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Amazon may add more know-how to board

Chief Executive Jeff Bezos praises company directors, and he says increasing the company's operational expertise by adding one or two more members would "make sense." may expand its board of directors to add more operational experience, Chief Executive Jeff Bezos said at the company's annual shareholder meeting Wednesday.

Investors have scrutinized Bezos and Amazon, expressing concern about mounting losses and a stock that plummeted more than 60 percent in the last year. At the meeting, shareholders raised questions not only about the makeup of the Seattle-based company's board, but about its $2.1 billion long-term debt, the million-dollar bonuses it awarded some of its executives and the steps the company is taking to reach profitability.

Bezos deflected most shareholder concerns, painting a bright picture of his company. "The No. 1 reason we're in a leading position today is we've done such a good job for customers," he said.

He praised Amazon directors John Doerr, Scott Cook, Tom Alberg and Patty Stonesifer, all of whom come from a technology background, saying they had brought operational expertise and practical experience to the company. But Bezos said Amazon might benefit from having more directors.

"We've got a great board," Bezos said. "Having said that, it might make sense to add one or two board members. One of the things we would look for is increasing even further the operational expertise that we have on the board."

Shareholders and outside groups have criticized the makeup of Amazon's board of directors in recent weeks. Among their criticisms were the board's relatively small size, its apparent lack of independence from Bezos and its paucity of retail experience.

The New York Society of Security Analysts has held a series of forums on Amazon's corporate governance that have become a chief outlet for complaints about how the company is being run. Shareholders echoed many of the questions the group has raised in its forums and in letters to Amazon's directors.

One of the chief questions the group has raised of Amazon concerns its use of pro forma numbers in its earnings reports. Pro forma numbers are a kind of hypothetical earnings report, and in Amazon's case exclude the company's interest payments on its debt as well as many non-cash charges.

Bezos emphasized that the company is focused on achieving a pro forma operating profit in the fourth quarter. "Everyone in the company is laser focused on that. We have a plan to achieve that and are very comfortable that we will achieve it."

When one shareholder asked Bezos to compare Amazon's pro forma losses it reports on its earnings releases with the net losses it reports in its regulatory filings, Bezos directed him to the company's latest earnings release, which did a detailed comparison of the two numbers.

Similarly Bezos sought to put the best light on questions about the company's debt and other controversial matters. Amazon pays about $100 million in interest on its $2.1 billion debt, he said. Those interest payments are only about 3 percent of Amazon's annual sales, which means the company should not have a problem coming up with the money to pay them.

He emphasized that most of Amazon's $2.1 billion debt is not due until 2009, which should give the company enough time to grow enough to pay it off.

"If that were short-term debt, it would bother me," he said. "While various people can disagree about how we did it, the important bit is that we raised the money we need to move forward and build a lasting company."

In a regulatory filing last month, Amazon said it was considering restructuring its debt. Some analysts have suggested that Amazon will eventually offer to convert some of its outstanding bonds to stock at a higher price than they are currently trading, but at a lower price than their face value.

Bezos also fended off questions about the compensation paid to some of Amazon's executives, particularly to Diego Piacentini, the company's senior vice president of international operations. Amazon gave Piacentini a $1 million signing bonus and a $666,667 special bonus last year on top of his $175,000 salary.

Amazon is trying to build a great team, Bezos said. To attract top-notch executives, the company has to offer competitive salaries, he said.

"Certainly Diego is very highly compensated," Bezos said. "But he's worth it. He's making a big difference to the company and to shareholders."

Amazon international businesses posted a $145 million pro forma operating loss in 2000 on $381 million in sales. The international businesses posted a $79 million operating loss in 1999 on $168 million in sales.