E-commerce bellwether Amazon (Nasdaq: AMZN) is restructuring some deals with certain partners in its Amazon Commerce Network (ACN), according to a quarterly report filed with the U.S. Securities and Exchange Commission (SEC).
Recognized revenue from ACN agreements was reduced by a total of $2.9 million (US$) for the quarter ended June 30th, as a result of adjustments Amazon made to reflect the restructuring.
The uncertain nature of e-commerce and the poor financial condition of some of its ACN partners led the company to the restructuring, according to the filing. Amazon asked the partners to accept lower future cash payments, revisions to the related term of the agreements, or both.
Amazon’s Network in the Red
Amazon launched ACN in 1999 and has made minority investments in a variety of private and public companies, including Drugstore.com, Pets.com and Gear.com. Many of the ACN partners also sell products and services through co-branded sections of the Amazon Web site.
Unfortunately, Amazon’s partners are not a profitable lot. During the recently completed quarter, the company recorded $109.9 million in equity-method losses for investments in ACN partners.
Revenues during the same period were $24.3 million, consisting of $4.2 million of cash, $19.2 million of equity securities of public companies, and $0.9 million of equity securities of private companies.
For the six-month period ended June 30th, ACN investments recorded by Amazon totaled $197.8 million. The company said that it accounts for investments in nine of its 15 ACN partners using the equity method. These partners, according to the filing, “are likely to experience large losses for the foreseeable future and may not be successful.”
Home Grocer Sale Reflected
HomeGrocer.com (Nasdaq: HOMG), one of Amazon’s e-commerce partners, was recently sold to Webvan.com. Because of this deal, Amazon says that it no longer can account for its investment under the equity method because Amazon will not have “the ability to exercise significant influence over the combined entity.”
Amazon also said that it had agreed to certain restrictions on the sale of the Webvan common stock it will receive when the transaction is completed.
Digging a Hole …
As it has every quarter since its launch five years ago, Amazon lost money in the past quarter. Pro forma operating losses of 2000 were $89 million, compared to $67 million for the same period last year. The company’s latest financial filing said that through June 30, Amazon had an accumulated deficit of $1.51 billion.
“While we expect to generate income on a pro forma operating basis in our U.S. Books, Music and DVD/video segment for the full year in 2000,” the filing said, “we are incurring substantial operating losses and will continue to incur such losses for the foreseeable future. These losses may be significantly higher than our current losses.”
… and Then Some
Not only was Amazon approximately $2.15 billion in debt at the end of June, Amazon said it could “incur substantial additional debt in the future.” These liabilities could make it difficult to pay its creditors and obtain additional financing, the company said.
“We may not be able to meet our debt service obligations,” the company added. “If our cash flow is inadequate to meet our obligations, we may face substantial liquidity problems.”
However, Amazon does believe that “current cash and marketable securities balances will be sufficient to meet its anticipated cash needs for at least the next 12 months.” Furthermore, Amazon predicts that it will generate positive cash flow from operations for the remainder of the year.