,000 Euros per
note, plus accrued and unpaid interest.
Upon the occurrence of a “fundamental
change” prior to the maturity of the 6.875% PEACS, each
holder thereof has the right to require the Company to redeem
all or any part of such holder’s 6.875% PEACS at a price
equal to 100% of the principal amount of the notes being
redeemed, together with accrued interest. As defined in the
indenture, a “fundamental change” is the occurrence of
certain types of transactions in which the stockholders do not
receive publicly-traded securities.
The indenture governing the 6.875% PEACS contains
certain affirmative covenants of the Company, including making
principal and interest payments when due, maintaining its
corporate existence and properties and paying taxes and other
claims in a timely manner. The Company was in compliance with
these covenants at December 31, 2002.
In order to hedge a portion of the risk of
foreign exchange fluctuations between the U.S. Dollar and
the Euro, the Company entered into a cross-currency swap
agreement. Under the swap agreement, the Company agreed to pay
at inception and receive upon maturity 75 million Euros in
exchange for receiving at inception and paying at maturity
$67 million. In addition, the Company agreed to receive in
February of each year 27 million Euros for interest
payments on 390 million Euros of the 6.875% PEACS and,
simultaneously, to pay $32 million. The agreement expires
February 16, 2010 and is cancelable, in whole or in part,
at the Company’s option at no cost on or after
February 20, 2003 if the Company’s underlying
65
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
stock price (converted into Euros) is greater
than or equal to the minimum conversion price of the 6.875%
PEACS. The Company has designated the swap agreement as a cash
flow hedge of the foreign exchange rate risk on a portion of the
6.875% PEACS principal and interest in accordance with the
provisions of SFAS No. 133. Each period, gains or losses
resulting from changes in the fair value of the swap contract
are recorded to “Accumulated other comprehensive income
(loss)” and a portion of such gain or loss is immediately
reclassified to the statement of operations, “Other gains
(losses), net,” to offset the foreign currency loss or gain
attributable to remeasurement of the hedged portion of the
6.875% PEACS. For the year ended December 31, 2002, a
currency swap gain of $13 million was reclassified to
offset a $13 million currency loss on the 6.875% PEACS. The
terms of the swap contract have been structured to match the
terms of the hedged portion of the 6.875% PEACS. No net gains or
losses, resulting from hedge ineffectiveness, were recognized in
results of operations during the year ended December 31,
2002 and 2001.
Effective January 1, 2001, currency gains
and losses arising from the remeasurement of the 6.875%
PEACS’s principal from Euros to U.S. Dollars each
period are recorded to “Other gains (losses), net.”
Prior to January 1, 2001, 6.875% PEACS’s principal of
615 million Euros was designated as a hedge of an
equivalent amount of Euro-denominated investments classified as
available-for-sale; accordingly, currency gains and losses on
the 6.875% PEACS were recorded to “Accumulated other
comprehensive income (loss)” on the consolidated balance
sheets as hedging offsets to currency gains and losses on the
Euro-denominated investments. As the hedge does not qualify for
hedge accounting under the provisions of SFAS No. 133,
commencing January 1, 2001, the foreign currency change
resulting from the portion of the 6.875% PEACS previously
hedging the available-for-sale securities is now being recorded
to “Other gains (losses), net” on the consolidated
statements of operations. The change resulted in a gain of
$47 million for the year ended December 31, 2001,
consisting of a $10 million gain reclassified from
“Accumulated other comprehensive income (loss)” and a
$37 million gain attributable to remeasurement of the
6.875% PEACS during the period.
The fair value of the swap is determined as the
present value of net future cash payments and receipts, adjusted
for the Company’s ability to cancel the agreement and the
likelihood of such cancellation. The fair value takes into
consideration current foreign exchange rates, market interest
rates, the current market price of the Company’s common
stock and other variables. The fair value of the swap obligation
was $12 million and $33 million at December 31,
2002 and December 31, 2001, respectively. Based upon quoted
market prices, the fair value of the 6.875% PEACS was
$531 million and $310 million, as of December 31,
2002 and December 31, 2001, respectively.
|
|
|
|
|
4.75% Convertible Subordinated
Notes
|
On February 3, 1999, the Company completed
an offering of $1.25 billion of 4.75% Convertible
Subordinated Notes due 2009. The 4.75% Convertible Subordinated
Notes are convertible into the Company’s common stock at
the holders’ option at a conversion price of $78.0275 per
share, subject to adjustment in certain events. Interest on the
4.75% Convertible Subordinated Notes is payable semi-annually in
arrears on February 1 and August 1 of each year, and
commenced August 1, 1999. The 4.75% Convertible
Subordinated Notes are unsecured and are subordinated to all
existing and future Senior Indebtedness as defined in the
indenture governing the 4.75% Convertible Subordinated Notes. At
any time on or after February 6, 2002, on at least
30 days’ notice the Company may redeem the notes, in
whole or in part, at a premium of 3.325% over its principal
balance, together with accrued interest. The redemption premium
is thereafter reduced by 0.475% on each February 1 between
2003 and 2009.
Upon the occurrence of a “fundamental
change” prior to the maturity of the 4.75% Convertible
Subordinated Notes, each holder thereof has the right to require
the Company to redeem all or any part of such holder’s
4.75% Convertible Subordinated Notes at a price equal to 100% of
the principal amount of
66
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the notes being redeemed, together with accrued
interest. As defined in the indenture, a “fundamental
change” is the occurrence of certain types of transactions
in which the stockholders do not receive publicly-traded
securities.
The indenture governing the 4.75% Convertible
Subordinated Notes contains certain affirmative covenants of the
Company, including making principal and interest payments when
due, maintaining its corporate existence and properties, paying
taxes and other claims in a timely manner and the provision of
information required under Rule 144A of the Securities Act
of 1933 to enable holders to sell without registration. The
Company was in compliance with these covenants at
December 31, 2002.
Based upon quoted market prices, the fair value
of the 4.75% Convertible Subordinated Notes as of
December 31, 2002 and December 31, 2001 was
$925 million and $625 million, respectively.
In 1998, the Company completed the offering of
approximately $326 million of 10% Senior Discount Notes due
May 1, 2008 (“Original Senior Discount Notes”).
Pursuant to a registration statement on Form S-4 in
September 1998, the Company completed an exchange offer of 10%
Senior Discount Notes due 2008 (“Exchange Notes” or
“Senior Discount Notes”), which are registered under
the Securities Act of 1933, as amended, for all outstanding
Original Senior Discount Notes. The Exchange Notes have
identical terms in all material respects to the terms of the
Original Senior Discount Notes, except that the Exchange Notes
generally are freely transferable (the Exchange Notes are
referred to throughout these notes to consolidated financial
statements interchangeably with the Original Senior Discount
Notes). The Exchange Notes were issued under the indenture
governing the Original Senior Discount Notes
(“Indenture”). The Original Senior Discount Notes were
sold at a substantial discount from their original principal
amount at maturity of $530 million. Prior to
November 1, 2003, no cash interest payments are required;
instead, interest will accrete during this period to the
aggregate principal amount at maturity. From and after
May 1, 2003, the Senior Discount Notes will bear interest
at a rate of 10% per annum payable in cash on each May 1
and November 1. The Senior Discount Notes are redeemable,
at the option of the Company, in whole or in part, at any time
on or after May 1, 2003, at the redemption prices set forth
in the Indenture, plus accrued interest, if any, to the date of
redemption.
During 1999, the Company repurchased
$266 million (principal amount) of the Senior Discount
Notes, representing accreted value of $178 million,
resulting in a remaining outstanding principal amount of
$264 million. The Company recorded an immaterial loss on
extinguishment of this debt. No repurchases of Senior Discount
Notes occurred in 2002, 2001 or 2000.
The Senior Discount Notes are senior unsecured
indebtedness of the Company ranking equally with the
Company’s existing and future unsubordinated, unsecured
indebtedness and senior in right of payment to all subordinated
indebtedness of the Company. The Senior Discount Notes are
effectively subordinated to all secured indebtedness and to all
existing and future liabilities of the Company’s
subsidiaries.
The Indenture contains certain covenants that,
among other things, limit the ability of the Company and its
“Restricted Subsidiaries” (as defined in the
Indenture) to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, make
investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and engage in mergers
and consolidations. However, these limitations are subject to a
number of important qualifications and exceptions. The Company
was in compliance with all covenants at December 31, 2002.
Based upon quoted market prices, the fair value
of the outstanding Senior Discount Notes was $263 million
and $194 million as of December 31, 2002 and
December 31, 2001, respectively.
67
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note 7 — Commitments and
Contingencies
Commitments
The Company currently leases office and
fulfillment center facilities and fixed assets under
non-cancelable operating and capital leases. Rental expense
under operating lease agreements for 2002, 2001 and 2000 was
$56 million, $81 million and $98 million,
respectively.
The following are the Company’s contractual
commitments associated with its operational restructuring,
indebtedness, lease obligations and marketing agreements (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases, net of estimated sublease income
|
|
$
|
20,903
|
|
|
$
|
11,681
|
|
|
$
|
4,508
|
|
|
$
|
3,013
|
|
|
$
|
3,092
|
|
|
$
|
8,019
|
|
|
$
|
51,216
|
|
|
|
Other
|
|
|
4,324
|
|
|
|
1,000
|
|
|
|
301
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring-related commitments
|
|
|
25,227
|
|
|
|
12,681
|
|
|
|
4,809
|
|
|
|
3,013
|
|
|
|
3,092
|
|
|
|
8,019
|
|
|
|
56,841
|
|
|
Other commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt principal and other(1)
|
|
|
4,962
|
|
|
|
2,004
|
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,238,353
|
|
|
|
2,245,393
|
|
|
|
Debt interest(1)
|
|
|
126,162
|
|
|
|
139,365
|
|
|
|
139,365
|
|
|
|
139,365
|
|
|
|
139,365
|
|
|
|
263,034
|
|
|
|
946,656
|
|
|
|
Capital leases
|
|
|
7,950
|
|
|
|
898
|
|
|
|
235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,083
|
|
|
|
Operating leases
|
|
|
48,349
|
|
|
|
45,749
|
|
|
|
39,426
|
|
|
|
39,674
|
|
|
|
38,993
|
|
|
|
143,084
|
|
|
|
355,275
|
|
|
|
Marketing agreements
|
|
|
7,569
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commitments
|
|
|
194,992
|
|
|
|
188,016
|
|
|
|
179,100
|
|
|
|
179,039
|
|
|
|
178,358
|
|
|
|
2,644,471
|
|
|
|
3,563,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
220,219
|
|
|
$
|
200,697
|
|
|
$
|
183,909
|
|
|
$
|
182,052
|
|
|
$
|
181,450
|
|
|
$
|
2,652,490
|
|
|
$
|
3,620,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Principal and interest payments due under the
Company’s 6.875% PEACS, excluding those payments with a
fixed exchange ratio under the currency swap hedge arrangement,
will fluctuate based on the Euro/U.S. Dollar exchange ratio.
|
Restructuring-related lease obligations are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross lease obligations
|
|
$
|
22,550
|
|
|
$
|
15,150
|
|
|
$
|
11,164
|
|
|
$
|
10,021
|
|
|
$
|
10,078
|
|
|
$
|
29,663
|
|
|
$
|
98,626
|
|
|
Estimated sublease income(1)
|
|
|
(1,647
|
)
|
|
|
(3,469
|
)
|
|
|
(6,656
|
)
|
|
|
(7,008
|
)
|
|
|
(6,986
|
)
|
|
|
(21,644
|
)
|
|
|
(47,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations, net
|
|
$
|
20,903
|
|
|
$
|
11,681
|
|
|
$
|
4,508
|
|
|
$
|
3,013
|
|
|
$
|
3,092
|
|
|
$
|
8,019
|
|
|
$
|
51,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At December 31, 2002, the Company had signed
contractual sublease agreements covering $10 million in
future payments.
|
68
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Long-term capital lease obligations are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2002
|
|
|
|
|
|
Gross capital lease obligations
|
|
$
|
9,083
|
|
|
Less imputed interest
|
|
|
(592
|
)
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
8,491
|
|
|
Less current portion
|
|
|
(7,506
|
)
|
|
|
|
|
|
|
|
Long-term capital lease obligations
|
|
$
|
985
|
|
|
|
|
|
|
|
The Company has pledged a portion of its
marketable securities as collateral for stand-by letters of
credit that guarantee certain of its contractual obligations, a
majority of which relates to property leases; the swap agreement
that hedges the foreign exchange risk on a portion of its 6.875%
PEACS; and some of its real estate lease agreements. The amount
of marketable securities the Company is required to pledge
pursuant to the swap agreement fluctuates with the fair market
value of the swap obligation. The change in the total amount of
collateral pledged under these agreements is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby
|
|
|
|
|
|
|
|
|
|
Letters of
|
|
Swap
|
|
Real Estate
|
|
|
|
|
|
Credit
|
|
Agreement
|
|
Leases
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
$
|
77,635
|
|
|
$
|
48,498
|
|
|
$
|
40,657
|
|
|
$
|
166,790
|
|
|
Net change in collateral pledged
|
|
|
(19,741
|
)
|
|
|
(25,403
|
)
|
|
|
(578
|
)
|
|
|
(45,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
$
|
57,894
|
|
|
$
|
23,095
|
|
|
$
|
40,079
|
|
|
$
|
121,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On April 12, 2001, the Company received a
request from the Securities and Exchange Commission
(“SEC”) staff for the voluntary production of
documents and information concerning, among other things,
previously reported sales of the Company’s common stock by
our Chairman and Chief Executive Officer, Jeffrey Bezos, on
February 2 and 5, 2001. The Company is cooperating with the
SEC staff’s continuing inquiry.
A number of purported class action complaints
were filed by holders of the Company’s equity and debt
securities against the Company, its directors and certain of its
senior officers during 2001, in the United States District Court
for the Western District of Washington, alleging violations of
the Securities Act of 1933 (the “1933 Act”) and/or the
Securities Exchange Act of 1934 (the “1934 Act”). On
October 5, 2001, plaintiffs in the 1934 Act cases filed a
consolidated amended complaint alleging that the Company,
together with certain of its officers and directors and certain
third-parties, made false or misleading statements during the
period from October 29, 1998 through July 23, 2001
concerning the Company’s business, financial condition and
results, inventories, future prospects and strategic alliance
transactions. The 1933 Act complaint alleges that the defendants
made false or misleading statements in connection with our
February 2000 offering of the 6.875% PEACS. The complaints seek
recissionary and/or compensatory damages and injunctive relief
against all defendants. The Company disputes the allegations of
wrongdoing in these complaints and intends to vigorously defend
itself in these matters.
On August 28, 2002, the Trustee for the
Creditors’ Trust for Living.com instituted an adversary
proceeding against a subsidiary of the Company in the United
States Bankruptcy Court for the Western District of Texas. The
plaintiff alleges that Living.com’s creditors are entitled
to a contractual recovery of
69
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
approximately $58 million in fees that
Living.com had previously paid in 2000 primarily by issuing
Living.com stock to the Company. The Company disputes the
plaintiff’s allegations and intends to vigorously defend
itself in this matter.
On October 29, 2002, Gary Gerlinger,
individually and on behalf of all other similarly situated
consumers in the United States who, during the period from
August 1, 2001 to the present, purchased books online from
either Amazon.com or Borders.com, instituted an action against
the Company and Borders in the United States District Court for
the Northern District of California. The complaint alleges that
the agreement pursuant to which an affiliate of Amazon.com
operates Borders.com as a co-branded site violates federal
anti-trust laws, California statutory law and the common law of
unjust enrichment. The complaint seeks injunctive relief,
damages, including treble damages or statutory damages where
applicable, attorneys fees, costs and disbursements,
disgorgement of all sums obtained by allegedly wrongful acts,
interest and declaratory relief. The Company disputes the
plaintiff’s allegations of wrongdoing and intends to
vigorously defend itself in this matter.
Depending on the amount and the timing, an
unfavorable resolution of some or all of these matters could
materially affect the Company’s business, future results of
operations, financial position or cash flows in a particular
period.
From time to time, the Company is subject to
other legal proceedings and claims in the ordinary course of
business, including claims of alleged infringement of
trademarks, copyrights, patents, and other intellectual property
rights. The Company currently is not aware of any such legal
proceedings or claims that it believes will have, individually
or in the aggregate, a material adverse effect on its business,
financial condition, or operating results.
During 2002, the Company purchased over 10% of
all inventory purchases from a single vendor, Ingram Book Group.
No other vendors account for over 10%. The Company does not have
long-term contracts or arrangements with most of its vendors to
guarantee the availability of merchandise, particular payment
terms or the extension of credit limits.
|
|
|
|
Note 8 —
|
Stockholders’ Equity (Deficit)
|
The Company has authorized
500,000,000 shares of $0.01 par value Preferred Stock. No
preferred stock shares were outstanding during 2002, 2001 or
2000.
|
|
|
|
|
Basis Adjustments — Public
Offerings of Investees
|
Three of the Company’s equity-method
investees, HomeGrocer.com, Inc., Pets.com, Inc. and
drugstore.com, inc., completed public offerings of their common
stock during 2000. As a result of those public offerings, the
Company’s ownership percentage in each investee was
diluted, creating an “implied sale” of a portion of
its investments. In accordance with SEC Staff Accounting
Bulletin No. 51, “Accounting for Sales of Stock by a
Subsidiary,” the Company recorded unrealized gains, net of
unrealized losses, as additional paid-in capital totaling
$77 million in 2000. The unrealized gains, net, represent
the difference between the Company’s carrying basis and the
fair value of the portion of each
70
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
investment deemed to have been sold by the
investees. Details of these offerings and the effect on the
Company’s ownership and cost basis in the investees are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
|
|
|
|
Shares
|
|
Price
|
|
Offering
|
|
|
|
Basis
|
|
|
|
Issued
|
|
per
|
|
Amount
|
|
Prior to
|
|
After
|
|
Adjustment
|
|
Offering
|
|
(In thousands)
|
|
Share
|
|
(In thousands)
|
|
Offering
|
|
Offering
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homegrocer.com, Inc. March 2000 initial public
offering
|
|
|
22,000
|
|
|
$
|
12.00
|
|
|
$
|
264,000
|
|
|
|
27
|
%
|
|
|
22
|
%
|
|
$
|
47,646
|
|
|
Pets.com, Inc. February 2000 initial public
offering
|
|
|
7,500
|
|
|
|
11.00
|
|
|
|
82,500
|
|
|
|
48
|
%
|
|
|
34
|
%
|
|
|
11,614
|
|
|
drugstore.com, inc. March 2000 secondary public
offering
|
|
|
6,000
|
|
|
|
18.00
|
|
|
|
108,000
|
|
|
|
27
|
%
|
|
|
24
|
%
|
|
|
18,539
|
|
|
drugstore.com, inc. July 2000 private/public
offering
|
|
|
8,101
|
|
|
|
4.94
|
|
|
|
40,019
|
|
|
|
23
|
%
|
|
|
21
|
%
|
|
|
(901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s stock award plans consist of
the 1999 Nonofficer Employee Stock Option Plan, the 1997 Stock
Incentive Plan and the Amended and Restated 1994 Stock Option
Plan. Shares reserved under these plans consist of
40 million shares in the 1999 Nonofficer Employee Stock
Option Plan, 109 million shares in the 1997 Stock Incentive
Plan and 58 million shares in the 1994 Stock Option Plan,
of which up to a maximum of 21,025,075 shares that are not
issued under that plan may be added to the aggregate number of
shares available for issuance under the 1997 Stock Incentive
Plan. In connection with certain acquisitions in 1999, the
Company assumed outstanding options to purchase common stock
originally issued under the acquired companies’ stock
option plans. The Company’s stock award plans as well as
the assumed stock award plans are hereby collectively referred
to as the “Plans.”
In 2002, the Company transitioned to using
restricted stock units, awarded under the 1997 Stock Incentive
Plan, as its primary vehicle for employee equity compensation.
Employees vest in restricted stock unit awards ratably over the
corresponding service term, generally three to six years. As it
relates to stock option awards, the Company’s Board of
Directors generally sets an exercise price of not less than the
fair market value of the Company’s common stock at the date
of grant. Each outstanding option granted prior to
December 20, 1996 has a term of five years from the date of
vesting. Generally, outstanding options granted on or subsequent
to December 20, 1996 have a term of 10 years from the
date of grant. Subject to Internal Revenue Service limitations,
options granted under the Company’s plans prior to April
1999 and granted under certain assumed plans generally became
exercisable immediately but are subject to a restriction on
transfer that vests over a period of time. Options granted under
the Plans since April 1999 generally vest and become exercisable
in accordance with the following vesting schedule: 20% after
year one, 20% after year two and 5% at the end of each quarter
for years three through five. Certain outstanding options that
were granted during 2000 and 2001 vest and become exercisable at
the rate of 50% after year one and 50% after year two. During
the first quarter of 2001, the Company offered a limited
non-compulsory exchange of employee stock options to employees
meeting certain eligibility criteria. Options granted pursuant
to this stock option exchange vest and become exercisable at the
rate of 25% after 6 months from the date of grant and
4.166% per month for the succeeding 18 months. Certain
options granted in the third quarter of 2001 generally vest and
become exercisable as follows: (i) the option vests
quarterly in equal installments over a 36, 48 or 60 month
period commencing on dates ranging from grant date to
October 1, 2003, (ii) the option vests 5% to 12.5% on
a date approximately 12 to 16 months from date of grant
with the balance vesting quarterly in equal installments over a
48 to 60 month period or (iii) the option vests 4% to
12.5% on dates approximately 6 months and 18 months
71
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
from the date of grant with the balance vesting
quarterly in equal installments over a 24 or 60 month
period. Shares issued upon exercise of options that are unvested
are restricted and subject to repurchase by the Company at the
exercise price upon termination of employment or services and
such restrictions lapse over the vesting schedule. At
December 31, 2002, approximately 1 million shares of
restricted common stock, which includes restricted shares issued
in connection with acquisitions as well as shares issued to
certain key employees in 2001 and 2002, were subject to
repurchase or forfeiture.
At December 31, 2002, outstanding stock
awards totaled 45 million, which includes 42 million
stock options and 3 million restricted stock units.
The following table summarizes the Company’s
stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Shares
|
|
Weighted Average
|
|
|
|
(In thousands)
|
|
Exercise Price
|
|
|
|
|
|
|
|
Balance December 31, 1999
|
|
|
80,342
|
|
|
$
|
27.76
|
|
|
|
Options granted
|
|
|
20,717
|
|
|
|
38.13
|
|
|
|
Options terminated
|
|
|
(19,502
|
)
|
|
|
37.19
|
|
|
|
Options exercised
|
|
|
(11,119
|
)
|
|
|
4.02
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2000
|
|
|
70,438
|
|
|
|
32.17
|
|
|
|
Options granted
|
|
|
46,209
|
|
|
|
9.53
|
|
|
|
Options terminated
|
|
|
(44,608
|
)
|
|
|
43.91
|
|
|
|
Options exercised
|
|
|
(6,089
|
)
|
|
|
2.73
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2001
|
|
|
65,950
|
|
|
|
10.65
|
|
|
|
Options granted
|
|
|
3,045
|
|
|
|
16.46
|
|
|
|
Options terminated
|
|
|
(12,262
|
)
|
|
|
10.36
|
|
|
|
Options exercised
|
|
|
(14,728
|
)
|
|
|
8.26
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2002
|
|
|
42,005
|
|
|
|
11.91
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2002, 84 million shares
of common stock were available for future grant under the Plans.
The following table summarizes information about
stock options outstanding at December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards Outstanding
|
|
Awards Vested
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
|
Average
|
|
Number of
|
|
Average
|
|
Range of
|
|
Awards
|
|
Remaining
|
|
Exercise
|
|
Awards
|
|
Exercise
|
|
Exercise Prices
|
|
(In thousands)
|
|
Life (yrs)
|
|
Price
|
|
(In thousands)
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.03 - $ 4.65
|
|
|
|
2,793
|
|
|
|
4.20
|
|
|
$
|
1.44
|
|
|
|
2,137
|
|
|
$
|
1.49
|
|
|
|
4.66 - 7.29
|
|
|
|
2,988
|
|
|
|
5.48
|
|
|
|
6.46
|
|
|
|
2,175
|
|
|
|
6.46
|
|
|
|
7.33 - 7.93
|
|
|
|
20,029
|
|
|
|
8.57
|
|
|
|
7.91
|
|
|
|
1,335
|
|
|
|
7.80
|
|
|
|
7.95 - 11.90
|
|
|
|
2,716
|
|
|
|
7.77
|
|
|
|
9.17
|
|
|
|
561
|
|
|
|
9.34
|
|
|
|
12.02 - 13.38
|
|
|
|
4,321
|
|
|
|
1.79
|
|
|
|
13.26
|
|
|
|
2,623
|
|
|
|
13.31
|
|
|
|
13.57 - 16.55
|
|
|
|
1,845
|
|
|
|
7.99
|
|
|
|
14.90
|
|
|
|
440
|
|
|
|
15.04
|
|
|
|
16.58 - 18.54
|
|
|
|
2,079
|
|
|
|
8.19
|
|
|
|
17.81
|
|
|
|
583
|
|
|
|
17.65
|
|
72
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards Outstanding
|
|
Awards Vested
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
|
Average
|
|
Number of
|
|
Average
|
|
Range of
|
|
Awards
|
|
Remaining
|
|
Exercise
|
|
Awards
|
|
Exercise
|
|
Exercise Prices
|
|
(In thousands)
|
|
Life (yrs)
|
|
Price
|
|
(In thousands)
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.55 - 21.30
|
|
|
|
2,004
|
|
|
|
6.62
|
|
|
|
20.01
|
|
|
|
1,243
|
|
|
|
20.30
|
|
|
|
21.33 - 104.97
|
|
|
|
3,230
|
|
|
|
6.93
|
|
|
|
40.83
|
|
|
|
1,549
|
|
|
|
36.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 - 104.97
|
|
|
|
42,005
|
|
|
|
7.05
|
|
|
|
11.91
|
|
|
|
12,646
|
|
|
|
13.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Stock-Based
Compensation
|
The Company recorded aggregate deferred
stock-based compensation of $5 million and $9 million
in 2002 and 2001 respectively. No similar amounts were recorded
in 2000. Deferred stock-based compensation was recorded in
connection with the Company’s restricted common stock
issued to key employees for future services. The amounts
recorded represent the fair value of the Company’s common
stock issued on the date of grant. Such value is recognized as
an expense ratably over the corresponding service period, which
is generally five years. Additionally, in 2002, 2001 and 2000,
the Company recorded adjustments to reduce previously recorded
deferred stock-based compensation of $2 million,
$4 million and $3 million, respectively, representing
the remaining unvested portion of restricted stock awards upon
termination of certain key employees prior to vesting.
|
|
|
|
|
Comprehensive Income (Loss)
|
The changes in the components of comprehensive
loss were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(149,132
|
)
|
|
$
|
(567,277
|
)
|
|
$
|
(1,411,273
|
)
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign-currency translations gains (losses), net
|
|
|
16,910
|
|
|
|
(1,257
|
)
|
|
|
(364
|
)
|
|
Net unrealized gains (losses) on
available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) arising during year
|
|
|
23,459
|
|
|
|
(33,479
|
)
|
|
|
(178,815
|
)
|
|
|
Less reclassification of net realized (gains)
losses included in net loss
|
|
|
(3,165
|
)
|
|
|
40,484
|
|
|
|
178,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on
available-for-sale securities
|
|
|
20,294
|
|
|
|
7,005
|
|
|
|
(303
|
)
|
|
Net unrealized gains (losses) on Euro-based
currency swap:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on remeasurement to
fair value
|
|
|
21,106
|
|
|
|
(21,867
|
)
|
|
|
—
|
|
|
|
Reclassification of (gains) losses to offset
currency losses and gains on hedged portion of 6.875% PEACS
included in net loss
|
|
|
(12,578
|
)
|
|
|
4,530
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on Euro-based
currency swap
|
|
|
8,528
|
|
|
|
(17,337
|
)
|
|
|
—
|
|
|
Reclassification of currency gains on 6.875% PEACS
|
|
|
—
|
|
|
|
(9,811
|
)
|
|
|
—
|
|
|
Cumulative effect of accounting change to adopt
SFAS No. 133.
|
|
|
—
|
|
|
|
(12,294
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
45,732
|
|
|
|
(33,694
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(103,400
|
)
|
|
$
|
(600,971
|
)
|
|
$
|
(1,411,940
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company is not able to predict future gains
or losses due to the remeasurement of the hedged portion of the
6.875% PEACS and equivalent reclassifications of losses or gains
on the swap contract from accumulated other comprehensive loss
to earnings.
|
|
|
|
|
Common Stock Reserved for Future
Issuance
|
At December 31, 2002, common stock reserved
for future issuance is as follows (in thousands):
|
|
|
|
|
|
|
Stock awards, including restricted stock units
|
|
|
128,636
|
|
|
Shares issuable upon conversion of 4.75%
Convertible Subordinated Notes
|
|
|
16,017
|
|
|
Shares issuable upon conversion of 6.875% PEACS
|
|
|
8,129
|
|
|
|
|
|
|
|
|
Total
|
|
|
152,782
|
|
|
|
|
|
|
|
|
|
|
|
Note 9 —
|
Earnings (Loss) Per Share
|
The following represents the calculations for net
loss per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Loss before change in accounting principle
|
|
$
|
(149,933
|
)
|
|
$
|
(556,754
|
)
|
|
$
|
(1,411,273
|
)
|
|
Cumulative effect of change in accounting
principle
|
|
|
801
|
|
|
|
(10,523
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(149,132
|
)
|
|
$
|
(567,277
|
)
|
|
$
|
(1,411,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
379,494
|
|
|
|
365,180
|
|
|
|
353,394
|
|
|
Weighted average common shares issued subject to
restrictions
|
|
|
(1,131
|
)
|
|
|
(969
|
)
|
|
|
(2,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation of basic and diluted
loss per share
|
|
|
378,363
|
|
|
|
364,211
|
|
|
|
350,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to cumulative effect of change in
accounting principle
|
|
$
|
(0.40
|
)
|
|
$
|
(1.53
|
)
|
|
$
|
(4.02
|
)
|
|
|
Cumulative effect of change in accounting
principle
|
|
|
0.01
|
|
|
|
(0.03
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.39
|
)
|
|
$
|
(1.56
|
)
|
|
$
|
(4.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the Company’s stock awards (see
“Note 8 — Stockholders’ Equity
(Deficit)”) are excluded from diluted loss per share since
their effect is antidilutive.
|
|
|
|
Note 10 —
|
Restructuring-Related and Other
|
Restructuring-related and other expenses were
$42 million, $182 million and $200 million for
2002, 2001 and 2000, respectively. In the first quarter of 2001,
the Company announced and began implementation of its
operational restructuring plan to reduce operating costs,
streamline its organizational structure, consolidate certain of
its fulfillment and customer service operations and migrate a
large portion of its technology infrastructure to a new
operating platform. This initiative involved the reduction of
employee staff by 1,327 positions throughout the Company in
managerial, professional, clerical, technical and fulfillment
roles; consolidation of its Seattle, Washington corporate office
locations; closure of its McDonough, Georgia fulfillment center;
seasonal operation of its Seattle, Washington fulfillment
center; closure of its customer service centers in Seattle,
Washington and The Hague, Netherlands; and migration
74
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of a large portion of its technology
infrastructure to a new operating platform, which entails
ongoing lease obligations for technology infrastructure no
longer being utilized. Actual employee termination benefits paid
were $12 million. The restructuring is complete; however,
the Company may adjust its restructuring-related estimates in
the future, if necessary.
During 2002, the Company revised its estimates of
ongoing net lease obligations for its facilities in Seattle,
Washington and McDonough, Georgia, primarily due to weakness in
these real estate markets; reached a termination agreement with
the landlord of its leased fulfillment center facility in
McDonough, Georgia; and permanently closed its fulfillment
center in Seattle, Washington.
Restructuring-related charges were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
Asset impairments
|
|
$
|
1,182
|
|
|
$
|
68,528
|
|
|
Continuing lease obligations
|
|
|
39,563
|
|
|
|
87,049
|
|
|
Termination benefits
|
|
|
—
|
|
|
|
14,970
|
|
|
Broker commissions, professional fees and other
miscellaneous restructuring costs
|
|
|
828
|
|
|
|
11,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,573
|
|
|
$
|
181,585
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2002, the accrued liability
associated with restructuring-related and other charges was
$57 million and consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
December 31,
|
|
Subsequent
|
|
|
|
December 31,
|
|
Due Within
|
|
Due After
|
|
|
|
2001
|
|
Accruals, Net
|
|
Payments
|
|
2002
|
|
12 Months(1)
|
|
12 Months(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations, net of estimated sublease
income
|
|
$
|
53,187
|
|
|
$
|
39,563
|
|
|
$
|
(41,534
|
)
|
|
$
|
51,216
|
|
|
$
|
20,903
|
|
|
$
|
30,313
|
|
|
Termination benefits
|
|
|
61
|
|
|
|
—
|
|
|
|
(61
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Broker commissions, professional fees and other
miscellaneous restructuring costs
|
|
|
8,190
|
|
|
|
828
|
|
|
|
(3,393
|
)
|
|
|
5,625
|
|
|
|
4,324
|
|
|
|
1,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,438
|
|
|
$
|
40,391
|
|
|
$
|
(44,988
|
)
|
|
$
|
56,841
|
|
|
$
|
25,227
|
|
|
$
|
31,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Restructuring-related liabilities due within
12 months and due after 12 months are classified in
“Accrued expenses and other current liabilities” and
“Long-term debt and other,” respectively, on the
accompanying consolidated balance sheets.
|
75
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Restructuring-related lease obligations are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Thereafter
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross lease obligations
|
|
$
|
22,550
|
|
|
$
|
15,150
|
|
|
$
|
11,164
|
|
|
$
|
10,021
|
|
|
$
|
10,078
|
|
|
$
|
29,663
|
|
|
$
|
98,626
|
|
|
Estimated sublease income(1)
|
|
|
(1,647
|
)
|
|
|
(3,469
|
)
|
|
|
(6,656
|
)
|
|
|
(7,008
|
)
|
|
|
(6,986
|
)
|
|
|
(21,644
|
)
|
|
|
(47,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease obligations, net
|
|
$
|
20,903
|
|
|
$
|
11,681
|
|
|
$
|
4,508
|
|
|
$
|
3,013
|
|
|
$
|
3,092
|
|
|
$
|
8,019
|
|
|
$
|
51,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
At December 31, 2002, the Company had signed
contractual sublease agreements covering $10 million in
future payments.
|
Restructuring-related and other expenses in 2000
primarily relate to impairments of goodwill and other
intangibles recorded in connection with certain of the
Company’s business acquisitions.
Note 11 — Other Income (Expense),
Net
Other income (expense), net consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Gains on sales of marketable securities, net
|
|
$
|
5,700
|
|
|
$
|
1,335
|
|
|
$
|
280
|
|
|
Foreign-currency transaction losses, net
|
|
|
(1,086
|
)
|
|
|
(2,019
|
)
|
|
|
(3,250
|
)
|
|
Miscellaneous state, foreign and other taxes
|
|
|
700
|
|
|
|
(1,222
|
)
|
|
|
(3,123
|
)
|
|
Other miscellaneous gains (losses), net
|
|
|
309
|
|
|
|
6
|
|
|
|
(3,965
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,623
|
|
|
$
|
(1,900
|
)
|
|
$
|
(10,058
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12 — Other Gains (Losses),
Net
Other gains (losses), net consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
2000
|
|
|
|
|
|
|
|
|
|
Foreign-currency gains (losses) on 6.875%
PEACS
|
|
$
|
(103,136
|
)
|
|
$
|
46,613
|
|
|
$
|
—
|
|
|
Gains (losses) on sales of Euro-denominated
investments, net
|
|
|
2,227
|
|
|
|
(22,548
|
)
|
|
|
—
|
|
|
Other-than-temporary impairment losses on equity
investments
|
|
|
(8,101
|
)
|
|
|
(43,588
|
)
|
|
|
(188,832
|
)
|
|
Gains on sales of equity investments, net
|
|
|
13,044
|
|
|
|
—
|
|
|
|
—
|
|
|
Gains from terminations of commercial contracts
|
|
|
—
|
|
|
|
22,400
|
|
|
|
6,033
|
|
|
Net gains from acquisition of investments by
third parties
|
|
|
—
|
|
|
|
784
|
|
|
|
40,160
|
|
|
Warrant remeasurements and other
|
|
|
(307
|
)
|
|
|
(5,802
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(96,273
|
)
|
|
$
|
(2,141
|
)
|
|
$
|
(142,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13 — Income
Taxes
The Company has provided for current and deferred
U.S. federal, state and foreign income taxes for the
current and all prior periods presented. Current and deferred
income taxes were provided with respect to jurisdictions where
subsidiaries of the Company produce taxable income. As of
December 31, 2002, the Company has recorded a net deferred
tax asset of $3 million, which consists primarily of
certain state jurisdiction net operating loss carryforwards. The
Company has provided a valuation allowance for the
76
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
remainder of its deferred tax asset, consisting
primarily of net operating loss carryforwards, because of
uncertainty regarding its realization. The increase in the
valuation allowance on the deferred tax asset was
$196 million and $492 million for 2002 and 2001,
respectively.
Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company’s net deferred tax assets, which are included in
“Accounts receivable, net and other current assets,”
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
792,014
|
|
|
$
|
769,632
|
|
|
|
Assets held for investment
|
|
|
308,403
|
|
|
|
152,502
|
|
|
|
Revenue items
|
|
|
22,124
|
|
|
|
37,834
|
|
|
|
Expense items
|
|
|
246,147
|
|
|
|
211,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
1,368,688
|
|
|
|
1,171,278
|
|
|
|
Less valuation allowance
|
|
|
(1,365,386
|
)
|
|
|
(1,169,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
3,302
|
|
|
|
2,148
|
|
|
Deferred tax liabilities — Expense items
|
|
|
(620
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
2,682
|
|
|
$
|
2,148
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2002, the Company had net
operating loss carryforwards of approximately $2.5 billion
related to U.S. federal, state and foreign jurisdictions.
Utilization of net operating losses, which begin to expire at
various times starting in 2010, may be subject to certain
limitations under Sections 382 and 1502 of the Internal
Revenue Code of 1986, as amended, and other limitations under
state and foreign tax laws. Additionally, approximately
$180 million of capital loss carryforwards begins to expire
in 2005. Approximately $1.2 billion of the Company’s
net operating loss carryforwards relates to tax deductible
stock-based compensation in excess of amounts recognized for
financial reporting purposes. To the extent that net operating
loss carryforwards, if realized, relate to stock-based
compensation, the resulting tax benefits will be recorded to
stockholders’ equity, rather than to results of operations.
Note 14 — Employee Benefit
Plan
The Company has a 401(k) savings plan covering
substantially all of its employees. Eligible employees may
contribute through payroll deductions. The Company matches
employees’ contributions at the discretion of the
Company’s Board of Directors. Through December 31,
2002, the Company has not matched employee contributions to the
401(k) savings plan; however it has announced its intentions to
make employer matching contributions in 2003 using its common
stock.
Note 15 — Segment
Information
The Company presents information to its chief
operating decision maker in four segments: North America Books,
Music, and DVD/ Video (“BMVD”); North America
Electronics, Tools, and Kitchen (“ETK”);
International; and Services. Accordingly, the Company discloses
its segment financial information along these lines.
77
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The BMVD segment includes retail sales from
www.amazon.com
and
www.amazon.ca
of books, music
and DVD/ video products and magazine subscription commissions.
This segment also includes commissions from sales of these
products, new, used or collectible, through Amazon Marketplace,
amounts earned from sales of these products by other businesses
through the Merchants@ program and product revenues from stores
offering these products through the Syndicated Stores program.
The ETK segment includes
www.amazon.com
retail sales of electronics, home improvement and home and
garden products, as well as our mail-order catalog sales. This
segment also includes commissions from sales of these products,
new, used or collectible, through Amazon Marketplace and amounts
earned from sales of these products by other businesses through
the Merchants@ program, such as with Office Depot, and will
include revenues from stores offering these products, if any,
through the Syndicated Stores program.
The International segment includes all retail
sales of the following internationally-focused Web sites:
www.amazon.co.uk, www.amazon.de, www.amazon.fr
and
www.amazon.co.jp
. These international sites share a
common Amazon.com experience, but are localized in terms of
language, products, customer service and fulfillment. To the
extent available on these sites, this segment includes
commissions and other amounts earned from sales of products
through Amazon Marketplace and revenues from stores offering
products through the Syndicated Stores program, such as
www.waterstones.co.uk
and
www.virginmega.co.jp,
and amounts earned from sales of products by other
businesses through the Merchants@ program. The International
segment includes export sales from
www.amazon.co.uk,
www.amazon.de, www.amazon.fr
and
www.amazon.co.jp
(including export sales from these sites to customers in the
U.S. and Canada), but excludes export sales from
www.amazon.com
and
www.amazon.ca
. Operating
results for the International segment are affected by movements
in foreign exchange rates. During 2002, International segment
revenues improved $47 million, and operating results
improved $4 million in comparison to the prior year due to
changes in foreign exchange rates.
The Services segment consists of commissions,
fees and other amounts earned from the services business,
including the Merchant.com program (such as
www.target.com
), and to the extent full product
categories are not also offered by the Company through its
online retail stores, the Merchants@ program, such as the
apparel store, Toysrus.com and Babiesrus.com stores, and
portions of the Target store at
www.amazon.com,
as well
as the commercial agreement with America Online, Inc. This
segment also includes Auctions, zShops, Amazon Payments and
miscellaneous marketing and promotional agreements.
Included in Services segment revenues are
equity-based service revenues of $13 million,
$27 million and $79 million for 2002, 2001 and 2000,
respectively.
The Company measures the results of operations of
its reportable segments using a pro forma measure. Pro forma
results from operations, which exclude stock-based compensation,
amortization of goodwill and other intangibles, and
restructuring-related and other charges, are not in conformity
with accounting principles generally accepted in the United
States. Stock-based compensation, amortization of goodwill and
other intangibles, and restructuring-related and other costs are
not allocated to segment results. All other centrally-incurred
operating costs are fully allocated to segment results. There
are no internal transactions between the Company’s
reporting segments.
78
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Information on reportable segments and
reconciliation to consolidated net loss is as follows (in
thousands):
Year Ended 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Books, Music
|
|
Electronics,
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Tools and
|
|
|
|
|
|
|
|
|
|
|
|
DVD/Video
|
|
Kitchen
|
|
Total
|
|
International
|
|
Services
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,873,291
|
|
|
$
|
645,031
|
|
|
$
|
2,518,322
|
|
|
$
|
1,168,935
|
|
|
$
|
245,679
|
|
|
$
|
3,932,936
|
|
|
Gross profit
|
|
|
527,542
|
|
|
|
89,863
|
|
|
|
617,405
|
|
|
|
249,089
|
|
|
|
126,124
|
|
|
|
992,618
|
|
|
Pro forma income (loss) from operations
|
|
|
211,363
|
|
|
|
(73,220
|
)
|
|
|
138,143
|
|
|
|
(640
|
)
|
|
|
42,599
|
|
|
|
180,102
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68,927
|
)
|
|
Amortization of other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,478
|
)
|
|
Restructuring-related and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,573
|
)
|
|
Total non-operating expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(209,888
|
)
|
|
Equity in losses of equity-method investees, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,169
|
)
|
|
Cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(149,132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 2001:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Books. Music
|
|
Electronics,
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Tools and
|
|
|
|
|
|
|
|
|
|
|
|
DVD/Video
|
|
Kitchen
|
|
Total
|
|
International
|
|
Services
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,688,752
|
|
|
$
|
547,190
|
|
|
$
|
2,235,942
|
|
|
$
|
661,374
|
|
|
$
|
225,117
|
|
|
$
|
3,122,433
|
|
|
Gross profit
|
|
|
453,129
|
|
|
|
78,384
|
|
|
|
531,513
|
|
|
|
140,606
|
|
|
|
126,439
|
|
|
|
798,558
|
|
|
Pro forma income (loss) from operations
|
|
|
156,753
|
|
|
|
(140,685
|
)
|
|
|
16,068
|
|
|
|
(103,112
|
)
|
|
|
42,042
|
|
|
|
(45,002
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,637
|
)
|
|
Amortization of goodwill and other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,033
|
)
|
|
Restructuring-related and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181,585
|
)
|
|
Total non-operating expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114,170
|
)
|
|
Equity in losses of equity-method investees, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,327
|
)
|
|
Cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(567,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Year Ended 2000:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Books, Music
|
|
Electronics,
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Tools and
|
|
|
|
|
|
|
|
|
|
|
|
DVD/Video
|
|
Kitchen
|
|
Total
|
|
International
|
|
Services
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,698,266
|
|
|
$
|
484,151
|
|
|
$
|
2,182,417
|
|
|
$
|
381,075
|
|
|
$
|
198,491
|
|
|
$
|
2,761,983
|
|
|
Gross profit
|
|
|
417,452
|
|
|
|
44,655
|
|
|
|
462,107
|
|
|
|
77,436
|
|
|
|
116,234
|
|
|
|
655,777
|
|
|
Pro forma income (loss) from operations
|
|
|
71,441
|
|
|
|
(269,890
|
)
|
|
|
(198,449
|
)
|
|
|
(145,070
|
)
|
|
|
26,519
|
|
|
|
(317,000
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,797
|
)
|
|
Amortization of goodwill and other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(321,772
|
)
|
|
Restructuring-related and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,311
|
)
|
|
Total non-operating expenses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(242,797
|
)
|
|
Equity in losses of equity-method investees, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(304,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,411,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to customers outside of the U.S.
represented approximately 35%, 29% and 22% of net sales for
2002, 2001 and 2000, respectively. Other than sales into the
United Kingdom, which represents approximately 11% of total net
sales in 2002, no individual foreign country, geographical area
or customer accounted for more than 10% of net sales in any of
the periods presented.
Depreciation expense, by segment, was as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Books, Music
|
|
Electronics,
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
Tools and
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
DVD/Video
|
|
Kitchen
|
|
Total
|
|
Services
|
|
International
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
$
|
25,774
|
|
|
$
|
19,051
|
|
|
$
|
44,825
|
|
|
$
|
7,339
|
|
|
$
|
21,194
|
|
|
$
|
73,358
|
|
|
2001
|
|
|
29,317
|
|
|
|
21,670
|
|
|
|
50,987
|
|
|
|
8,349
|
|
|
|
24,108
|
|
|
|
83,444
|
|
|
2000
|
|
|
29,501
|
|
|
|
26,818
|
|
|
|
56,319
|
|
|
|
7,649
|
|
|
|
18,970
|
|
|
|
82,938
|
|
At December 31, 2002 and 2001, fixed assets,
net totaled $196 million and $228 million in the
United States, respectively, and $43 million and
$44 million in other countries, respectively.
80
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Note 16 — Quarterly Results
(Unaudited)
The following tables contain selected unaudited
statement of operations information for each quarter of 2002,
2001 and 2000. The Company believes that the following
information reflects all normal recurring adjustments necessary
for a fair presentation of the information for the periods
presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
Unaudited quarterly results were as follows (in thousands,
except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002
|
|
|
|
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,428,610
|
|
|
$
|
851,299
|
|
|
$
|
805,605
|
|
|
$
|
847,422
|
|
|
Gross profit
|
|
|
335,159
|
|
|
|
216,167
|
|
|
|
218,167
|
|
|
|
223,125
|
|
|
Income (loss) before change in accounting
principle
|
|
|
2,651
|
|
|
|
(35,080
|
)
|
|
|
(93,553
|
)
|
|
|
(23,951
|
)
|
|
Cumulative effect of change in accounting
principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
801
|
|
|
Net income (loss)
|
|
|
2,651
|
|
|
|
(35,080
|
)
|
|
|
(93,553
|
)
|
|
|
(23,150
|
)
|
|
Basic income (loss) per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to cumulative effect of change in
accounting principle
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
|
Cumulative effect of change in accounting
principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
Diluted income (loss) per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to cumulative effect of change in
accounting principle
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
|
Cumulative effect of change in accounting
principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.09
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.06
|
)
|
|
Shares used in computation of income
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
383,702
|
|
|
|
379,650
|
|
|
|
376,937
|
|
|
|
373,031
|
|
|
|
Diluted
|
|
|
407,056
|
|
|
|
379,650
|
|
|
|
376,937
|
|
|
|
373,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2001
|
|
|
|
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,115,171
|
|
|
$
|
639,281
|
|
|
$
|
667,625
|
|
|
$
|
700,356
|
|
|
Gross profit
|
|
|
274,049
|
|
|
|
162,192
|
|
|
|
179,720
|
|
|
|
182,597
|
|
|
Income (loss) before change in accounting
principle
|
|
|
5,087
|
|
|
|
(169,874
|
)
|
|
|
(168,359
|
)
|
|
|
(223,608
|
)
|
|
Cumulative effect of change in accounting
principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,523
|
)
|
|
Net income (loss)
|
|
|
5,087
|
|
|
|
(169,874
|
)
|
|
|
(168,359
|
)
|
|
|
(234,131
|
)
|
81
AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2001
|
|
|
|
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to cumulative effect of change in
accounting principle
|
|
$
|
0.01
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.63
|
)
|
|
|
Cumulative effect of change in accounting
principle
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.66
|
)
|
|
Shares used in computation of basic income
(loss) per share
|
|
|
371,420
|
|
|
|
368,052
|
|
|
|
359,752
|
|
|
|
357,424
|
|
|
Shares used in computation of diluted income
(loss) per share
|
|
|
384,045
|
|
|
|
368,052
|
|
|
|
359,752
|
|
|
|
357,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2000
|
|
|
|
|
|
|
|
Fourth
|
|
Third
|
|
Second
|
|
First
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
972,360
|
|
|
$
|
637,858
|
|
|
$
|
577,876
|
|
|
$
|
573,889
|
|
|
Gross profit
|
|
|
224,300
|
|
|
|
167,279
|
|
|
|
136,064
|
|
|
|
128,134
|
|
|
Net loss
|
|
|
(545,140
|
)
|
|
|
(240,524
|
)
|
|
|
(317,184
|
)
|
|
|
(308,425
|
)
|
|
Basic and diluted loss per share(1)
|
|
$
|
(1.53
|
)
|
|
$
|
(0.68
|
)
|
|
$
|
(0.91
|
)
|
|
$
|
(0.90
|
)
|
|
Shares used in computation of basic and diluted
loss per share
|
|
|
355,681
|
|
|
|
353,954
|
|
|
|
349,886
|
|
|
|
343,884
|
|
|
|
|
|
(1)
|
The sum of quarterly per share amounts may not
equal per share amounts reported for year-to-date periods. This
is due to changes in the number of weighted-average shares
outstanding and the effects of rounding for each period.
|
82
![[AMAZON.COM LETTERHEAD]](https://content.edgar-online.com/edgar_conv_img/2003/02/19/0000950149-03-000355_V87419ORV8741900.GIF)