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10/25/2005
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Amazon Profits Plummet On Lawsuit Settlement

Settlement of a patent lawsuit drives down the online retailer's profits 45% in its third quarter, although sales increased by 27%.

Online retailer Amazon.com Inc. reported a 45 percent drop in profit in the third quarter due to the settlement of a patent lawsuit, but said sales increased by 27 percent.

The Seattle-based company said net income was $30 million, or seven cents a share, in the quarter ended Sept. 30, compared with $54 million, or 13 cents a share in the same period a year ago. Net sales, however, increased to $1.85 billion from $1.46 billion a year ago.

Profits fell sharply due a one-time payment of $40 million in the quarter to settle a patent lawsuit. The settlement was announced in August. With out the payout, which was $20 million after tax, net income would have been $50 million, or 12 cents a share.

Among the revenue drivers in the quarter were sales of the fantasy book "Harry Potter and the Half-Blood Prince." The company sold 1.6 million copies, making it Amazon.com's largest new product release, officials said.

For the fourth quarter, the company expected net sales of between $2.86 billion and $3.16 billion, or between 13 percent and 24 percent higher than the fourth quarter a year ago. For the full year, net sales are expected to be between $8.373 billion and $8.673 billion, or between 21 percent and 25 percent more than 2004.

Operating income for the quarter was expected to range from $135 million to $210 million, or from a decline of 17 percent to an increase of 29 percent from a year ago. The guidance includes $30 million for stock-based compensation and amortization of intangible assets.

For the full year, operating income was expected to range between $403 million and $478 million, or from a decline of 9 percent to an increase of 8 percent from 2004. Thr guidance includes $144 million for stock-based compensation, amortization of intangible assets and the $40 million legal settlement.

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