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[12/4/00 Amazon responses
underlined]
Workshop for Analysts
NYSSA Forum
Amazon.com: Responsibility for
Information
The information requests listed below
are submitted to Amazon.com on behalf of the "Workshop" organized by the New
York Society of Security Analysts' Committee for Corporate Governance in
conjunction with its Forum program, "Amazon.com: Responsibility for
Investment Information."
It should be understood that these
requests were prepared to incorporate a variety of suggestions from Workshop
participants, representing a wide range of perspectives and levels of
familiarity regarding Amazon. The purpose of the Forum and NYSSA, as a
not‑for‑profit educational organization, is to facilitate the presentation
of all views, and not to endorse any. According NYSSA policies, the
Workshop's requests and Amazon's responses will be made available to the
public. Amazon is of course expected to follow its own policies regarding
disclosures to investors and analysts.
Unless indicated otherwise, the
requested information is for the 1999 fiscal year and for interim periods of
the year 2000. Responses, particularly those concerning trends or
historical relationships, should of course be based on comparable periods or
trailing year numbers, as appropriate, to avoid seasonality distortions.
GAAP definitions are assumed; if responses provide "pro forma" numbers, they
should be presented with detailed explanations of each specific adjustment
from GAAP. Similarly, any non‑financial "metrics" should be clearly defined
in terms of primary data sources.
Information Requests
1. In relation to reported
Net Sales:
a) What
amounts or portions of revenue have been generated from each of the
following types of activity during the past 3 years and the latest interim
period, and what is anticipated for the full year 2000 and 2001?
i)
Amazon's sales of its own inventory, directly through Amazon's own web site,
to "retail" customers. Refer to our Net Sales section of Management's
Discussion and Analysis in our 1999 Form 10‑K and our September 30, 2000
Form 10‑Q.
ii) Charges
for shipping or other services for which all associated expenses are not
included in Cost of Sales. See 1.a.i above.
iii) Other
sources, including but not limited to agency, auction, consignment or other
sales of products not inventoried by Amazon; from sales of products to other
retailers rather than directly to ultimate consumers; from advertising
sales; and from sales of any other services. See 1.a.i. above.
b) What are
the specific provisions and amounts of the following types of transactions,
including but not limited to those associated with Amazon Commerce Network
("ACN") relationships and identified in Footnote 1 ‑ Accounting Policies,
Revenue Recognition?
i)
Revenue realized other than in cash. See 1.a.i. above and Note 1 of our
1999 Form 10‑K, and Overview to Management's Discussion and Analysis and
Note 6 in our September 30, 2000 Form 10‑Q.
ii) Agreements linking revenue to investments. 1.b.i. above.
iii) Agreements linking revenue to other financing or commercial
commitments. See 1.b.i. above.
iv) Any other arrangements which might be considered "related
party transactions." See 1.b.i. above.
c) What are
the amounts, if any, of revenue included in Net Sales from the following
types of transactions?
i)
Transfers of inventory or other operating assets which will not be replaced
in the continuing conduct of Amazon's business, including but not limited to
the recent sale of inventory to Toys "R" Us. See 1.b.i. above.
ii) Grants of rights, interests or concessions in any commercial
activity, including but not limited to licensing or joint venture
agreements. See 1.b.i. above.
iii) Charges for shipping or other services associated with
products sold from inventories owned by parties other than Amazon. See
1.b.i above.
2. In relation to
"Operating Cash Flow," defined for purposes of these requests as excluding
"Changes in operating assets and liabilities" from the reported "Net cash
used in operating activities" in your Statements of Cash Flows:
a) Do you
expect Operating Cash Flow to be positive for
i)
the 4th quarter of 2000? In our October 24, 2000 press release and
conference call, we did not provide any guidance on operating cash flow as
defined above.
ii) the full year 2000? See 2.a.i.
iii) the 1st quarter of 2001, and the trailing 12 months? See
2.a.i.
iv) the full year 2001? See 2.a.i.
b) Does
Operating Cash Flow include consideration received in forms other than
cash? Total cash used in operating activities, as defined by GAAP, does
not include non‑cash amounts.
c) Is
Operating Cash Flow adjusted to reflect uses of cash which are a condition
of generating revenue, including but not limited to purchases of securities
as part of a commercial agreement? Cash purchases of securities are
reported within investing activities under GAAP.
d) To the
extent that transactions involve investments which are not publicly traded,
or for which liquidity is otherwise restricted, how is the value impairment
determined and reported? Refer to the Non‑Cash Investment Gains and
Losses, Net section of Management's Discussion and Analysis in our September
30, 2000 Form 10‑Q.
3. In relation to
investments in marketable securities, including but not limited to the ACN
investments, what are the original costs and current book values of each, as
of the end of each quarter in 1999 and 2000? Refer to our statement of
cash flows, and Notes 3 and 6 in our 1999 Form 10‑K Also refer to our
statement of cash flows included in our Form 10‑Q for each quarter of 2000,
our balance sheet as of September 30, 2000 and Notes 2, 4, 5 and 9 in our
September 30, 2000 Form 10‑Q.
4. Is there any existing or
threatened litigation by investors in the European "PEACS" issue of
subordinated convertible notes sold in February 2000? Refer to Note 11 of
our June 30, 2000 Form 10‑Q.
5. What does Amazon plan to
do differently from existing retailers to make profits in the
price‑competitive consumer electronics business? As we mentioned on
prior web‑cast quarterly conference calls, Amazon.com intends to drive
toward profitability in each business we are in.
There is a company
in the similarly competitive physical world electronics business that
achieved an operating profit margin of over 4% for their most recent year
ended 2000.
6. How does Amazon plan to
shift its unprofitable price‑sensitive customer base, historically attracted
by discounts, to a profitable quality‑sensitive customer base which is
willing to pay for better service? Consistent with our comments on prior
web‑cast quarterly conference calls, when we have asked our customers, they
have said that price is not the most important factor in their decision to
buy from Amazon.com. Other aspects of our value proposition to customers,
in addition to a competitive price, include service, selection, convenience,
trust/security, etc. Interestingly, in a recent Bernstein Retail Perception
Survey, among major U.S. retailers, Amazon.com ranked in the top 5 for
"good value for money" and ranked 1st in service, quality of products, wide
range/assortment of products, convenience, and overall.
November 21, 2000
Peter F. Brennan, Chairman, NYSSA
Committee for Corporate Governance
(c/o MidCap Investors
LLC, 50 Broad Street, New York, NY 10004; 212/668‑3033)
Gary Lutin, Forum adviser and
co‑sponsor
(c/o Lutin & Company,
575 Madison Avenue, New York, NY 10022; 212/605‑0335)
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