Amazon.Com (Financial Analysis)

ADMN919: Financial Accounting Project

Company: Amazon.com

Bikram Gautam

UNH (MANCHESTER)

Q1 - 9. Brief Description of the Company:

Founder and CEO Jeff Bezos opened the virtual doors of Amazon.com's online store in July 1995. The company was incorporated in 1994 in the state of Washington and reincorporated in 1996 in Delaware. The Company's 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 ticker symbol AMZN. Amazon.com's fiscal year is based on the calendar year, and the last day of the fiscal year is December 31. The closing stock selling price for February 1, 2006 was $43.98. Amazon has never declared or paid cash dividends on its common stock.

Amazon.com Inc. operates web sites that sell various products and services, which primarily include apparel, shoes, and accessories; health and personal care; baby care products; books; camera and photography; and consumer electronics. The company and other sellers also offer various new, refurbished, and used items in categories, such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, digital versatile discs, electronics and office, toys and baby, and home and garden. These products are purchased from distributors, publishers, and manufacturers. The company and its affiliates operate seven retail Web sites: www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, and www.joyo.com. It also operates www.a9.com and www.alexa.com that enable search and navigation, and www.imdb.com, a movie database Web site.

As mentioned before, Jeffery P. Bezons is the President and Chief Executive Officer of Amazon.com. Bezons is also the Chairman of the Board. Richard L. Dalzell is the second in the rank; he is Senior Vice President (Worldwide Architecture and Platform Software), and the Chief Information Officer. Ernst and Young LLP, a Seattle based independent registered public accounting firm serves as the auditor for Amazon.com.

Descriptive Financial Information:

Q10.

(In millions except per share data)

Items: Year 2005 Year 2004

Net Sales Revenue $ 8,490 $ 6,921

Total Expenses

(Including taxes and cost

of goods sold)

$ 8,149

$ 6,163

Net Income (Loss) $ 359 $ 588

Basic Earnings per share $ 0.87 $ 1.45

Comprehensive Income $ 333 $ 582

Reasons for differences between net income and comprehensive income: The reasons for differences between net income and comprehensive income as reported in the financial statements are the comprehensive income includes foreign currency translation adjustment (net of tax), decline of unrealized gains on available-for-sale securities (net of tax effect), and amortization of unrealized loss on terminated Euro Currency Swap (net of tax).

Q 11 вЂ" 13.

Items: Year 2005 (in millions)

Cash inflow (Outflow) from operating activities $ 733

Cash inflow (Outflow) from investing activities ($ 778)

Cash inflow (Outflow) from financing activities ($ 193)

Q14. Did the company pay dividends during the year? If so, how much?

The company did not pay any dividends during the year 2005.

Q 15 вЂ" 16.

Items: Year 2005 (in millions)

Interest paid $ 105

Income taxes paid $ 12

Q17. What were the main components of investing activities? Financing activities?

Investing activities:

• Purchases of fixed assets, including internal-use software and website development

• Acquisitions, net of cash acquired

• Sales of maturities of marketable securities and other investments

• Purchases of marketable securities

Financing activities:

• Proceeds from exercises of stock options and other

• Proceeds from long term debt and other

• Repayments of long term debt and capital lease obligations

Q18. Did the company spend significant amounts on research and development expenditures, if so how much?

The company spent significant amounts on research and development under the reporting head Technology and content expenditures. A total of $451 millions was reported for technology and content expenses which primarily consist of payroll and related expenses for employees involved in research and development, including application development, editorial content, merchandising selection, systems and telecommunications support, and costs associated with the systems and telecommunication infrastructure.

Q 19. What is the company’s policy on revenue recognition?

The company recognizes revenue from product sales or services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exits, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectivity is reasonably assured. Additionally, revenue arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: the delivered item has value to the customer on a standalone basis; there is objective and reliable

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