After being given an excellent bill of health post Q1 2009, especially given the poor economy, rough news came from the world's largest internet retailer.
Last Friday, Amazon.com announced that it would pay $51 million to settle a breach of contract lawsuit filed against the online retailer by Toys R Us in May of 2004. In a regulatory document filed with the Securities and Exchange Commision, Amazon stated that the payment must be delivered in quarter three of 2009, but will be accounted for in the retailer's second quarter earnings. According to Amazon, in response, Toys R Us has agreed to dismiss all claims.
After unsuccessfully attempting to develop its own online presence, Toys R Us teamed up with Amazon by agreeing to pay $200 million for exclusive rights to sell certain products on Amazon.com.
The lawsuit, which ended the relationship between the two retailers, accused Amazon of selling products online in which the companies had agreed Toys R Us would have exclusive rights. More specifically, Toys R Us claimed that Amazon violated the terms of their partnership, which began in 2000, by allowing other merchants to sell certain toys on Amazon.com.
In response to the suit by Toys R Us, Amazon filed a counterclaim, and a request to prematurely end the agreement. Amazon alleged that Toys R Us failed to fulfill contractual obligations due to the inability to supply demand for top selling products and solicited $750 million in damages. In March of 2006, a New Jersey Superior Court sided with Toys R Us which lead to the partnership being extinguished.
According to Imran Khan, a J.P. Morgan analyst, the payment reduces Amazon's Q2 and full-year EPS by $0.08, to $0.20 and $1.45 respectively.
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