BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY 725

Exhibit 1

BHP financial performance 1995-1999

BHP Profit and loss account (ASm)

Sales
Other revenue
less
Operating expenses & Cost of Sales
Depreciation & amortisation
Group Centre & general administrative
expenses
Interest expense
Operating profit before interest and tax
Operating profit before tax
le
Income tax attributable to operating
ss
expense
Operating profit/(loss) after income tax
ad Outside equity interests - operating profit
d
after tax
Operating profit/(loss) after tax (including
abnormals)
ad Retained profit at beginning of the financial
d
year
Total available for appropriation
le
Dividends provided or paid for
ss
Retained earnings at year end
Profit & Loss Account detailing
abnormal items
Operating profit before abnormal items
le
Abnormal items after income tax
ss
BHP Balance sheet items
Assets
Current assets
Non-current assets
Total assets
Liabilities
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders' equity

1999
19,229
2,692
21,921

1998
21,189
3,475
24,664

1997
20,947
1,373
22,320

1996
19,124
690
19,814

1995
17,696
748
18,444

20,973
2,218
143

22,594
2,206
161

18,101
1,974
146

15,392
1,798
134

13,732
1,651
129

732
24,066
(1,413)
(2,145)
164

716
25,677
(297)
(1,013)
518

739
20,960
2,099
1,360
885

477
17,801
2,490
2,013
752

407
15,919
2,932
2,525
1,014

(2,309)
(3)

(1,531)
57

475
(65)

1,261
(215)

1,511
(295)

(2,312)

(1,474)

410

1,046

1,216

4,826

7,077

7,434

7,184

6,651

2,514
766

5,603
777

7,844
767

8,230
744

7,867
683

1,748

4,826

7,077

7,486

7,184

365
(2,667)

1,302
(2,776)

1,386
(976)

1,293
(247)

1,617
(401)

1999

1998

1997

1996

1995

5,852
25,635
31,487

7,218
29,864
37,082

8,399
28,336
36,735

6,820
28,410
35,230

6,105
24,182
30,287

6,194
15,932
22,126
9,361
9,361

6,175
18,498
24,673
12,409
12,409

7,328
13,194
20,522
16,213
16,213

6,503
12,981
19,484
15,746
15,746

5,357
10,123
15,480
14,807
14,807

1999

1998

1997

1996

1995

54.2
2,675

52.7
4,014

39.4
4,149

39.4
6,827

31.3
3,100

(26.7)
(negativ
e)
0.9

(12.7)
(negativ
e)
1.2

3.3
2.0

8.6
0.8

10.2
0.6

1.1

1.0

1.1

BHP Financial statistics

BHP Balance sheet items
Gearing % (a)
Capital investment expenditure
BHP profit and loss statistics
Return on shareholders' equity
Dividend payout ratio
Current ratio

Earnings to interest expense

Sales to operating income (operating
margin) %

(1.9)
-12%

(0.4)
.-7%

2.8
2%

5.2
7%

7.2
9%

BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY

Exhibit 1

Continued

Cash flow statistics

Operating cash flow to sales
Operating cash flow to total assets
employed
Operating cash flow to annual interest
expense
Operating cash flow to total debt
Share information
Price/earnings ratio (times)
Dividend yield %
Earnings per share (incl. abnormal)
Market capitalisation at year end
Number of employees (000's)

1999

1998

1997

1996

1995

0.2
0.1

0.2
0.1

0.2
0.1

0.2
0.1

0.2
0.1

4.9

5.0

5.4

6.9

10.0

0.2

0.1

0.2

0.2

0.3

(negativ
e)
3.3
(133.5)
27,150
50

(negativ
e)
3.7
(87.2)
28,125
55

75

29

22

2.7
25.0
37,753
61

2.7
65.1
37,106
60

2.7
78.7
34,154
49

Notes
(a) Based on the borrowings (current and non-current excluding finance leases, bank overdrafts
etc.)
as a percentage of total borrowings and shareholders' equity
BHP Cash flows
Net operating cash flows
Net investing cash flows

1999
3,585
(1,264)

1998
3,559
(1,523)

1997
3,996
(4,348)

1996
3,305
(7,177)

Net financing cash flows

Net (decrease)/increase in cash flow
Cash & cash equivalents at beginning of year
Effect of exchange rate changes on cash
Cash & cash equivalents at end of year

(2,677)
(356)
949
(20)
573

(1,515)
(521)
363
65
949

(32)
(384)
735
12
363

(3,578)
(294)
883
(34)
555

1995
4,090
(3,218
)
(429)
(443)
431
9
883

1999

1998

1997

1996

1995

-2996
-1196
-1800

-2483
-834
-1617
-32
-246
-17

-739
-189
-550
-220
-124

-222
-151

-2746

-1083

-373

-542
-542

-146
99

107

61

234

-47

107

61

234

Abnormal Items
Assets write-downs
Minerals
Other minerals
Copper
Coal
Steel
Petroleum
Group
Total
Assets sales
Minerals
Steel
Petroleum
Services
Group
Total

-105
-210
-13
-3324
347
121
173
6
647

Source: BHP.

BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY

Exhibit 2

727

Revenues by geographic location and industry

1995-1999
Revenue by geographic market
Australia
USA
Japan
Other*
Total
Revenue by industry
Minerals
Steel
Petroleum
Other
Total
Profit by industry
Minerals
Steel
Petroleum
Other
Total

1999

1998

1997

1996

1995

8,430
3,383
2,815
7,293
21,921

9,375
4,780
2,755
7,754
24,664

7,415
4,310
3,090
7,505
22,320

6,790
3,498
2,906
6,620
19,814

7,051
2,782
2,845
5,766
18,444

9,235
8,096
3,093
1,389
21,813

8,303
8,320
5,054
2,987
24,664

8,465
8,217
4,963
675
22,320

7,316
7,531
4,284
683
19,814

6,105
7,155
4,428
756
18,444

(2,288)
115
162
(298)
(2,309)

(1,993)
202
106
(249)
(1,934)

239
113
509
(431)
430

1,083
155
329
(306)
1,261

953
643
711
(796)
1,511

* Includes South Korea, China, Taiwan, Europe, UK, New Zealand and South America.
Source: BHP.

Exhibit 2 gives a breakdown of revenue by geographic region). The

company operates in 50 different countries from ad diverse regions
as: Yellowknife, Canada (Diamonds); the Atacama Desert in Chile
(Copper); and the North West Shelf, Australia (Oil).
In fiscal 1999, the operating loss of BHP including abnormal
items attributable to BHP shareholders was A$2,312m, compared
with a loss of A$1,474m for fiscal 1998. The poor financial
performance of the company reflected the difficult global economic
environment over 1998/99 and, in particular, the severe downward
pressure on commodity prices over this period. The results also
reflect the BHP board's decision to close and sell off poorly
performing operations and adjust the carrying value of certain
assets. BHP's stock has historically traded on a premium for its
management capacity and its ability to take up an opportunity in
any kind of business and turn it into a stellar performer. It was the
argument of former CEO, John Prescott, that the sum of BHP's
components is far greater than the whole.

THE COMMODITIES BUSINESS

The commodities business is no different from any other business in

that the fundamental laws of economics - demand and supply apply. As a consequence
728

BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY

of the immense volumes of product that are traded, minor fluctuations in

either demand or supply can have major consequences on individual
commodity prices and therefore, upon an individual business's bottom
line.
The Asian crisis starting in late 1997 saw a major crash in the
demand for commodities, and by 1999 the market had still not recovered.
In 1999, the Asian markets still remained weak but showed preliminary
signs of recovery. For BHP, the prices of nearly all of its major products
remained depressed in 1999 and there was overcapacity in the world
market of most of BHP's products. The down cycle of the commodity
prices from 19997 to 1999 severely affected the bottom line of BHP and
in fiscal 1999, increased the loss by some A$1,080 million. The major
products that were affected were: export steel prices declined by
approximately 30 per cent; realised crude oil prices declined by 16 per
cent; copper prices declined by 15 per cent; and coal prices declined by
12 per cent. Furthermore, the reduction in sales volumes through a fall in
demand affected profit by A$170 million compared with the previous
period.
Based upon company projections for fiscal 2000, a US$1 movement
in the oil price would affect the BHP bottom line by A$47 million and a
US$1 movement in the copper price by A$16 million. The cost of doing
international business can also be high, and a 1 cent currency fluctuation
between the US and the Australian dollars affects profit by A$26 million.
As a consequence of the volatility of the commodity markets, companies
make use of financial hedging techniques in an attempt to create some
predictability in their earnings. As at May 1999, BHP had 27 per cent of
their projected oil sales covered by forward contracts and swaps at an
average price of US$16.46 per barrel - on a market-to-market basis,
these positions were showing an unrealised loss of US$4 million.
Following the Asian crisis and the decrease in demand for BHP's
products in the Pacific region and in Australia, BHP mitigated the impact
of these adverse trading conditions by transferring its export business to
alternative markets primarily in Europe and the Americas. But the
increased pressure on the steel market led to the European and US steel
industries protecting their markets with anti-dumping laws, which has
compounded steel production in other parts of the world. Further
competitive pressure has been experienced by BHP in the 1998
devaluations of the Brazilian, South African and Indian currencies which
have made these countries more competitive internationally.

EARLY ATTEMPTS AT TURNAROUND

Proposals to redefine BHP and address cost structures were issues at BHP
during the latter 1990s. John O'Connor, former head of Petroleum until
1998 (under whose leadership the division on most measures such as
reserve growth, finding costs per barrel, development costs and
operating margins had measured up to and surpassed industry
benchmarks), proposed 'Project Leopard' - a proposal to float Petroleum
as n independent company. He claimed that Petroleum was subsiding
other divisions of the conglomerate

BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY

729

while it was itself being 'starved' of capital. Former CEO Prescott had also put
forward a proposal to float Steel independently. The board rejected both
proposals.
The board's intentions to shelve plans to float both the petroleum and the
steel divisions separately indicate a clear intention to run BHP as a portfolion,
despite the clear preference of the financial markets for specialist companies
rather than conglomerates.
(Business Review Weekly, 8 March 1998)
Floating the two divisions would have cost the company and shareholders
millions of dollars in capital gains tax, stamp duties and lost benefits from joint
ventures. Other analysts argued that the company and the board simply had no
decisive strategic vision as to where to take the company.
But the problem the company had was that it couldn't actually work out what it
wanted. Nobody could answer what is was that was going to happen to the rest
of BHP. It did not have a clear idea of its own future, so the default position was
don't do it.
(Business Review Weekly, 8 March 1998)

PAUL ANDERSON
In December 1998, Paul Anderson was appointed CEO and managing director of
BHP by outgoing chairman of the board, Jerry Ellis. Anderson's appointment
was the result of a global search process conducted by the board and
supported by the international executive recruiting firm, Heidrick & Struggles.
His appointment to CEO and MD of BHP brought with it positive reactions from
shareholders, analysts, the media and later BHP employees. Anderson stated
that it was his first priority to restore confidence in the company with the
employees and with the external public.

Anderson came to BHP with a track record of turning around companies

from a position of weakness to one of strength. His experience covered
mergers and acquisitions and restructuring companies to improve performance.
Anderson, an engineer by trade, obtained his MBA from Stanford University in
1969. He was previously chief operating officer (COO) of Duke Energy
Corporation, the world's seventh largest energy company with a market
capitalisation of US$36 billion and operations in 50 different countries. Duke
Energy was created after the merger of Duke Power and Pan Energy, a
Company he was instrumental in turning around and increasing its stock value
fivefold. He has led two public offerings; been a principal in three multi-billiondollar mergers on either side of the offering, acquirer and aquiree; fought off a
hostile public tender offer; and led several dozen transactions of projects in the
hundreds of millions of dollars. He is also no stranger to the steel business,
having served as chief financial officer (CFO) at Inland Steel in the US.
His style is considered 'inclusive' of all employees - if any less formal it
would be 'shorts and a t-shirt', and the emphasis is on teamwork and shareholder value. The difference in Anderson's style from that of former CEO John
730

BROKEN HILL PROPRIETARY (BHP) COMPANY LIMITED - TURNAROUND

STRATEGY

Prescott highlighted BHP's need for a modern chief executive, not only to
lead the organisation strategically, but also publicly. At BHP, Anderson is
the first CEO to have any remuneration based on meeting defined
achievement goals (previous CEOs have held company-provided shares).
The press described his package as one of Australia's most 'unusual and
creative' remuneration deals. With a salary including benefits of A$2.3
million, the package includes 1 million share options and 1 million
performance rights, both dependent on performance. He surprised his
collegeagues with his determination to place much of his remuneration at
risk by being performance based.
THE BIG AUSTRALIAN RENEWS
While 1998 saw the beginnings of a major cost restructuring drive by Ron
McNeilly, acting CEO of BHP while the board conducted its search for a
new CEO, 1999 represented a year in BHP's history of significant changes
led by Paul Anderson.
On the one hand there is a need to continue to clean up the balance
sheet and nn-core assets, with some minor write offs and asset sales to
be completed and tweak- ing the remaining assets to realise their full
value. On the other hand, the company must make shareholders richer,
not poorer, through growth. BHP has a suite of nont-insignificant new
projects and expansions, but the emphasis today, will be on innovation
rather than the old method of digging bigger holes. BHP has no consumer

brands and operates in a depressed commodity business. It simply has to

be the best.
(Business Review Weekly, 7 February 1999)
When Anderson addressed shareholders at his first extraordinary general
meeting he laid out his intent to create value for shareholders but
emphasised the point that there was no magic solution to be unveiled
that would create instant value and that the road to profitability would be
systematic and untheatrical.
The first priority will be to get alignment within the company and
establish a workable management tea. There is nothing I can do myself,
wehave to have a team that works together. The intent is to simplify the
orgnisation, provide the organisational glue that pulls it together, set out
clear accountabilities and responsibilities and above all to expendite
decision-making. You will see a number of incremental actions - a new
pace in the way we do business - a speed in bringing issues to a head.
(Paul Anderson, CEO BHP, Shareholders Address, 26 February 1999)
The methodology of rebuilding BHP was structured as a three-phase
process, of which, by December 1999, only phase one was complete.
Phase I, in Anderson's words, was a matter of 'righting the ship', facing
up to immediate problems and fixing them. Phase II is to take the assets
that are healthy and with which the company wishes to continue and
optimise their return. Phase III is to develop the overall strategy for the
company and the portfolio of business units. Anderson notes that while
the activities are discussed as three distinct phases, they are continuous
and they overlap, but are also sequential in the priority that they receive.

AMAZON.COM - FROM START-UP TO THE NEW MILLENNIUM

699

Exhibit 5 Consolidated statement of operations (in US$'000, except

per share data)
JULY
5THDEC
31ST,
1994
-

YEAR
ENDED
DEC
1995

YEAR
ENDED
DEC
1996

YEAR
ENDED
DEC 1997

YEAR
ENDED
DEC 1998

YEAR ENDED
DEC 1999

511

15,746

609,996

Cost of Sales

409

12,287

Gross Profit
Operating expenses:
Marketing and sales
Technology & content
General and administrative
Merger and acquisition related

102

3,459

147,78
7
118,96
9
28,818

133,841

1,639,80
0
1,349,20
0
290,600

38
14
-

200
171
35
-

6,090
2,401
1,411
-

40,486
13,916
7,011
-

133,023
46,807
15,799
50,172

483,300
159,700
-

Sales

476,155

costs
Stock-based compensation
Amortisation of goodwill & other
intangibles
Merger, acquisition & investment
related costs
Unusual expenses (income)
Other operating expenses
Total operating expenses
Loss from operations

214,700

52

406

9,902

61,413

245,801

(52)

(304)

(6,443)

(32,595
)
1,901
(326)
1,575

(111,96
0)
14,053
(26,639)
(12,586)

8,100
30,600
2,245,60
0
(1,955,00
0)
45,500
(39,100)
1,700
6,400

Interest income
Interest expense
Other expense, net
Net interest income (expense)
Loss before equity in losses of
equity-method investments

1
1

202
(5)
197

(52)

(303)

(6,246)

(31,020
)

(124,54
6)

(1,948,60
0)

Equity in losses of equity-method

investees
Net loss

(52)

(303)

(6,246)

(0.00)

(0.00)

(0.06)

(31,020
)
(0.24)

(124,54
6)
0.84)

(1,948,60
0)
-

79,14
6

86,36
4

111,27
1

130,34
1

148,172

Basic and diluted loss per share

Shares used in computation of pro
forma basic and diluted loss per
share

Source: Amazon.com, lnc., 2000.

The obsession should be with defining the future needs of customers and
translating that information into innovations that give the firm a competitive
edge ... Intel Chairman Andy Grove taught us all that only the paranoid survive,
and he's right...but the thing that drives everything is creating genuine value
for customers. Nothing happens without that.

THE FUTURE
The Internet is an increasingly significant global medium for online commerce
and Amazon.com appears to be well positioned to capitalise on this growth.
700

AMAZON.COM - FROM START-UP TO THE NEW MILLENNIUM

Exhibit 6

Consolidated statement of cash flows (in US$'000)

OPERATING ACTIVITIES
Net loss
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortisation

YEAR
ENDED DEC
31ST, 1996

YEAR
ENDED
DEC 31ST,
1997

YEAR
ENDED DEC
31ST, 1998

YEAR
DENDED
DEC 31ST,
1999

(6,246)

(31,020)

(124,546)

(719,968)

296

3,442

9,692

36,806

Amortisation of deferred comp... related to

stock options
Non-cash merger and acquisition related
costs, including amortisation of goodwill and
other
purchased intangibles
Equity in losses of equity-method investees
Non-cash revenue for advertising &
promotional services
Loss on sale of marketable securities Noncash
interest expense
Changes in operating assets and liabilities:
Inventories
Prepaid expenses and other
Deposits and other
Accounts payable
Accrued advertising
Other liabilities and accrued expenses
Net cash provided by (used in) operating
activities
INVESTING ACTIVITIES
Maturities of marketable securities
Purchases of marketable securities
Purchases of fixed assets
Acquisitions, dispositions, and investments
in
business
Net cash used in investing activities

FINANCING ACTIVITIES
Net proceeds from initial public offering
Proceeds from exercise of stock options
Proceeds from issuance of capital stock
Proceeds from long-term debt
Repayment of long-term debt
Financing costs
Net cash provided by financing activities
Effect of exchange rate changes
Net increase in cash
Cash at beginning of period
Cash at end of period

1,354

2,386

30,618

47,065
-

222,766
76,769

(5,837)
8,688

64

23,970

29,171

(554)
(315)
(148)
2,756
598
1,603
(2,010)

(8,400)
(3,034)
(21)
30,172
2,856
5,274
687

(20,513)
(16,465)
(293)
78,674
9,617
21,448
31,035

(172,069)
(60,628)
330,166
42,382
90,261
(90,875)

(5,233)

4,311
(122,385
)
(7,603)

332,084
(546,509)
(28,333)

4,024,551
(4,290,173
)
(287,055)

(6,568)

(125,677
)

(19,019)
(261,777)

(369,607)
(922,284)

195
8,443
8,638
60
804
864

49,103
509
3,746
75,000
(47)
(2,309)
126,002
1,012
864
1,876

5,983
8,383
325,987
(78,108)
(7,783)
254,462
(35)
23,685
1,876
25,561

64,469
1,263,639
(188,886)
(35,151)
1,104,071
489
91,401
25,561
116,962

(1,335)

Source: Amazon.com, lnc., 2000.

AMAZON.COM - FROM START-UP TO THE NEW MILLENNIUM

701

Exhibit 7 Consolidated balance sheets (in US$'000, except per share

data)

ASSETS
Current assets:
Cash & cash equivalents
Marketable securities

DEC 31ST,
1994

DEC
31ST,
1995

DEC
31ST,
1996

DEC
31ST,
1997

DEC 31ST,
1998

DEC 31ST,
1999

JUNE 30TH,
2000

52
-

996
-

6,248
-

1,876
123,49
9

25,561
347,884

133,309
572,879

720,377
187,244

Inventories
Prepaid expenses and other
Total current assets

29,791
626
186,377

220,646
85,344
1,012,1
78
317,613
730,144

172,360
86,659
1,166,64
0
344,042
596,778

226,727

211,715

8,271

2,240
149,84
4

7,412
648,460

144,735
40,154
2,471,5
51

88,261
53,294
2,460,73
0

99
8

2,852
598
920

33,027
3,454
6,570

113,273
13,071
34,547

463,026
181,909

286,239
146,874

107

500
4,870

1,500
44,551

684
161,575

54,790
24,888
14,322
738,935

115,566
41,213
17,731
607,623

76,702

348,140

1,466,3
38

2,131,53
1

1,075

159

9,873

1,449
66,586

1,593
300,130

3,452
1,194,3
69

3,554
1,335,73
3

(16)

150
(248)

(612)
(6,025)

8
76

977
1,084

3,401
8,271

(1,930)
(37,51
4)
28,591
149,84
4

(1,099)
(1,625)
1,806
(162,06
0)
138,745
648,460

(47,806)
(1,709)
(882,02
8)
266,278
2,471,5
51

(25,410)
(84,664)
(1,507,63
7)
(278,424)
2,460,73
0

Fixed assets, net

Deposits and other
Goodwill & purchased intangibles,
net
Investments in equity-method
investees
Other investments
Other assets
Deferred charges
Total Assets

24
76

17
14
1,027

571
321
7,140

57
-

76

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable
Accrued advertising
Other liabilities and accrued
expenses
Accrued product development
Unearned revenue
Interest payable
Current portion of LT debt & lease
Total current liabilities
Long-term debt & portion of
lease obligation
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorised shares - 10,000
issued and outstanding shares none
Common Stock, $0.01 par value:
Authorised shares - 300,000
issued and outstanding shares
Additional paid-in capital
Note receivable from officer
for common stock
Deferred compensation
Other gains/losses
Other gains/losses
Accumulated deficit
Total stockholders' equity (deficit)
Total liabilities and stockholders'
equity

29,501
21,308
424,254

985
146
-

8,971
3,363
137,70
9
9,726
169
-

1,084

Source: Amazon.com, lnc., 2000.

Exhibit 8 Stock trends

DATE

OPEN

HIGH

LOW

CLOSE

VOLUME

Oct-00
Sep-00
Aug-00

38.1875
42.125
30.625

38.4375
49.625
49.9688

19.375
35.5
29.3125

36.625
38.4375
41.5

11,215,100
6,686,900
6,281,000

ADJ.
CLOSE*
36.625
38.4375
41.5

Jul-00
Jun-00
May-00
Apr-00
Mar-00
Feb-00
Jan-00
Dec-99
Nov-99
Oct-99
Sept-99
Sep-99
Aug-99
Jul-99
Jun-99
May-99
Apr-99
Mar-99
Feb-99
Jan-99
Jan-99
Dec-98
Nov-98
Oct-98
Sept-98
Aug-98
Jul-98
Jun-98
Jun-98
May-98
Apr-98
Mar-98
Feb-98
Jan-98
Dec-97
Nov-97
Oct-97
Sept-97
Aug-97
Jul-97
Jun-97
May-97

36.6875
48.875
56
65.4375
67.625
67.5
81.5
87.25
68.0625
77
127
98.375
125.25
111.5
166.875
179.375
127
117.75
327.6875
185.5
128.125
108
76.125
109.75
101.8125
88
92.75
85.25
75.875
59.375
60
50.875
62.625
53.25
28.125
28.125
18.5
18.125
23.625

43.9375
58.125
62.375
68.625
75.25
85.9375
91.5
113
96.875
90
127

27.875
30.125
9,926,200
32.4688
36.3125
9,233,600
40.4375
48.3125
5,940,300
40.8125
55.1875
8,526,900
60
67
6,808,000
63.0625
68.875
10,372,800
58.4375
64.5625
13,110,400
76
76.125
11,254,400
61
85.0625
13,384,200
65.875
70.625
12,110,000
57.375
79.9375
14,792,100
2:1 Stock Split (before market open)
135.5625
82
124.375
10,433,700
142.5
97.5
100.0625
9,253,500
129.5
89.75
125.125
8,289,700
167.0625
104.5
118.75
7,594,100
221.25
151
172.0625
8,649,600
178
114
172.1875
7,195,800
130
84.25
128.125
8,372,200
356
92.5625
116.9375
16,319,800
3:1 Stock Split (before market open)
361.875
182
321.25
5,486,5000
233.125
120.75
192
5,431,500
129.8125
80
126.4375
3,821,500
120
65
111.625
5,379,600
137.5
83.125
83.75
3,496,800
147
94.25
110.875
5,029,900
104.75
41.25
99.75
4,39,800
2:1 Stock Split (before market open)
95.875
79.75
88.125
728,600
100
77.125
91.75
1,408,200
88.25
70
85.5312
783,400
79.625
57.25
77
572,900
64.125
49.75
59
467,000
60.5
49.625
60.25
246,100
62.625
44
49.5
297,300
66
42.25
61
381,100
57.75
27.75
52.0625
428,000
29
23.25
28.0625
126,600
30.875
18.125
28.75
411,400
20.5
16.5
18.5
210,900
23.75
15.75
18
768,100

30.125
36.3125
48.3125
55.1875
67
68.875
64.5625
76.125
85.0625
70.625
79.9375
62.1875
50.0312
62.5625
59.375
86.0312
86.0938
64.0625
58.4688
53.5417
32
21.0729
18.6042
13.9583
18.4792
16.625
7.3438
7.6458
7.1276
6.4167
4.9167
5.0208
4.125
5.0833
4.3385
2.3385
2.3958
1.5417
1.5

* Adjusted for dividends and stock spilts.

Source: Yahoo.com, 2000.

Exhibit 9 Market guide ratio comparison (Nov. 2000)

AMAZON.COM
Valuation Ratios
P/E Ratio (TTM)
P/E High - Last 5 Yrs.

NM
NA

SPECIALITY
RETAIL IND...
22.97
50.14

SERVICES
SECTOR
29.66
50.91

S&P 500
33.46
49.21

P/E Low - Last 5 Yrs.

Beta
Price to Sales (TTM)
Price to Book (MRQ)
Price to Tangible Book (MRQ)
Price to Cash Flow (TTM)
% Owned Institutions
Dividends
Dividend Yield
Divident Yield - 5 Year Avg.
Dividend 5 Year Growth Rate
Payout Ratio (TTM)
Growth Rates (%)
Sales (MRQ) vs Qtr. 1 Yr. Ago
Sales (TTM) vs TTM 1 Yr. Ago
Sales - 5 Yr.Growth Rate
EPS (MRQ) vs Qtr. 1 Yr. Ago
EPS (TTM) vs TTM 1 Yr. Ago
EPS - 5 Yr. Growth Rate
Capital Spending - 5 Yr.
Growth Rate
Financial Strength
Quick Ratio (MRQ)
Current Ratio (MRQ)
LT Debt to Equity (MRQ)
Total Debt to Equity (MRQ)
Interest Coverage (TTM)
Profitability Ratios (%)
Gross Margin (TTM)
Gross Magin - 5 Yr. Avg.
EBITD Margin (TTM)
EBITD - 5 Yr. Avg.
Operating Margin (TTM)
Operating Margin - 5 Yr. Avg.
Pre-Tax Margin (TTM)
Pre-Tax Margin - 5 Yr. Avg.
Net Profit Margin (TTM)
Net Profit Margin -5 Yr. Avg.
Effective Tax Rate (TTM)
Effective Tax Rate - 5 Yr. Avg.
Management Effectiveness
(%)
Return On Assets (TTM)
Return On Assets - 5 Yr. Avg.
Return On Investment (TTM)
Return On Investment - 5 Yr.
Avg.
Return On Equity (TTM)
Return On Equity - 5 Yr. Avg.
Efficiency
Revenue/Employee (TTM)
Receivable Turnover (TTM)
Inventory Turnover (TTM)
Asset Turnover (TTM)
Source: Yahoo.com, 1999.

NA
2.78
5.01
NM
NM
NM
29.70

15.93
1.41
1.81
3.99
4.42
17.31
49.32

16.57
0.96
4.94
4.96
7,65
19.60
42.41

17.12
1.00
6.96
8.70
12.17
25.60
57.00

NA
NA
NM
0.00

1.88
0.32
21.31
3.11

1.98
1.21
0.93
17.26

1.57
1.20
8.96
23.35

79.29
102.67
652.65
NM
NA
NM
534.11

29.31
34.08
20.34
21.41
26.65
26.31
11.90

30.87
25.83
26.91
14.21
18.16
22.80
28.47

26.07
24.33
20.67
28.82
26.02
21.38
19.26

1.37
1.77
NM
NM
-7.01

0.62
2.00
0.44
0.53
12.23

1.02
1.51
0.78
0.97
5.42

1.23
1.76
0.57
0.86
9.68

21.06
20.21
-19.97
-29.67
-32.13
-35.46
-34.84
-35.82
-34.84
-35.82
NM
NM

28.92
28.50
3.71
2.37
0.34
-0.44
0.39
-0.89
-2.58
-2.86
38.16
39.42

41.48
40.29
20.19
19.20
11.13
10.24
10.83
8.67
4.47
2.84
37.12
38.44

50.37
48.55
23.09
21.74
18.37
17.65
18.12
17.10
12.83
10.69
34.71
35.41

-35.33
-54.49
-46.56
-94.49
NM
-203.02

1.21
-1.89
3.20
-4.96
15.89
16.38

4.11
4.82
6.41
6.95
11.57
13.92

10.29
8.89
14.16
14.04
23.32
22.34

392,990.00
41.51
6.72
2.25

377,981.00
12.97
13.06
0.99

516,316.
00
8.98
9.81
1.00

324,430.00
NM
11.48
1.01

704

AMAZON.COM - FROM START-UP TO THE NEW MILLENNIUM

While the outlook is positive, there are numerous risks and uncertainties
that could negatively affect this potential.
With a limited operating history and the upredictability of the
industry, Amazon.com (currently in a highly debt-leveraged position) has
an accumulated deficit and anticipiated further losses. Aggressive pricing
has further resulted in low product gross margins, requiring Amazon.com
to generate and sustain substantially higher revenues in order to become
profitable. The current growth rate may be unsustainable and the
percentage growth rate is expected to decrease into the future.
Amazon.com is therefore expected to incur substantial operating losses
for the foreseeable future, and these losses may be significantly higher
than its current losses. Combined with this is evidence that investors may
be getting impatient with Amazon.com showing no signs of profit. If
investor confidence continues to flag, Amazon.com could find itself
gasping for capital just when it needs more to complete with a grow-ing
competitor base (Business Week, 1999, p. 52).
The online commerce market is new, rapidly evolving and intensely
competitive. Competition in the Internet and online commerce markets is
expected to intensify as various Internet market segments obtain large,
loyal customer bases, and participants in those segments may use their
market power to expand into markets in which Amazon.com operates. In
addition, new and expanded Web technologies may increase the
competitive pressure on online retailers. This increased competition may
reduce Amazon.com's operating margins further, diminish its market
share or impair the value of its brand. These risks will intensify as
Amazon.com continues its international expansion as well as expansion
into new business areas.
As Amazon.com continues to expand its operations by entering into business
combinations, investments, joint ventures or other strategic alliances with other
companies, so the risks increase. These include the difficulty associated with
assimilating the operations, technology and personnel of the combined companies, and
the additional operating losses and expenses of acquired business. Combined with this
is the requirement for rapid technological development on a cost-effective and timely
basis. Amazon.com will need to adapt quickly to changing customer requirements and
industry standards. Other risks involve its reliance on key suppliers, systems reliance,
and domain name risks as well as intellectual property protection.
As Amazon.com continues to develop, these factors together with broad market
and industry fluctuations may adversely affect the business and its financial situation.
The future may look rosy or bleak. Reflecting upon 2000, Jeff Bezos acknowledged that it
had been a brutal year and during the year rumours began to circulate that

Amazon.com might be taken over by Wal-Mart. Nevertheless, Amazon.com served 20

million customers in 2000, up from 14 million in 1999, and sales grew to US$2.76bn
from US$1.64bn. Operating loss shrank to 6 per cent of sales in the fourth quarter 2000
from 26 per cent in the comparable 1999 period. Bezos revealed, in a letter released in
a Securities and Exchange Commission filing, that his top priority was to achieve an
operating profit in the fourth quarter 2001. In a separate filing, Amazon.com indicated
that in 2000, Bezos had a base salary of US$81,840, the same as in 1999 and 1998. He
owned 32.4 per cent of the company. During February 2001,
AMAZON.COM - FROM START-UP TO THE NEW MILLENNIUM

705

Amazon.com announced that it would slash up to 1,300 jobs and on 12

April 2001, Amazon.com shares closed at US$14.67. During the past 52
weeks, the stock had seen lows of US$8.10 and had moved as high as
US$68.44. Reflecting upon these results as well as upon his hopes for the
future, Jeff Bezos concluded:
Online retailing won't replace in[store retailing. I've never said that.
But I do think it can be a different, enriching experience... Our mission is
to create a new level of expectation in customers, which will cause all
companies to raise their level. And if we can do that, that would be truly
meaningful. That'll be something we can tell our grandchildren about.
That's the difference between a mission and a job. If it's a job, then you
won't have stories to tell your grandchildren.

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Amazon.com (1999) www.amazon.com
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Amazon.com (2001) www.amazon.com
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