Amazon.com 2000 Annual Report Download

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2000
ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 0 ANNUAL REPORT

  • Page 2
    ...''non-BMV'' stores such as electronics, tools, and kitchen. International sales grew to $381 million in 2000, from $168 million in 1999. We helped our partner Toysrus.com sell more than $125 million of toys and video games in Q4 2000. We ended 2000 with cash and marketable securities of $1.1 billion...

  • Page 3
    ... to use 60 times as much bandwidth per customer 5 years from now while holding our bandwidth cost per customer constant. Similarly, price performance improvements in disk space and processing power will allow us to, for example, do ever more and better real-time personalization of our Web site. In...

  • Page 4
    ...LETTER TO SHAREHOLDERS (Reprinted from the 1997 Annual Report) To our shareholders: Amazon.com passed many milestones in 1997: by year-end, we had served more than 1.5 million customers, yielding 838% revenue growth to $147.8 million, and extended our market leadership despite aggressive competitive...

  • Page 5
    ...), and presented it in a useful, easy-to-search, and easy-to-browse format in a store open 365 days a year, 24 hours a day. We maintained a dogged focus on improving the shopping experience, and in 1997 substantially enhanced our store. We now offer customers gift certificates, 1-ClickSM shopping...

  • Page 6
    ... base. This requires sustained investment in systems and infrastructure to support outstanding customer convenience, selection, and service while we grow. We are planning to add music to our product offering, and over time we believe that other products may be prudent investments. We also believe...

  • Page 7
    ...â-¡ Aggregate market value of voting stock held by non-affiliates of the registrant as of February 28, 2001 ...Number of shares of common stock outstanding as of February 28, 2001 ...DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Report, to the extent not set forth...

  • Page 8
    ...Proceedings ...Submission of Matters to a Vote of Security Holders ...PART II Market for the Registrant's Common Stock and Related Stockholder Matters ...Selected Consolidated Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations . . Quantitative and...

  • Page 9
    ...in the state of Delaware. Our principal corporate offices are located in Seattle, Washington. Amazon.com completed its initial public offering in May 1997, and its common stock is listed on the Nasdaq National Market under the symbol ''AMZN.'' As used herein, ''Amazon.com'' includes Amazon.com, Inc...

  • Page 10
    ... an e-Books store, offering e-books in Microsoft Reader format for PCs and laptops, as well as downloadable e-audiobooks from our strategic partner, Audible, Inc. During 2000, our Music store launched Bargain Music, Latin and Box Set stores, as well as a Music Accessories store, where customers can...

  • Page 11
    ... with checks and money orders. • Other Services. Services other than Amazon Auctions and zShops result from agreements with strategic partners to promote their products and services to our customers. In September of 2000, we launched a co-branded toy and video game store with Toysrus.com to...

  • Page 12
    ...Campbellsville and Lexington, Kentucky; New Castle, Delaware; and Grand Forks, North Dakota, as well as a seasonal fulfillment center in Seattle, Washington. We also have three European fulfillment centers which are located in the United Kingdom, France and Germany. In Japan, we jointly manage ful...

  • Page 13
    ..., sales volume and customer bases, and some of which currently sell, or may sell, products or services through the Internet, mail order or direct marketing, (2) online vendors of products that we sell, (3) a number of indirect competitors, including Web portals and Web search engines, that are...

  • Page 14
    ... more locations. In addition, we may experience a decline in our shipping margins due to complimentary upgrades, split-shipments and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many customers access our Web sites within a short period of time due...

  • Page 15
    ... acquire merchandise, manage our inventory and fulfill orders, the introduction by our competitors of Web sites, products or services, changes in usage of the Internet and online services and consumer acceptance of the Internet and e-commerce, timing of upgrades and developments in our systems and...

  • Page 16
    ... and distributing products or services for these market segments and may not benefit from any first-to-market advantages. It will be costly to establish international facilities and operations, promote our brand internationally, and develop localized Web sites and stores and other systems. We may...

  • Page 17
    ...market segments. Our Strategic Partner Program Subjects Us to a Number of Risks Beginning in the fall of 1999, we entered into agreements with selected companies that involved the sale of products and services by these companies on co-branded sections of the Amazon.com Web site and other promotional...

  • Page 18
    ... will harm our shipping margins by requiring us to make split shipments from one or more locations, complementary upgrades, and additional long-zone shipments necessary to ensure timely delivery. As a result of our agreement with Toysrus.com, Toysrus.com will identify, buy, manage and bear the...

  • Page 19
    ... industry, ï¬,uctuations in the stock market in general and market prices for Internet-related companies in particular, quarterly variations in operating results, new products, services, innovations and strategic developments by our competitors or us, or business combinations and investments by our...

  • Page 20
    ... collect Japanese consumption tax for products that are ordered on www.amazon.co.jp and that are shipped into Japan. Our fulfillment center and customer service center networks, and any future expansion of those networks, along with other aspects of our evolving business, may result in additional...

  • Page 21
    ... fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches may impact our financial results. The law relating to the liability of providers of online payment services is currently unsettled. We guarantee payments made through Amazon Payments up...

  • Page 22
    ... online auctions and could require changes in the way we conduct this business. Executive Officers and Directors The following tables set forth certain information regarding the executive officers and Directors of the Company as of February 28, 2001: Executive Officers Name Age Position Jeffrey...

  • Page 23
    ... Development. From July 1991 to February 1997, Mr. Risher held a variety of marketing and project management positions at Microsoft Corporation, including Team Manager for Microsoft Access and Founder and Product Unit Manager for MS Investor, Microsoft's Web site for personal investment. Mr. Risher...

  • Page 24
    ... 725,000 square feet. The Company's warehousing and fulfillment operations are housed in seven fulfillment centers located in Seattle, Washington; New Castle, Delaware; Fernley, Nevada; Lexington, Kentucky; Campbellsville, Kentucky; Coffeyville, Kansas and Grand Forks, North Dakota. These ful...

  • Page 25
    ... disclosed in our Quarterly Report on Form 10-Q for the third quarter of 2000, we have received informal inquiries from the Securities and Exchange Commission Staff with respect to accounting treatment and disclosures for some of our initial strategic partner transactions and have responded...

  • Page 26
    ... Registrant's Common Stock and Related Stockholder Matters Market Information The Company's common stock is traded on the Nasdaq National Market under the symbol ''AMZN.'' The following table sets forth the high and low sale prices for the common stock for the periods indicated, as reported by the...

  • Page 27
    ... ...Gross profit ...Loss from operations ...Interest income ...Interest expense ...Basic and diluted loss per share(2) ...Shares used in computation of basic and diluted loss per share(2) ...Balance Sheet Data(1): Cash and cash equivalents ...Marketable securities ...Total assets ...Long-term debt...

  • Page 28
    ... to our product offerings, and increases in our service revenues from strategic partners. Increases in absolute dollars of net sales during 1999 were due to factors including increased unit sales and the introduction of new product lines. Net sales for our U.S. Books, Music and DVD/video segment...

  • Page 29
    ... primarily of books, music and DVD/video consumer product sales and related shipping charges to our customers. The International segment includes sales from our www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp Web sites, including their export sales into the United States. Growth...

  • Page 30
    ...split and longzone shipments, especially during the quarter ended December 31, 2000. We will from time to time continue offering shipping promotions to our customers and may continue to experience low or even negative gross profit dollars from shipping activities. We expect our overall gross margin...

  • Page 31
    ... accounting principles generally accepted in the United States. Stock-based compensation also includes stock-based charges such as optionrelated deferred compensation recorded at our initial public offering, as well as certain other compensation and severance arrangements. Stock-based compensation...

  • Page 32
    ...business through strategic acquisitions and investments, new consumer product-line offerings, launching additional internationally-focused Web sites, and significantly increasing our fulfillment capacity in advance of demand. Additionally, during 2000 our operating loss included impairment-related...

  • Page 33
    ... investment balance in living.com and a $20 million gain relating to the unamortized portion of unearned revenue associated with the living.com commercial agreement. As of December 31, 2000, our basis in equity securities was $128 million, including $36 million classified as ''Marketable securities...

  • Page 34
    ... in the United States and may not necessarily be useful in analyzing our results. For information about our financial results, as reported in accordance with accounting principles generally accepted in the United States, see Item 6 of Part II, ''Selected Consolidated Financial Data,'' and Item...

  • Page 35
    ... provided by financing activities in 2000 was $693 million relating primarily to our issuance of 690 million Euros of PEACS, net of financing costs of $16 million, and proceeds of $45 million from exercises of stock options, offset by repayments of long-term debt of $17 million. Net cash provided...

  • Page 36
    ... co-branded sections of our Web site as well as other promotional services, such as advertising placements and customer referrals. As compensation for the services we provide under these agreements, we receive cash, equity securities of these strategic partners, or a combination of the two. In some...

  • Page 37
    ... acquisition of an investee by a third party, which resulted in the loss of significant inï¬,uence over the investee. As of December 31, 2000, the fair value of all equity securities classified in ''Marketable securities'' on the accompanying consolidated balance sheet was $36 million. No equity...

  • Page 38
    ... is set forth below and in ''Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.'' Interest Rate Risk Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. All...

  • Page 39
    ... because the conversion option in the PEACS is denominated in Euros, changes in the Euro to U.S. dollar exchange rate may affect the future conversion of the PEACS. Investment Risk As of December 31, 2000, our total holdings in equity securities of other companies, including equitymethod investments...

  • Page 40
    ...Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Ernst & Young LLP, Independent Auditors ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Cash Flows ...Consolidated Statements of Stockholders' Equity (De...

  • Page 41
    REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Amazon.com, Inc. We have audited the accompanying consolidated balance sheets of Amazon.com, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (...

  • Page 42
    AMAZON.COM, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, 2000 1999 ASSETS Current assets: Cash and cash equivalents ...Marketable securities ...Inventories ...Prepaid expenses and other current assets ...Total current assets ...Fixed assets, net ...Goodwill, ...

  • Page 43
    ... INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2000 Years Ended December 31, 1999 1998 Net sales ...Cost of sales ...Gross profit ...Operating expenses: Marketing and fulfillment ...Technology and content ...General and administrative ...Stock-based compensation...

  • Page 44
    ... of marketable securities ...Purchases of fixed assets ...Investments in equity-method investees and other investments Net cash provided by (used in) investing activities . . FINANCING ACTIVITIES: Proceeds from exercise of stock options ...Proceeds from long-term debt ...Repayment of long-term debt...

  • Page 45
    ... of capital stock ...Exercise of common stock options ...Public offering of equity-method investee ...Note receivable for common stock ...Deferred stock-based compensation ...Amortization of deferred stock-based compensation ...Balance at December 31, 1999 ...Net loss ...Foreign currency translation...

  • Page 46
    ... services, Amazon.com Auctions and zShops, the Company's business platform allows virtually any business or individual to sell products to Amazon.com's customer base. The Company maintains several Web sites including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.fr, www.amazon...

  • Page 47
    ... 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 loss.'' The specific identification method is used to determine the cost of securities sold. The initial cost...

  • Page 48
    ... 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...

  • Page 49
    ... transactions rather than the gross amount of product sales and related costs. The Company also earns revenues from other services, primarily by entering into commercial agreements that involve the sale of products and services by third-party companies (''strategic partners'' or ''partners'') on 41

  • Page 50
    ... TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) co-branded sections of the Amazon.com Web site and by other promotional services, such as advertising placements and customer referrals. Generally, the fair value of consideration received, whether in cash, equity securities, or a combination thereof...

  • Page 51
    ...Compensation The Company recognizes expense relative to its employee stock option plans based on the intrinsic value of the stock options granted. Generally, expense is not recorded to the extent individual stock option exercise prices are set equal to the current market price of the Company's stock...

  • Page 52
    ...xed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. Adoption of FIN 44 did not change the Company's existing accounting policies or disclosures. In July 2000, the EITF reached a consensus on EITF Issue 99-19, ''Reporting Revenue Gross...

  • Page 53
    .... Note 2-BUSINESS COMBINATIONS The Company completed the following acquisitions during 1999: e-Niche Incorporated (Exchange.com), Accept.com Financial Services Corporation, Alexa Internet (Alexa), LiveBid.com, Inc. (Livebid), the catalog and online commerce assets of Acme Electric Motor Co. (Tool...

  • Page 54
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Marketable Securities December 31, 2000 Gross Gross Unrealized Unrealized Gains Losses (in thousands) Amortized Cost Estimated Fair Value Corporate notes and bonds ...Asset-backed and agency securities Treasury notes and ...

  • Page 55
    ... 31, 2000, the Company recorded an impairment loss of $11 million relating to the decline in fair value, measured using discounted estimates of future cash ï¬,ows, of certain fixed assets. The impairment amount was included in ''Impairment-related and other'' on the consolidated statements of...

  • Page 56
    ...and the impact of commercial arrangements result in the Company having significant inï¬,uence over the operations of each investee. Summarized balance sheet information of the Company's equity-method investees is as follows: December 31, 2000 1999 (in thousands) Current assets ...Noncurrent assets...

  • Page 57
    ... $ 92,250 Balance, December 31, 2000 ... 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 and 1999. As a result of those public offerings, the Company's ownership percentage in...

  • Page 58
    ...by an unrelated third party, WeddingChannel.com, Inc., which resulted in the loss of significant inï¬,uence over the investee. As of December 31, 2000, the fair value of all equity securities classified in ''Marketable securities'' on the accompanying consolidated balance sheet was $36 million. No...

  • Page 59
    ... 16, 2000, the Company completed an offering of 690 million Euros of 6.875% Convertible Subordinated Notes due 2010, also known as PEACS ''Premium Adjustable Convertible Securities.'' The PEACS are convertible into the Company's common stock at an initial conversion price of 104.947 Euros per share...

  • Page 60
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) At December 31, 2000, the swap agreement represented an obligation with a fair value of $11 million. The fair value was determined as the present value of net future cash payments and receipts, adjusted for the Company's ability...

  • Page 61
    ...in mergers and consolidations. However, these limitations are subject to a number of important qualifications and exceptions. The Company was in compliance with all financial covenants at December 31, 2000 and 1999. Based upon quoted market prices, the fair value of the outstanding Senior Discount...

  • Page 62
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Legal Proceedings Certain federal class action lawsuits were filed against the Company and its wholly owned subsidiary, Alexa. The lawsuits allege that Alexa tracking and storage of Internet Web usage paths violates federal and...

  • Page 63
    ... consolidated financial statements reï¬,ect these stock splits. Stock Option Plans The Company's stock option 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...

  • Page 64
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Stock Option Activity The following table summarizes the Company's stock option activity: Number of Shares (in thousands) Weighted Average Exercise Price Balance January 1, 1998 ...Options granted and assumed . Options canceled...

  • Page 65
    ... related to deferred stock-based compensation was $35 million, $26 million and $2 million, respectively. Accumulated Other Comprehensive Loss Activity in unrealized gains (losses) on available-for-sale securities included in ''Accumulated other comprehensive loss'' on the consolidated balance sheets...

  • Page 66
    ... granted prior to the Company's initial public offering and by PlanetAll prior to its merger with the Company were valued using the minimum value method and therefore volatility was not applicable. The weighted average fair value of options granted during 2000, 1999 and 1998 was $22.12, $43.36...

  • Page 67
    ... accepted accounting principles. Stock-based compensation also includes stock-based charges, such as option-related deferred compensation recorded at the Company's initial public offering, as well as certain other compensation and severance arrangements. During 2000, declines in the Company's market...

  • Page 68
    ... line maturity, within the United States and separately identifies its international operations as an operating segment. The financial results of the Company's operating segments are reported to the Company's Chief Operating Decision Maker in the following groupings: U.S. Books; Music; DVD...

  • Page 69
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Information on reportable segments and reconciliation to consolidated net loss is as follows: U.S. Books, Music and DVD/video Early-Stage Businesses and Other Total U.S. (in thousands) International Consolidated 2000: Net ...

  • Page 70
    ... offer, the number of shares issuable upon option exercises decreased from approximately 70 million shares, or 19.5% of the Company's outstanding common stock, to approximately 52 million shares, or 14.4% of the Company's outstanding common stock. A number of purported class action complaints...

  • Page 71
    AMAZON.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 17-QUARTERLY RESULTS (unaudited) The following tables contain selected unaudited statement of operations information for each quarter of 2000, 1999 and 1998. The Company believes that the following information reï¬,ects all...

  • Page 72
    .... ITEM 11. Executive Compensation Information required by Item 11, Part III, is included in our Proxy Statement relating to our annual meeting of stockholders to be held on May 23, 2001, and is incorporated herein by reference. ITEM 12. Security Ownership of Certain Beneficial Owners and Management...

  • Page 73
    ...Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) List of Documents Filed as a Part of This Report: (1) Index to Consolidated Financial Statements: Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements...

  • Page 74
    ... the Securities and Exchange Commission on March 29, 2000). 1999 Non-Officer Employee Stock Option Plan (incorporated by reference to the Company's Registration Statement on Form S-8 (Registration No. 333-74419) filed March 15, 1999) Accept.com Financial Services Corporation 1998 Stock Option Plan...

  • Page 75
    ..., thereunto duly authorized, as of March 21, 2001. AMAZON.COM, INC. By: /S/ JEFFREY P. BEZOS Jeffrey P. Bezos President, Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons...

  • Page 76
    www.amazon.co.jp www.amazon.co.uk www.amazon.fr www.amazon.de www.amazon.com