Amazon.com 2003 Annual Report Download - page 33

fluctuations in the Euro/U.S. Dollar exchange ratio, our principal debt obligation under this instrument since issuance has
increased by $197 million through December 31, 2003. We cannot predict the performance of the U.S. Dollar relative to
the Euro.
(2) See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 17—Subsequent Events.”
(3) Pursuant to SFAS No. 13, Accounting for Leases, lease agreements are categorized at their inception as either operating
or capital leases depending on certain defined criteria. Although operating leases represent obligations for us, pursuant to
SFAS No. 13 they are not reflected on the balance sheet. As of December 31, 2003, we have remaining obligations under
operating leases for equipment and real estate of $346 million. If we had applied to our equipment-related operating
leases the same convention used for capital leases, which, however, would not be in accordance with GAAP, we would
have recorded approximately $76 million of additional assets and obligations on our balance sheet at December 31, 2003.
(4) Consists of legally-binding commitments to purchase inventory. Legally-binding commitments associated with non-
inventory purchases are not significant.
We believe that current cash, cash equivalents, and marketable securities balances will be sufficient to meet
our anticipated operating cash needs for at least the next 12 months. However, any projections of future cash
needs and cash flows are subject to substantial uncertainty. See Item 1 of Part I, “Business—Additional Factors
that May Affect Future Results.” We continually evaluate opportunities to sell additional equity or debt
securities, obtain credit facilities from lenders, repurchase common stock, pay dividends, or repurchase,
refinance, or otherwise restructure our long-term debt for strategic reasons or to further strengthen our financial
position (and our Board of Directors has authorized the debt repurchase program discussed above). The sale of
additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we will,
from time to time, consider the acquisition of, or investment in, complementary businesses, products, services,
and technologies, which might affect our liquidity requirements or cause us to issue additional equity or debt
securities. We do not currently have a line-of-credit, and there can be no assurance that lines-of-credit or other
financing instruments will be available in amounts or on terms acceptable to us, if at all.
Results of Operations
Segment Operating Income (Loss)
Years Ended December 31,
2003 2002 2001
(amounts in thousands)
Segment Operating Income:
North America .......................... $283,045 $179,667 $ 57,501
International ............................ 78,193 435 (102,503)
Consolidated ............................ $361,238 $180,102 $ (45,002)
Year-over-year improvement:
North America .......................... 58% 212%
International ............................ 17,875 N/A
Consolidated ............................ 101 N/A
Segment Operating Margin:
North America .......................... 9% 7% 2%
International ............................ 4 0 (15)
Consolidated ............................75(1)
The key drivers in the year-over-year improvement in segment operating income are revenue growth and
efficiencies in our fulfillment process. Revenue growth was driven, in part, by lowering prices, including
increased adoption by our customers of our free shipping offers. Operating expenses in our North America and
International segments increased $22 million and $61 million, or 4% and 24% in 2003 in comparison to the prior
year. The increases in segment operating expenses were primarily related to variable costs, including fulfillment-
related costs for picking, packaging, and shipping our products to customers, and credit card fees, offset by
reductions in most other expense categories. Segment operating expenses represented 18% and 16% of net sales
for North America and International segments, compared with 20% and 21% in the prior year. The year-over-year
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