10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 ____________________________________

Form 10-Q

____________________________________ 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to             .

Commission File No. 000-22513

____________________________________

Amazon.com, Inc.

(Exact Name of Registrant as Specified in its Charter)

 ____________________________________

Delaware	91-1646860
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

410 Terry Avenue North, Seattle, WA 98109-5210

(206) 266-1000

(Address and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 ____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

462,036,113 shares of common stock, par value $0.01 per share, outstanding as of July 16, 2014

AMAZON.COM, INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2014

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Consolidated Statements of Cash Flows	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Balance Sheets	6
	Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4	Controls and Procedures	29
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	31
Item 1A	Risk Factors	31
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3	Defaults Upon Senior Securities	39
Item 4	Mine Safety Disclosures	39
Item 5	Other Information	39
Item 6	Exhibits	39
Signatures		40

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,						Twelve Months Ended   June 30,
	2014			2013			2014			2013			2014			2013
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$	5,074		$	4,481		$	8,658		$	8,084		$	3,704		$	2,335
OPERATING ACTIVITIES:
Net income (loss)	(126		)	(7		)	(18		)	75			181			(101		)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and website development, and other amortization	1,109			756			2,119			1,457			3,916			2,673
Stock-based compensation	391			298			711			526			1,318			978
Other operating expense (income), net	28			32			62			63			113			139
Losses (gains) on sales of marketable securities, net	(1		)	—			(1		)	—			1			(6		)
Other expense (income), net	(8		)	42			(57		)	110			(1		)	367
Deferred income taxes	(49		)	21			(234		)	(58		)	(332		)	(243		)
Excess tax benefits from stock-based compensation	—			—			(121		)	—			(199		)	(304		)
Changes in operating assets and liabilities:
Inventories	92			(30		)	791			505			(1,124		)	(1,116		)
Accounts receivable, net and other	(299		)	(211		)	428			518			(936		)	(922		)
Accounts payable	(344		)	—			(5,018		)	(4,187		)	1,056			1,962
Accrued expenses and other	(15		)	(77		)	(746		)	(780		)	770			728
Additions to unearned revenue	894			516			1,986			1,200			3,477			2,217
Amortization of previously unearned revenue	(810		)	(460		)	(1,542		)	(921		)	(2,913		)	(1,840		)
Net cash provided by (used in) operating activities	862			880			(1,640		)	(1,492		)	5,327			4,532
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website development	(1,290		)	(855		)	(2,370		)	(1,526		)	(4,288		)	(4,267		)
Acquisitions, net of cash acquired, and other	(67		)	(148		)	(66		)	(251		)	(127		)	(323		)
Sales and maturities of marketable securities and other investments	962			696			1,555			1,296			2,565			2,544
Purchases of marketable securities and other investments	(336		)	(1,113		)	(773		)	(1,888		)	(1,710		)	(3,774		)
Net cash provided by (used in) investing activities	(731		)	(1,420		)	(1,654		)	(2,369		)	(3,560		)	(5,820		)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation	—			—			121			—			199			304
Proceeds from long-term debt and other	286			81			351			107			627			3,274
Repayments of long-term debt, capital lease, and finance lease obligations	(475		)	(290		)	(836		)	(473		)	(1,363		)	(748		)
Net cash provided by (used in) financing activities	(189		)	(209		)	(364		)	(366		)	(537		)	2,830
Foreign-currency effect on cash and cash equivalents	41			(28		)	57			(153		)	123			(173		)
Net increase (decrease) in cash and cash equivalents	(17		)	(777		)	(3,601		)	(4,380		)	1,353			1,369
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,057		$	3,704		$	5,057		$	3,704		$	5,057		$	3,704
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long-term debt	$	31		$	39		$	49		$	52		$	94		$	68
Cash paid for income taxes (net of refunds)	71			34			109			120			158			193
Property and equipment acquired under capital leases	920			447			1,636			787			2,716			1,233
Property and equipment acquired under build-to-suit leases	237			244			363			394			846			392

See accompanying notes to consolidated financial statements.

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AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Net product sales	$	15,251		$	12,752		$	30,956		$	26,023
Net services sales	4,089			2,952			8,125			5,751
Total net sales	19,340			15,704			39,081			31,774
Operating expenses (1):
Cost of sales	13,399			11,209			27,453			23,010
Fulfillment	2,382			1,837			4,699			3,633
Marketing	943			675			1,813			1,307
Technology and content	2,226			1,586			4,217			2,969
General and administrative	377			286			704			531
Other operating expense (income), net	28			32			63			64
Total operating expenses	19,355			15,625			38,949			31,514
Income (loss) from operations	(15		)	79			132			260
Interest income	11			9			21			19
Interest expense	(45		)	(33		)	(87		)	(66		)
Other income (expense), net	22			(38		)	27			(115		)
Total non-operating income (expense)	(12		)	(62		)	(39		)	(162		)
Income (loss) before income taxes	(27		)	17			93			98
Benefit (provision) for income taxes	(94		)	(13		)	(167		)	6
Equity-method investment activity, net of tax	(5		)	(11		)	56			(29		)
Net income (loss)	$	(126	)	$	(7	)	$	(18	)	$	75
Basic earnings per share	$	(0.27	)	$	(0.02	)	$	(0.04	)	$	0.16
Diluted earnings per share	$	(0.27	)	$	(0.02	)	$	(0.04	)	$	0.16
Weighted average shares used in computation of earnings per share:
Basic	461			456			460			455
Diluted	461			456			460			463
_____________
(1)    Includes stock-based compensation as follows:
Fulfillment	$	104		$	81		$	184		$	142
Marketing	32			24			59			40
Technology and content	206			155			375			274
General and administrative	49			38			93			70

See accompanying notes to consolidated financial statements.

4

AMAZON.COM, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited)

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Net income (loss)	$	(126	)	$	(7	)	$	(18	)	$	75
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $0, $(4), $1 and $(13)	11			7			39			(71		)
Net change in unrealized gains on available-for-sale securities:
Unrealized gains (losses), net of tax of $0, $3, $(1) and $4	3			(7		)	4			(9		)
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0, $0, $0 and $0	(1		)	—			(1		)	—
Net unrealized gains (losses) on available-for-sale securities	2			(7		)	3			(9		)
Total other comprehensive income (loss)	13			—			42			(80		)
Comprehensive income (loss)	$	(113	)	$	(7	)	$	24		$	(5	)

See accompanying notes to consolidated financial statements.

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AMAZON.COM, INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

	June 30, 2014			December 31, 2013
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,057		$	8,658
Marketable securities	2,929			3,789
Inventories	6,644			7,411
Accounts receivable, net and other	4,125			4,767
Total current assets	18,755			24,625
Property and equipment, net	14,089			10,949
Goodwill	2,677			2,655
Other assets	2,377			1,930
Total assets	$	37,898		$	40,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	10,457		$	15,133
Accrued expenses and other	6,688			6,688
Unearned revenue	1,606			1,159
Total current liabilities	18,751			22,980
Long-term debt	3,119			3,191
Other long-term liabilities	5,426			4,242
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 500
Issued and outstanding shares — none	—			—
Common stock, $0.01 par value:
Authorized shares — 5,000
Issued shares — 486 and 483
Outstanding shares — 462 and 459	5			5
Treasury stock, at cost	(1,837		)	(1,837		)
Additional paid-in capital	10,405			9,573
Accumulated other comprehensive loss	(143		)	(185		)
Retained earnings	2,172			2,190
Total stockholders’ equity	10,602			9,746
Total liabilities and stockholders’ equity	$	37,898		$	40,159

See accompanying notes to consolidated financial statements.

6

AMAZON.COM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 — ACCOUNTING POLICIES

Unaudited Interim Financial Information

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2014 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2013 Annual Report on Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and those entities in which we have a variable interest and of which we are the primary beneficiary (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes, valuation and impairment of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software and website development costs, acquisition purchase price allocations, investments in equity interests, and contingencies. Actual results could differ materially from those estimates.

Earnings per Share

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.

The following table shows the calculation of diluted shares (in millions):

	Three Months Ended   June 30,		Six Months Ended   June 30,
	2014	2013	2014	2013
Shares used in computation of basic earnings per share	461	456	460	455
Total dilutive effect of outstanding stock awards	—	—	—	8
Shares used in computation of diluted earnings per share	461	456	460	463

Equity-method Investments

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the

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related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes operating and non-operating gains and charges, which can have a significant impact on our reported equity-method investment activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due.

We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the investment under the equity method.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

Note 2 — CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

As of June 30, 2014, and December 31, 2013, our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities. Cash equivalents and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold any cash, cash equivalents, or marketable securities categorized as Level 3 as of June 30, 2014 or December 31, 2013.

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The following table summarizes, by major security type, our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions):

	June 30, 2014										December 31, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Total Estimated Fair Value			Total Estimated Fair Value
Cash	$	2,962	$	—	$	—		$	2,962		$	3,008
Level 1 securities:
Money market funds	2,462		—		—			2,462			5,914
Equity securities	2		1		—			3			4
Level 2 securities:
Foreign government and agency securities	358		2		—			360			758
U.S. government and agency securities	1,799		2		(2		)	1,799			2,222
Corporate debt securities	681		4		—			685			741
Asset-backed securities	68		—		—			68			65
Other fixed income securities	36		—		—			36			36
	$	8,368	$	9	$	(2	)	$	8,375		$	12,748
Less: Restricted cash, cash equivalents, and marketable securities (1)								(389		)	(301		)
Total cash, cash equivalents, and marketable securities								$	7,986		$	12,447

___________________

(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions. We classify cash and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 3 — Commitments and Contingencies.”

The following table summarizes the contractual maturities of our cash equivalent and marketable fixed-income securities as of June 30, 2014 (in millions):

	Amortized Cost		Estimated Fair Value
Due within one year	$	3,598	$	3,599
Due after one year through five years	1,462		1,467
Due after five years through ten years	126		126
Due after ten years	218		218
	$	5,404	$	5,410

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.

Note 3 — COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating, capital, and financing leases for equipment and office, fulfillment center, and data center facilities. Rental expense under operating lease agreements was $229 million and $180 million for Q22014 and Q22013, and $448 million and $348 million for the six months ended June 30, 2014 and 2013.

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The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of June 30, 2014 (in millions):

	Six Months Ended December 31,		Year Ended December 31,
	2014		2015		2016		2017		2018		Thereafter		Total
Operating and capital commitments:
Debt principal and interest	$	276	$	1,485	$	81	$	1,081	$	69	$	1,375	$	4,367
Capital leases, including interest	1,012		1,482		693		186		98		129		3,600
Financing lease obligations, including interest	34		68		69		70		72		658		971
Operating leases	423		752		714		636		563		2,472		5,560
Unconditional purchase obligations (1)	304		517		250		214		61		47		1,393
Other commitments (2) (3)	525		583		269		149		119		1,325		2,970
Total commitments	$	2,574	$	4,887	$	2,076	$	2,336	$	982	$	6,006	$	18,861

___________________

(1) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital content that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.

(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that have not been placed in service and digital content liabilities associated with long-term digital content assets with initial terms greater than one year.

(3) Excludes $590 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

Pledged Assets

As of June 30, 2014, and December 31, 2013, we have pledged or otherwise restricted $550 million and $482 million of our cash, marketable securities, and certain property and equipment as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions.

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 8 — Commitments and Contingencies — Legal Proceedings” of our 2013 Annual Report on Form 10-K and in Item 1 of Part I, "Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings" of our Quarterly Report on Form 10-Q for the Period Ended March 31, 2014, as supplemented by the following:

In April 2011, Walker Digital LLC filed several complaints against Amazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware.  The complaints allege that we infringe several of the plaintiff’s U.S. patents by, among other things, providing “cross benefits” to customers through our promotions (U.S. Patent Nos. 7,831,470 and 7,827,056), using a customer’s identified original product to offer a substitute product (U.S. Patent No. 7,236,942), using our product recommendations and personalization features to offer complementary products together (U.S. Patent Nos. 6,601,036 and 6,138,105), enabling customers to subscribe to a delivery schedule for products they routinely use at reduced prices (U.S. Patent No. 5,970,470), and offering personalized advertising based on customers’ preferences identified using a data pattern (U.S. Patent No. 7,933,893).  Another complaint, filed in the same court in October 2011, alleges that we infringe plaintiff’s U.S. Patent No. 8,041,711 by offering personalized advertising based on customer preferences that associate data with resource locators. Another complaint, filed in the same court in February 2012, alleges that we infringe plaintiff’s U.S. Patent No. 8,112,359 by using product information received from customers to identify and offer substitute products using a manufacturer database.  In January 2013, the plaintiff filed another complaint in the same court alleging that we infringe U.S. Patent No. 6,381,582 by allowing customers to make local payments for products ordered online. All of the complaints seek monetary damages, interest, injunctive relief, costs, and attorneys’ fees.  In March 2013, the complaints asserting U.S. Patent Nos. 7,236,942 and 7,933,893 were voluntarily dismissed with prejudice. In April 2013, the case asserting U.S. Patent No.

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8,041,711 was stayed pending final resolution of the reexamination of that patent. In June 2013, the court granted defendants’ motions to dismiss the complaints asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359 for lack of standing.  In July 2013, we filed motions seeking entry of a final judgment dismissing those claims with prejudice and for attorneys' fees, and plaintiff filed notices of appeal from the June 2013 order granting the motions to dismiss.   In October 2013, the court ruled that its dismissals are with prejudice, and Walker has appealed those rulings. In March 2014, the court stayed the case asserting U.S. Patent Nos. 6,601,036 and 6,138,105 pending the appeal of the cases asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 7,236,942.  We dispute the remaining allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In December 2011, Round Rock Research, LLC filed a complaint against Amazon.com, Inc. in the United States District Court for the District of Delaware.  The complaint alleges, among other things, that “RFID products” and “Kindle products with unlicensed DRAM” infringe: U.S. Patent Nos. 5,500,650 and 5,627,544, entitled “Data Communication Method Using Identification Protocol”; U.S. Patent No. 5,974,078, entitled "Modulated Spread Spectrum In RF Identification Systems Method”; U.S. Patent No. 6,459,726, entitled “Backscatter Interrogators, Communication Systems And Backscatter Communication Methods”; U.S. Patent No. RE41,531, entitled “Communications Systems For Radio Frequency Identification (RFID)”; U.S. Patent Nos. 6,975,556 and 7,106,646, entitled “Circuit And Method For Controlling A Clock Synchronizing Circuit For Low Power Refresh Operation”; U.S. Patent No. 7,221,020, entitled “Method To Construct A Self Aligned Recess Gate For DRAM Access Devices”; and U.S. Patent No. 7,389,369, entitled “Active Termination Control.”  In February 2012, the plaintiff filed an amended complaint that further alleges, among other things, that Kindle products allegedly including “unlicensed flash memory” infringe U.S. Patent No. 5,801,985, entitled “Memory System Having Programmable Control Parameters” and U.S. Patent No. 5,880,996, entitled “Memory System Having Non-Volatile Data Storage Structure For Memory Control Parameters And Method.”  In April 2012, the plaintiff filed a second amended complaint further alleging, among other things, that “RFID products” infringe U.S. Patent No. 5,266,925, entitled “Electronic Tag Interrogation Method,” U.S. Patent No. 5,583,850, entitled “Data Communication System Using Identification Protocol,” U.S. Patent No. 5,986,570, entitled “Method For Resolving Signal Collisions Between Multiple RFID Transponders In A Field,” U.S. Patent No. 7,265,674, entitled “Thin, Flexible RFID Labels, And Methods And Apparatus For Use,” and U.S. Patent No. RE41,562, entitled “System And Method For Electronic Tracking Of Units Associated With A Batch.”  The second amended complaint seeks an unspecified amount of damages, enhanced damages, interest, costs, and attorneys’ fees.  In April 2012, the case was stayed pending reexamination of ten of the asserted patents.  In April 2014, Round Rock dismissed without prejudice its claims concerning U.S. Patent Nos. 6,975,556, 7,106,646, 7,221,020, and 7,389,369.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In March 2012, OIP Technologies, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the United States District Court for the Northern District of California. The complaint alleged, among other things, that certain aspects of our pricing methods infringed U.S. Patent No. 7,970,713, entitled “Method And Apparatus For Automatic Pricing In Electronic Commerce.” The complaint sought three times an unspecified amount of damages, attorneys’ fees, and interest. In September 2012, the court invalidated the plaintiff’s patent and dismissed the case with prejudice. In September 2012, OIP appealed the judgment of the district court to the United States Court of Appeals for the Federal Circuit, which, in November 2012, stayed all proceedings pending its decision in a separate case that raises a related question of law and, in June 2013, continued the stay pending a decision by the United States Supreme Court. In July 2014, the court of appeals lifted the stay.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In April 2014, Spansion LLC filed complaints for patent infringement against Amazon.com, Inc. in both the United States District Court for the Northern District of California and the United States International Trade Commission. The complaints allege, among other things, that the Amazon Kindle Paperwhite infringes U.S. Patent No. 6,246,611, entitled “System For Erasing A Memory Cell,” and U.S. Patent No. 6,744,666, entitled “Method And System To Minimize Page Programming Time For Flash Memory Devices.” The district court complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, interest, and injunctive relief. The International Trade Commission complaint seeks an exclusion order preventing the importation of Kindle Paperwhites into the United States, as well as a cease-and-desist order barring sale of Kindle Paperwhites after importation. In June 2014, the district court case was stayed pending resolution of the International Trade Commission action. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In June 2014, SimpleAir, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas.  The complaint alleges, among other things, that Amazon Device Messaging and Simple Notification Service infringe U.S Patent Nos. 7,035,914, 8,090,803, 8,572,279, 8,601,154, and 8,639,838, all of which are entitled “System and Method for Transmission of Data.” The complaint seeks an unspecified amount of damages, pre-judgment interest, costs, attorneys’ fees, enhanced damages, and injunctive relief.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In June 2014, Enterprise Systems Technologies S.a.r.l. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas.  The complaint alleges, among other things, that Amazon’s sale of consumer electronics from Apple, Samsung, and Motorola infringes U.S. Patent No. 5,870,610, entitled “Autoconfigurable Method And

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System Having Automated Downloading,” U.S. Patent No. 6,785,381, entitled “Telephone Having Improved Hands Free Operation Audio Quality And Method Of Operation Thereof,” U.S. Patent No. 6,549,366, entitled “Headset/Radio Audio Sensing Jack,” and U.S. Patent No. 7,454,201, entitled “System For Providing Messages Through A Private Network And Mobile Station.”  The complaint further alleges that Kindle Fire HDX devices infringe U.S. Patent No. 6,236,642, entitled “Apparatus And Method For Network Resource Preservation.”  The complaint seeks an unspecified amount of damages, interest, costs, and attorneys’ fees.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period.  In addition, for some matters for which a loss is probable or reasonably possible, an estimate of the amount of loss or range of loss is not possible and we may be unable to estimate the possible loss or range of loss that could potentially result from the application of non-monetary remedies.

See also “Note 7 — Income Taxes.”

Note 4 — EQUITY-METHOD INVESTMENTS

LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in millions):

	Six Months Ended   June 30,
	2014			2013
Statements of Operations:
Revenue	$	152		$	205
Gross profit	120			154
Operating expenses	174			199
Operating loss from continuing operations	(54		)	(45		)
Net loss from continuing operations	(39		)	(42		)
Net income (loss) from discontinued operations (1)	204			(35		)
Net income (loss)	$	165		$	(77	)

___________________

(1) In January 2014, LivingSocial completed the sale of its Korean operations for approximately $260 million and, in Q1 2014, recognized a gain on disposal of $205 million, net of tax. The statement of operations information above has been recast to present the Korean operations as discontinued operations.

As of June 30, 2014, our total investment in LivingSocial is approximately 31% of voting stock and has a book value of $94 million.

Note 5 — LONG-TERM DEBT

In November 2012, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below (collectively, the “Notes”). As of June 30, 2014, and December 31, 2013, the unamortized discount on the Notes was $21 million and $23 million. We also have other long-term debt with a carrying amount, including the current portion, of $1.0 billion and $967 million as of June 30, 2014 and December 31, 2013. The face value of our total long-term debt obligations is as follows (in millions):

	June 30, 2014			December 31, 2013
0.65% Notes due on November 27, 2015	$	750		$	750
1.20% Notes due on November 29, 2017	1,000			1,000
2.50% Notes due on November 29, 2022	1,250			1,250
Other long-term debt	1,000			967
Total debt	4,000			3,967
Less current portion of long-term debt	(860		)	(753		)
Face value of long-term debt	$	3,140		$	3,214

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The effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%. Interest on the Notes is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9 billion as of June 30, 2014 and December 31, 2013, which is based on quoted prices for our publicly-traded debt as of those dates.

The other debt, including the current portion, had a weighted average interest rate of 5.6% and 5.5% as of June 30, 2014 and December 31, 2013. We used the net proceeds from the issuance of the debt to primarily fund certain international operations. The estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of June 30, 2014 and December 31, 2013.

Note 6 — STOCKHOLDERS' EQUITY

Stock Repurchase Activity

In January 2010, our Board of Directors authorized the Company to repurchase up to $2.0 billion of our common stock with no fixed expiration. We have $763 million remaining under the $2.0 billion repurchase program.

Stock Award Activity

Common shares outstanding plus shares underlying outstanding stock awards totaled 480 million as of June 30, 2014, and 476 million as of December 31, 2013. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. The following table summarizes our restricted stock unit activity for the six months ended June 30, 2014 (in millions):

	Number of Units		Weighted Average Grant-Date Fair Value
Outstanding as of December 31, 2013	16.3		$	233
Units granted	5.1		332
Units vested	(2.6	)	192
Units forfeited	(1.2	)	251
Outstanding as of June 30, 2014	17.6		$	266

Scheduled vesting for outstanding restricted stock units as of June 30, 2014, is as follows (in millions):

	Six Months Ended December 31,	Year Ended December 31,
	2014	2015	2016	2017	2018	Thereafter	Total
Scheduled vesting—restricted stock units	2.6	5.9	5.7	2.4	0.7	0.3	17.6

As of June 30, 2014, there was $2.2 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the compensation expected to be expensed in the next twelve months, and has a weighted average recognition period of 1.2 years.

Note 7 — INCOME TAXES

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions (including integrations) and investments, audit developments, foreign currency gains (losses), changes in law, regulations, and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile

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based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

In 2014, our effective tax rate will be significantly affected by the favorable impact of earnings in lower tax rate jurisdictions and the adverse effect of losses incurred in certain foreign jurisdictions for which we may not realize a tax benefit. Income earned in lower tax jurisdictions is primarily related to our European operations, which are headquartered in Luxembourg. Losses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit. Our effective tax rate may also be adversely impacted by the amount of our pretax income relative to our income tax expense, nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at the end of 2013.

Tax expense for the six months ended June 30, 2014 was $167 million, which included $91 million of discrete tax items primarily attributable to audit-related developments. In the six months ended June 30, 2013, we recognized an income tax benefit of $6 million, which included $51 million of discrete tax benefits primarily resulting from the retroactive reinstatement of the federal research and development credit that was enacted in January 2013.

Cash paid for income taxes (net of refunds) was $71 million and $34 million in Q22014 and Q22013, and $109 million and $120 million for the six months ended June 30, 2014 and 2013.

As of June 30, 2014, and December 31, 2013, tax contingencies were $590 million and $407 million. We expect the total amount of tax contingencies will grow in 2014. In addition, changes in state, federal, and foreign tax laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on prior years’ tax filings.

We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for the calendar year 2005 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses. As previously disclosed, we have received Notices of Proposed Adjustment from the IRS for the 2005 and 2006 calendar years relating to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S. taxable income by an amount that would result in additional federal tax over a seven year period beginning in 2005, totaling approximately $1.5 billion, subject to interest. To date, we have not resolved this matter administratively and, in December 2012, we petitioned the U.S. Tax Court to resolve the matter. We continue to disagree with these IRS positions and intend to defend ourselves vigorously in this matter.

Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by the French Tax Administration (“FTA”) for calendar year 2006 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes. While we have not yet received a final assessment from the FTA, in September 2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. The notices propose additional French tax of approximately $250 million, including interest and penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it vigorously. We plan to pursue all available administrative remedies at the FTA, and if we are not able to resolve this matter with the FTA, we plan to pursue judicial remedies. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by these particular tax authorities for the calendar year 2003 and thereafter.

Note 8 — SEGMENT INFORMATION

We have organized our operations into two segments: North America and International. We present our segment information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and allocating resources.

We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative,” but exclude from our allocations the portions of these expense lines attributable to stock-based compensation. We do not allocate the line item “Other operating expense (income), net” to our segment operating results. A majority of our costs for “Technology and content” are incurred in the U.S. and most of these costs are allocated to our North America segment. There are no internal revenue transactions between our reporting segments.

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Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
North America
Net sales	$	11,998		$	9,495		$	23,856		$	18,886
Segment operating expenses (1)	11,560			9,086			22,856			18,020
Segment operating income	$	438		$	409		$	1,000		$	866
International
Net sales	$	7,342		$	6,209		$	15,225		$	12,888
Segment operating expenses (1)	7,376			6,209			15,319			12,904
Segment operating income (loss)	$	(34	)	$	—		$	(94	)	$	(16	)
Consolidated
Net sales	$	19,340		$	15,704		$	39,081		$	31,774
Segment operating expenses (1)	18,936			15,295			38,175			30,924
Segment operating income	404			409			906			850
Stock-based compensation	(391		)	(298		)	(711		)	(526		)
Other operating income (expense), net	(28		)	(32		)	(63		)	(64		)
Income (loss) from operations	(15		)	79			132			260
Total non-operating income (expense)	(12		)	(62		)	(39		)	(162		)
Benefit (provision) for income taxes	(94		)	(13		)	(167		)	6
Equity-method investment activity, net of tax	(5		)	(11		)	56			(29		)
Net income (loss)	$	(126	)	$	(7	)	$	(18	)	$	75

___________________

(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.

Net sales of similar products and services were as follows (in millions):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2014		2013		2014		2013
Net Sales:
Media	$	4,844	$	4,397	$	10,311	$	9,455
Electronics and other general merchandise	13,278		10,415		26,296		20,629
Other (1)	1,218		892		2,474		1,690
	$	19,340	$	15,704	$	39,081	$	31,774

___________________

(1) Includes sales from non-retail activities, such as Amazon Web Services (“AWS”), advertising services, and our co-branded credit card agreements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment and data center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements, acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, the current global economic climate amplifies many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part II, “Risk Factors.”

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2013 Annual Report on Form 10-K.

Critical Accounting Judgments

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business and Accounting Policies,” of our 2013 Annual Report on Form 10-K and Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies,” of this Form 10-Q. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Inventories

Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out (“FIFO”) method, and are valued at the lower of cost or market value. This valuation requires us to make judgments, based on currently-available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of June 30, 2014, we would have recorded an additional cost of sales of approximately $75 million.

Goodwill

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Our annual testing date is October 1. We test goodwill for impairment by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Certain estimates of discounted cash flows involve businesses and geographies with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any.

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During the quarter, management monitored the actual performance of the business relative to the fair value assumptions used during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required an update to our annual impairment test. As a measure of sensitivity, a 10% decrease in the fair value of any of our reporting units as of December 31, 2013 would have had no impact on the carrying value of our goodwill.

Financial and credit market volatility directly impacts our fair value measurement through our weighted average cost of capital that we use to determine our discount rate and through our stock price that we use to determine our market capitalization. During times of volatility, significant judgment must be applied to determine whether credit or stock price changes are a short-term swing or a longer-term trend. We have not made any significant changes to the accounting methodology used to evaluate goodwill impairment. Changes in our estimated future cash flows and asset fair values may cause us to realize material impairment charges in the future. As a measure of sensitivity, a prolonged 20% decrease from our June 30, 2014 closing stock price would not be an indicator of possible impairment.

Stock-Based Compensation

We measure compensation cost for stock awards at fair value and recognize it as compensation expense over the service period for awards expected to vest. The fair value of restricted stock units is determined based on the number of shares granted and the quoted price of our common stock. The estimation of stock awards that will ultimately vest requires judgment for the amount that will be forfeited, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class, economic environment, and historical experience. We update our estimated forfeiture rate quarterly. We have not made any significant changes to the accounting methodology used to evaluate stock-based compensation. Changes in our estimates and assumptions may cause us to realize material changes in stock-based compensation expense in the future. As a measure of sensitivity, a 1% change to our estimated forfeiture rate would have had an approximately $31 million impact on our Q22014 operating income. Our estimated forfeiture rate as of June 30, 2014 and December 31, 2013 was 27%.

We utilize the accelerated method, rather than the straight-line method, for recognizing compensation expense. For example, over 50% of the compensation cost related to an award vesting ratably over four years is expensed in the first year. If forfeited early in the life of an award, the compensation expense adjustment is much greater under an accelerated method than under a straight-line method.

Income Taxes

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for our U.S. operations, our effective tax rate would be adversely affected. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

Recent Accounting Pronouncements

See Item 1 of Part I, “Financial Statements — Note 1— Accounting Policies — Recent Accounting Pronouncements.”

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Liquidity and Capital Resources

Cash flow information is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,						Twelve Months Ended   June 30,
	2014			2013			2014			2013			2014			2013
Operating activities	$	862		$	880		$	(1,640	)	$	(1,492	)	$	5,327		$	4,532
Investing activities	(731		)	(1,420		)	(1,654		)	(2,369		)	(3,560		)	(5,820		)
Financing activities	(189		)	(209		)	(364		)	(366		)	(537		)	2,830

Our financial focus is on long-term, sustainable growth in free cash flow¹. Free cash flow, a non-GAAP financial measure, was $1.0 billion for the trailing twelve months ended June 30, 2014, compared to $265 million for the trailing twelve months ended June 30, 2013. See “Non-GAAP Financial Measures” below for a reconciliation of free cash flow to cash provided by operating activities. The increase in free cash flow for the trailing twelve months ended June 30, 2014, compared to the comparable prior year period, was primarily due to higher operating cash flows. Operating cash flows and free cash flows can be volatile and are sensitive to many factors, including changes in working capital², the timing and magnitude of capital expenditures, and our net income (loss). Working capital at any specific point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $8.0 billion and $12.4 billion as of June 30, 2014, and December 31, 2013. Amounts held in foreign currencies were $3.7 billion and $5.6 billion as of June 30, 2014, and December 31, 2013, and were primarily British Pounds, Chinese Yuan, Euros, Hong Kong Dollars, and Japanese Yen.

Cash provided by (used in) operating activities was $862 million and $880 million for Q22014 and Q22013, and $(1.6) billion and $(1.5) billion for the six months ended June 30, 2014 and 2013. Our operating cash flows result primarily from cash received from our consumer, seller, and enterprise customers, advertising agreements, and our co-branded credit card agreements, offset by cash payments we make for products and services, employee compensation (less amounts capitalized related to internal use software that are reflected as cash used in investing activities), payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received from our consumer, seller, and enterprise customers, and other activities generally corresponds to our net sales. Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly. The increase in operating cash flow for the trailing twelve months ended June 30, 2014, compared to the comparable prior year period, was primarily due to the increase in net income, excluding depreciation, amortization, and stock-based compensation, partially offset by changes in working capital.

Cash provided by (used in) investing activities corresponds with capital expenditures, including leasehold improvements, internal-use software and website development costs, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was $(731) million and $(1.4) billion for Q22014 and Q22013, and $(1.7) billion and $(2.4) billion for the six months ended June 30, 2014 and 2013, with the variability caused primarily by changes in capital expenditures, purchases, maturities, and sales of marketable securities and other investments, and changes in cash paid for acquisitions. Capital expenditures were $1.3 billion and $855 million during Q22014 and Q22013, and $2.4 billion and $1.5 billion for the six months ended June 30, 2014 and 2013, with the increase primarily reflecting additional investments in support of continued business growth due to investments in technology infrastructure, including AWS, and additional capacity to support our fulfillment operations. We expect this trend to continue over time. Capital expenditures included $141 million and $116 million for internal-use software and website development during Q22014 and Q22013, and $269 million and $227 million for the six months ended June 30, 2014 and 2013. Stock-based compensation capitalized for internal-use software and website development costs does not affect cash flows. We made cash payments, net of acquired cash, related to acquisition and other investment activity of $67 million and $148 million during Q22014 and Q22013, and $66 million and $251 million for the six months ended June 30, 2014 and 2013.

______________________

⁽¹⁾  Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less purchases of property and equipment, including internal-use software and website development, both of which are presented on our consolidated statements of cash flows. See “Non-GAAP Financial Measures” below.

⁽²⁾  Working capital consists of accounts receivable, inventory, and accounts payable.

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Cash provided by (used in) financing activities was $(189) million and $(209) million for Q22014 and Q22013, and $(364) million and $(366) million for the six months ended June 30, 2014 and 2013. Cash outflows from financing activities result from payments on obligations related to capital leases and leases accounted for as financing arrangements and repayments of long-term debt. Payments on obligations related to capital leases and leases accounted for as financing arrangements and repayments of long-term debt were $475 million and $290 million in Q22014 and Q22013, and $836 million and $473 million for the six months ended June 30, 2014 and 2013. Property and equipment acquired under capital leases were $920 million and $447 million during Q22014 and Q22013, and $1.6 billion and $787 million during the six months ended June 30, 2014 and 2013, with the increase primarily reflecting additional investments in support of continued business growth due to investments in technology infrastructure, including AWS. Cash inflows from financing activities primarily result from proceeds from long-term debt and tax benefits relating to excess stock-based compensation deductions. Proceeds from long-term debt and other were $286 million and $81 million in Q22014 and Q22013, and $351 million and $107 million for the six months ended June 30, 2014 and 2013. Tax benefits relating to excess stock-based compensation deductions are presented as financing cash flows. Cash inflows from tax benefits related to stock-based compensation deductions was $0 for Q22014 and Q22013, and $121 million and $0 for the six months ended June 30, 2014 and 2013.

We recorded net tax provisions of $94 million and $13 million in Q22014 and Q22013, and a tax provision of $167 million and tax benefit of $6 million for the six months ended June 30, 2014 and 2013. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for our U.S. operations, we would be required to accrue or pay U.S. taxes on some or all of these undistributed earnings. We have tax benefits relating to excess stock-based compensation deductions that are being utilized to reduce our U.S. taxable income. In 2013, we also had accelerated depreciation deductions on qualifying property that reduced our U.S. taxable income as a result of U.S. legislation that expired in December 2013. Cash taxes paid (net of refunds) were $71 million and $34 million for Q22014 and Q22013, and $109 million and $120 million for the six months ended June 30, 2014 and 2013. As of December 31, 2013, our federal net operating loss carryforward was approximately $275 million and we had approximately $295 million of federal tax credits potentially available to offset future tax liabilities. The U.S. federal research and development credit expired in December 2013. As we utilize our federal net operating losses and tax credit carryforwards, we expect cash paid for taxes to significantly increase. We endeavor to optimize our global taxes on a cash basis, rather than on a financial reporting basis.

Our liquidity is also affected by restricted cash balances that are pledged as collateral for standby and trade letters of credit, guarantees, debt, and real estate leases. To the extent we process payments for third-party sellers or offer certain types of stored value to our customers, some jurisdictions may restrict our use of those funds. This restriction would result in the reclassification of a portion of our cash and cash equivalents from “Cash and cash equivalents” to “Accounts receivable, net and other” on our consolidated balance sheets. As of June 30, 2014 and December 31, 2013, restricted cash, cash equivalents, and marketable securities were $389 million and $301 million. See Item 1 of Part I, “Financial Statements — Note 3 — Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged assets. Purchase obligations and open purchase orders, consisting of inventory and significant non-inventory commitments, were $4.6 billion as of June 30, 2014. Purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions.

Because of our model we are able to turn our inventory quickly and have a cash-generating operating cycle³. On average, our high inventory velocity means we generally collect from consumers before our payments to suppliers come due. Inventory turnover⁴ was 9 for Q22014 and Q22013. We expect variability in inventory turnover over time since it is affected by several factors, including our product mix, the mix of sales by us and by other sellers, our continuing focus on in-stock inventory availability and selection of product offerings, our investment in new geographies and product lines, and the extent to which we choose to utilize outsource fulfillment providers.

We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances will be sufficient to meet our anticipated operating cash needs for at least the next 12 months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part II, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.

_______________________

⁽³⁾  The operating cycle is number of days of sales in inventory plus number of days of sales in accounts receivable minus accounts payable days.

⁽⁴⁾  Inventory turnover is the quotient of trailing twelve month cost of sales to average inventory over five quarter ends.

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The sale of additional equity or convertible debt securities would likely be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, and technologies, which might affect our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that additional lines-of-credit or financing instruments will be available in amounts or on terms acceptable to us, if at all.

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Results of Operations

We have organized our operations into two segments: North America and International. We present our segment information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and allocating resources.

Net Sales

Net sales include product and services sales. Product sales represent revenue from the sale of products and related shipping fees and digital content where we record revenue gross. Services sales represent third-party seller fees earned (including commissions) and related shipping fees, digital content subscriptions, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements. Amazon Prime membership fees are allocated between product sales and services sales and amortized over the life of the membership according to the estimated delivery of services. Net sales information is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Net Sales:
North America	$	11,998		$	9,495		$	23,856		$	18,886
International	7,342			6,209			15,225			12,888
Consolidated	$	19,340		$	15,704		$	39,081		$	31,774
Year-over-year Percentage Growth:
North America	26		%	30		%	26		%	28		%
International	18			13			18			14
Consolidated	23			22			23			22
Year-over-year Percentage Growth, excluding effect of exchange rates:
North America	26		%	30		%	26		%	28		%
International	14			20			16			21
Consolidated	22			25			22			25
Net Sales Mix:
North America	62		%	60		%	61		%	59		%
International	38			40			39			41
Consolidated	100		%	100		%	100		%	100		%

Sales increased23% in Q22014 and 23% for the six months ended June 30, 2014, compared to the comparable prior year periods. Changes in currency exchange rates impacted net sales by $237 million and $(392) million for Q22014 and Q22013, and by $247 million and $(694) million for the six months ended June 30, 2014 and 2013. For a discussion of the effect on sales growth of exchange rates, see “Effect of Exchange Rates” below.

North America sales increased26% in Q22014 and 26% for six months ended June 30, 2014, compared to the comparable prior year periods. The sales growth primarily reflects increased unit sales, including sales by marketplace sellers, and AWS, which was partially offset by AWS pricing changes. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings.

International sales increased18% in Q22014 and 18% for the six months ended June 30, 2014, compared to the comparable prior year periods. The sales growth primarily reflects increased unit sales, including sales by marketplace sellers. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including from our shipping offers, by sales in faster growing categories such as electronics and other general merchandise, by increased in-stock inventory availability, and by increased selection of product offerings. Additionally, changes in currency exchange rates impacted International net sales by $246 million and $(391) million for Q22014 and Q22013, and $271 million and $(692) million for the six months ended June 30, 2014 and 2013. We expect that, over time, our International segment will represent 50% or more of our consolidated net sales.

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Supplemental Information

Supplemental information about outbound shipping results is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Outbound Shipping Activity:
Shipping revenue (1)(2)(3)	$	889		$	646		$	1,738		$	1,279
Shipping costs	(1,812		)	(1,364		)	(3,641		)	(2,760		)
Net shipping cost	$	(923	)	$	(718	)	$	(1,903	)	$	(1,481	)
Year-over-year Percentage Growth:
Shipping revenue	38		%	38		%	36		%	37		%
Shipping costs	33			29			32			26
Net shipping cost	29			23			28			18
Percent of Net Sales:
Shipping revenue	4.6		%	4.1		%	4.4		%	4.0		%
Shipping costs	(9.4		)	(8.7		)	(9.3		)	(8.7		)
Net shipping cost	(4.8		)%	(4.6		)%	(4.9		)%	(4.7		)%

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(1) Excludes amounts earned on shipping activities by third-party sellers where we do not provide the fulfillment service.

(2) Includes a portion of amounts earned from Amazon Prime memberships.

(3) Includes amounts earned from Fulfillment by Amazon programs related to shipping services.

We expect our net cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, our product mix shifts to the electronics and other general merchandise category, we reduce shipping rates, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing placement of fulfillment centers, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.

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Net sales by similar products and services were as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Net Sales:
North America
Media	$	2,464		$	2,173		$	5,289		$	4,686
Electronics and other general merchandise	8,366			6,478			16,196			12,606
Other (1)	1,168			844			2,371			1,594
Total North America	$	11,998		$	9,495		$	23,856		$	18,886
International
Media	$	2,380		$	2,224		$	5,022		$	4,769
Electronics and other general merchandise	4,912			3,937			10,100			8,024
Other (1)	50			48			103			95
Total International	$	7,342		$	6,209		$	15,225		$	12,888
Consolidated
Media	$	4,844		$	4,397		$	10,311		$	9,455
Electronics and other general merchandise	13,278			10,415			26,296			20,629
Other (1)	1,218			892			2,474			1,690
Total consolidated	$	19,340		$	15,704		$	39,081		$	31,774
Year-over-year Percentage Growth:
North America
Media	13		%	16		%	13		%	15		%
Electronics and other general merchandise	29			31			28			30
Other	38			64			49			64
Total North America	26			30			26			28
International
Media	7		%	(1		)%	5		%	—		%
Electronics and other general merchandise	25			22			26			25
Other	4			22			8			18
Total International	18			13			18			14
Consolidated
Media	10		%	7		%	9		%	7		%
Electronics and other general merchandise	27			28			27			28
Other	37			61			46			60
Total consolidated	23			22			23			22
Year-over-year Percentage Growth:
Excluding the effect of exchange rates
International
Media	4		%	7		%	4		%	7		%
Electronics and other general merchandise	20			29			23			31
Other	(1		)	27			5			22
Total International	14			20			16			21
Consolidated
Media	9		%	11		%	8		%	11		%
Electronics and other general merchandise	26			30			27			30
Other	36			61			46			61
Total consolidated	22			25			22			25
Consolidated Net Sales Mix:
Media	25		%	28		%	27		%	30		%
Electronics and other general merchandise	69			66			67			65
Other	6			6			6			5
Total consolidated	100		%	100		%	100		%	100		%

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(1) Includes sales from non-retail activities, such as AWS sales, which are included in the North America segment, and advertising services and our co-branded credit card agreements, which are included in both segments.

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Operating Expenses

Information about operating expenses with and without stock-based compensation is as follows (in millions):

	Three Months Ended June 30,																		Six Months Ended June 30,
	2014									2013									2014									2013
	As Reported			Stock-Based Compensation			Net			As Reported			Stock-Based Compensation			Net			As Reported			Stock-Based Compensation			Net			As Reported			Stock-Based Compensation			Net
Operating Expenses:
Cost of sales	$	13,399		$	—		$	13,399		$	11,209		$	—		$	11,209		$	27,453		$	—		$	27,453		$	23,010		$	—		$	23,010
Fulfillment	2,382			(104		)	2,278			1,837			(81		)	1,756			4,699			(184		)	4,515			3,633			(142		)	3,491
Marketing	943			(32		)	911			675			(24		)	651			1,813			(59		)	1,754			1,307			(40		)	1,267
Technology and content	2,226			(206		)	2,020			1,586			(155		)	1,431			4,217			(375		)	3,842			2,969			(274		)	2,695
General and administrative	377			(49		)	328			286			(38		)	248			704			(93		)	611			531			(70		)	461
Other operating expense (income), net	28			—			28			32			—			32			63			—			63			64			—			64
Total operating expenses	$	19,355		$	(391	)	$	18,964		$	15,625		$	(298	)	$	15,327		$	38,949		$	(711	)	$	38,238		$	31,514		$	(526	)	$	30,988
Year-over-year Percentage Growth:
Fulfillment	30		%				30		%	35		%				35		%	29		%				29		%	37		%				36		%
Marketing	40						40			26						25			39						39			29						28
Technology and content	41						41			47						48			43						42			47						47
General and administrative	33						33			23						26			32						32			23						24
Percent of Net Sales:
Fulfillment	12.3		%				11.8		%	11.7		%				11.2		%	12.0		%				11.6		%	11.4		%				11.0		%
Marketing	4.9						4.7			4.3						4.1			4.6						4.5			4.1						4.0
Technology and content	11.5						10.4			10.1						9.1			10.8						9.8			9.3						8.5
General and administrative	2.0						1.7			1.8						1.6			1.8						1.6			1.7						1.5

Operating expenses without stock-based compensation are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

Cost of Sales

Cost of sales consists of the purchase price of consumer products, and digital media content where we record revenue gross, including Prime Instant Video, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our customers.

The increase in cost of sales in absolute dollars in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year periods, is primarily due to increased product, digital media content, and shipping costs resulting from increased sales, as well as from expansion of digital offerings.

Consolidated gross profit and gross margin for each of the periods presented were as follows:

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
Gross profit (in millions)	$	5,941		$	4,495		$	11,628		$	8,764
Gross margin	30.7		%	28.6		%	29.8		%	27.6		%

Gross margin increased in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year period, primarily due to services sales increasing as a percentage of total sales. Services sales represent third-party seller fees earned (including commissions) and related shipping fees, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements.

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We believe that income from operations is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services.

Fulfillment

Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, timing of fulfillment capacity expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features. Additionally, because payment processing and fulfillment costs associated with seller transactions are based on the gross purchase price of underlying transactions, and payment processing and related transaction and fulfillment costs are higher as a percentage of sales versus our retail sales, sales by our sellers have higher fulfillment costs as a percent of net sales.

The increase in fulfillment costs in absolute dollars in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year periods, is primarily due to variable costs corresponding with increased physical and digital product and services sales volume, inventory levels, and sales mix; costs from expanding fulfillment capacity; and payment processing and related transaction costs.

We seek to expand our fulfillment capacity to accommodate greater selection and in-stock inventory levels and meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment services. We evaluate our facility requirements as necessary.

Marketing

We direct customers to our websites primarily through a number of targeted online marketing channels, such as our Associates program, sponsored search, portal advertising, email marketing campaigns, and other initiatives. Our marketing expenses are largely variable, based on growth in sales and changes in rates. To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing expense.

The increase in marketing costs in absolute dollars in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year periods, is primarily due to increased spending on online marketing channels, such as our sponsored search programs and our Associates program, payroll and related expenses, and television advertising.

While costs associated with Amazon Prime memberships and other shipping offers are not included in marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.

Technology and Content

We seek to efficiently invest in several areas of technology and content such as technology infrastructure, including AWS, expansion of new and existing product categories and offerings, and initiatives to expand our ecosystem of digital products and services, as well as in technology infrastructure so we may continue to enhance the customer experience and improve our process efficiency. We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure. Digital media content where we record revenue gross, including Prime Instant Video, is included in cost of sales.

The increase in technology and content costs in absolute dollars in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses, including those associated with our initiatives to expand our ecosystem of digital products and services, and increased spending on technology infrastructure, including AWS. We expect these trends to continue over time as we invest in these areas by increasing payroll and related expenses and adding technology infrastructure. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2013 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation.

During Q22014 and Q22013, we capitalized $170 million (including $29 million of stock-based compensation) and $141 million (including $25 million of stock-based compensation) of costs associated with internal-use software and website development. For the six months ended June 30, 2014 and 2013, we capitalized $320 million (including $51 million of stock-based compensation) and $271 million (including $44 million of stock-based compensation) of costs associated with internal-use software and website development. Amortization of previously capitalized amounts was $139 million and $107 million for Q22014 and Q22013, and $272 million and $209 million for the six months ended June 30, 2014 and 2013. A majority of our

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technology costs are incurred in the U.S., most of which are allocated to our North America segment. Infrastructure, other technology, and operating costs incurred to support AWS are included in technology and content.

General and Administrative

The increase in general and administrative costs in absolute dollars in Q22014 and for the six months ended June 30, 2014, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses.

Stock-Based Compensation

Stock-based compensation was $391 million and $298 million during Q22014 and Q22013, and $711 million and $526 million for the six months ended June 30, 2014 and 2013. The increase is primarily due to an increase in the number of stock-based compensation awards granted to existing and new employees.

Other Operating Expense (Income), Net

Other operating expense (income), net was $28 million and $32 million for Q22014 and Q22013, and $63 million and $64 million for the six months ended June 30, 2014 and 2013, and was primarily related to the amortization of intangible assets.

Income (Loss) from Operations

For the reasons discussed above, income (loss) from operations decreased 118% to $(15) million in Q22014, from $79 million in Q22013, and decreased 49% to $132 million for the six months ended June 30, 2014, from $260 million for the six months ended June 30, 2013.

Interest Income and Expense

Our interest income was $11 million and $9 million during Q22014 and Q22013, and $21 million and $19 million for the six months ended June 30, 2014 and 2013. We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Our interest income corresponds with the average balance of invested funds and the prevailing rates we are earning on them, which vary depending on the geographies and currencies in which they are invested.

The primary components of our interest expense are related to our long-term debt and capital and financing lease arrangements. Interest expense was $45 million and $33 million during Q22014 and Q22013, and $87 million and $66 million for the six months ended June 30, 2014 and 2013.

Other Income (Expense), Net

Other income (expense), net was $22 million and $(38) million during Q22014 and Q22013, and $27 million and $(115) million for the six months ended June 30, 2014 and 2013. The primary component of other income (expense), net is related to foreign-currency gains (losses).

Income Taxes

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions (including integrations) and investments, audit developments, foreign currency gains (losses), changes in law, regulations, and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

In 2014, our effective tax rate will be significantly affected by the favorable impact of earnings in lower tax rate jurisdictions and the adverse effect of losses incurred in certain foreign jurisdictions for which we may not realize a tax benefit. Income earned in lower tax jurisdictions is primarily related to our European operations, which are headquartered in Luxembourg. Losses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce

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our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit. Our effective tax rate may also be adversely impacted by the amount of our pretax income relative to our income tax expense, nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at the end of 2013.

Tax expense for the six months ended June 30, 2014 was $167 million, which included $91 million of discrete tax items primarily attributable to audit-related developments. In the six months ended June 30, 2013, we recognized an income tax benefit of $6 million, which included $51 million of discrete tax benefits primarily resulting from the retroactive reinstatement of the federal research and development credit that was enacted in January 2013.

Equity-Method Investment Activity, Net of Tax

Equity-method investment activity, net of tax, was $(5) million and $(11) million during Q22014 and Q22013, and $56 million and $(29) million for the six months ended June 30, 2014 and 2013. The primary component of this activity during the six months ended June 30, 2014, was our share of a gain recorded in Q1 2014 by LivingSocial related to the sale of its Korean operations. This gain was partially offset by operating losses incurred by LivingSocial during the period.

Effect of Exchange Rates

The effect on our consolidated statements of operations from changes in exchange rates versus the U.S. Dollar is as follows (in millions):

	Three Months Ended June 30,															Six Months Ended June 30,
	2014								2013							2014						2013
	At Prior Year Rates (1)			Exchange Rate Effect (2)		As Reported			At Prior Year Rates (1)		Exchange Rate Effect (2)			As Reported		At Prior Year Rates (1)		Exchange Rate Effect (2)		As Reported		At Prior Year Rates (1)		Exchange Rate Effect (2)			As Reported
Net sales	$	19,103		$	237	$	19,340		$	16,096	$	(392	)	$	15,704	$	38,834	$	247	$	39,081	$	32,468	$	(694	)	$	31,774
Operating expenses	19,149			206		19,355			15,999		(374		)	15,625		38,752		197		38,949		32,178		(664		)	31,514
Income from operations	(46		)	31		(15		)	97		(18		)	79		82		50		132		290		(30		)	260

___________________

(1) Represents the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results.

(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect in the comparable prior year period for operating results.

Non-GAAP Financial Measures

Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Our measures of “Free cash flow,” operating expenses with and without stock-based compensation, and the effect of exchange rates on our consolidated statements of operations, meet the definition of non-GAAP financial measures.

Free cash flow is used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow should not be relied upon to the exclusion of GAAP financial measures.

Free cash flow, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow from operations reduced by “Purchases of property and equipment, including internal-use software and website development,” which are included in cash flow from investing activities. We use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it typically will present a more conservative measure of cash flow from operations since purchases of property and equipment, including internal-use software and website development, are a necessary component of ongoing operations.

Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cash payments for business acquisitions. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

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The following is a reconciliation of free cash flow to the most comparable GAAP measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended June 30, 2014 and 2013 (in millions):

	Twelve Months Ended   June 30,
	2014			2013
Net cash provided by (used in) operating activities	$	5,327		$	4,532
Purchases of property and equipment, including internal-use software and website development	(4,288		)	(4,267		)
Free cash flow	$	1,039		$	265
Net cash provided by (used in) investing activities	$	(3,560	)	$	(5,820	)
Net cash provided by (used in) financing activities	$	(537	)	$	2,830

Operating expenses with and without stock-based compensation is provided to show the impact of stock-based compensation, which is non-cash and excluded from our internal operating plans and measurement of financial performance (although we consider the dilutive impact to our shareholders when awarding stock-based compensation and value such awards accordingly). In addition, unlike other centrally-incurred operating costs, stock-based compensation is not allocated to segment results and therefore excluding it from operating expenses is consistent with our segment presentation in our footnotes to the consolidated financial statements.

Operating expenses without stock-based compensation has limitations since it does not include all expenses primarily related to our workforce. More specifically, if we did not pay out a portion of our compensation in the form of stock-based compensation, our cash salary expense included in the “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative” line items would be higher.

Information regarding the effect of exchange rates, versus the U.S. Dollar, on our consolidated statements of operations is provided to show reported period operating results had the exchange rates remained the same as those in effect in the comparable prior year period.

Guidance

We provided guidance on July 24, 2014, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of July 24, 2014, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce, as well as those outlined in Item 1A of Part II, “Risk Factors.”

Third Quarter 2014 Guidance

• Net sales are expected to be between $19.7 billion and $21.5 billion, or to grow between 15% and 26% compared with third quarter 2013.

• Operating loss is expected to be between $810 million and $410 million, compared to $25 million in third quarter 2013.

• This guidance includes approximately $410 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and changes in the market values of our investments. Information relating to quantitative and qualitative disclosures about market risk is set forth below and in Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our long-term debt. Our long-term debt is carried at amortized cost and fluctuations in interest rates do not impact our consolidated financial statements. However, the fair value of our debt, which pays interest at a fixed rate, will generally fluctuate with movements of interest rates, increasing in periods of declining rates of interest and declining in periods of increasing rates of interest. All of our cash equivalent and marketable fixed income securities are designated as available-for-sale and, accordingly, are presented at fair value on our consolidated balance sheets. We generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates.

Foreign Exchange Risk

During Q22014, net sales from our International segment accounted for 38% of our consolidated revenues. Net sales and related expenses generated from our internationally focused websites, as well as those relating to www.amazon.ca and www.amazon.com.mx (which are included in our North America segment), are denominated in the functional currencies of the corresponding websites and primarily include British Pounds, Chinese Yuan, Euros, Hong Kong Dollars, and Japanese Yen. The results of operations of, and certain of our intercompany balances associated with, our internationally-focused websites are exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, net sales and other operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. For example, as a result of fluctuations in foreign exchange rates throughout the period compared to rates in effect the prior year, International segment revenues in Q22014 increased by $246 million in comparison with Q22013.

We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable securities (“foreign funds”). Based on the balance of foreign funds as of June 30, 2014, of $3.7 billion, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in fair value declines of $185 million, $365 million, and $735 million. All investments are classified as “available-for-sale.” Fluctuations in fair value are recorded in “Accumulated other comprehensive loss,” a separate component of stockholders’ equity.

We have foreign exchange risk related to our intercompany balances denominated in various foreign currencies. Based on the intercompany balances as of June 30, 2014, an assumed 5%, 10%, and 20% adverse change to foreign exchange would result in losses of $90 million, $190 million, and $430 million, recorded to “Other income (expense), net.”

See Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Effect of Exchange Rates” for additional information on the effect on reported results of changes in exchange rates.

Investment Risk

As of June 30, 2014, our recorded basis in equity investments was $213 million. These investments primarily relate to equity method and cost method investments in private companies. We review our investments for impairment when events and circumstances indicate that the decline in fair value of such assets below the carrying value is other-than-temporary. Our analysis includes review of recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. The current global economic climate provides additional uncertainty. Valuations of private companies are inherently more difficult due to the lack of readily available market data. As such, we believe that market sensitivities are not practicable.

Item 4. Controls and Procedures

We carried out an evaluation required by the Securities Exchange Act of 1934 (the “1934 Act”), under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the 1934 Act, as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the 1934 Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Item 1 of Part I, “Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings.”

Item 1A. Risk Factors

Please carefully consider the following risk factors. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected. In addition, the current global economic climate amplifies many of these risks.

We Face Intense Competition

Our businesses are rapidly evolving and intensely competitive, and we have many competitors in different industries, including retail, e-commerce services, digital content and electronic devices, and web and infrastructure computing services. Some of our current and potential competitors have greater resources, longer histories, more customers, and/or greater brand recognition. They may secure better terms from vendors, adopt more aggressive pricing, and devote more resources to technology, infrastructure, fulfillment, and marketing.

Competition may intensify as our competitors enter into business combinations or alliances and established companies in other market segments expand to become competitive with our business. In addition, new and enhanced technologies, including search, web and infrastructure computing services, digital content, and electronic devices, may increase our competition. The Internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.

Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources

We are rapidly and significantly expanding our global operations, including increasing our product and service offerings and scaling our infrastructure to support our retail and services businesses. This expansion increases the complexity of our business and places significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions. We may not be able to manage growth effectively, which could damage our reputation, limit our growth, and negatively affect our operating results.

Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Business, Legal, Financial, and Competitive Risks

We may have limited or no experience in our newer market segments, and our customers may not adopt our new offerings. These offerings may present new and difficult technology challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer activities may be lower than in our older activities, and we may not be successful enough in these newer activities to recoup our investments in them. If any of this were to occur, it could damage our reputation, limit our growth, and negatively affect our operating results.

We May Experience Significant Fluctuations in Our Operating Results and Growth Rate

We may not be able to accurately forecast our growth rate. We base our expense levels and investment plans on sales estimates. A significant portion of our expenses and investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected.

Our revenue growth may not be sustainable, and our percentage growth rates may decrease. Our revenue and operating profit growth depends on the continued growth of demand for the products and services offered by us or our sellers, and our business is affected by general economic and business conditions worldwide. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.

Our sales and operating results will also fluctuate for many other reasons, including due to risks described elsewhere in this section and the following:

• our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands;

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• our ability to retain and expand our network of sellers;

• our ability to offer products on favorable terms, manage inventory, and fulfill orders;

• the introduction of competitive websites, products, services, price decreases, or improvements;

• changes in usage or adoption rates of the Internet, e-commerce, electronic devices, and web services, including outside the U.S.;

• timing, effectiveness, and costs of expansion and upgrades of our systems and infrastructure;

• the success of our geographic, service, and product line expansions;

• the extent to which we finance, and the terms of any such financing for, our current operations and future growth;

• the outcomes of legal proceedings and claims, which may include significant monetary damages or injunctive relief and could have a material adverse impact on our operating results;

• variations in the mix of products and services we sell;

• variations in our level of merchandise and vendor returns;

• the extent to which we offer free shipping, continue to reduce prices worldwide, and provide additional benefits to our customers;

• the extent to which we invest in technology and content, fulfillment, and other expense categories;

• increases in the prices of fuel and gasoline, as well as increases in the prices of other energy products and commodities like paper and packing supplies;

• the extent to which our equity-method investees record significant operating and non-operating items;

• the extent to which operators of the networks between our customers and our websites successfully charge fees to grant our customers unimpaired and unconstrained access to our online services;

• our ability to collect amounts owed to us when they become due;

• the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events; and

• terrorist attacks and armed hostilities.

We May Not Be Successful in Our Efforts to Expand into International Market Segments

Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations and websites, and promote our brand internationally. Our international operations may not be profitable on a sustained basis.

In addition to risks described elsewhere in this section, our international sales and operations are subject to a number of risks, including:

• local economic and political conditions;

• government regulation of e-commerce and other services, electronic devices, and competition, and restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;

• restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights;

• business licensing or certification requirements, such as for imports, exports, web services, and electronic devices;

• limitations on the repatriation and investment of funds and foreign currency exchange restrictions;

• limited fulfillment and technology infrastructure;

• shorter payable and longer receivable cycles and the resultant negative impact on cash flow;

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• laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts;

• lower levels of use of the Internet;

• lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;

• lower levels of credit card usage and increased payment risk;

• difficulty in staffing, developing, and managing foreign operations as a result of distance, language, and cultural differences;

• different employee/employer relationships and the existence of works councils and labor unions;

• laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and

• geopolitical events, including war and terrorism.

As international e-commerce and other online and web services grow, competition will intensify. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, the local customer, as well as their more established local brand names. We may not be able to hire, train, retain, and manage required personnel, which may limit our international growth.

The People’s Republic of China (“PRC”) regulates Amazon’s and its affiliates’ businesses and operations in the PRC through regulations and license requirements restricting (i) foreign investment in and operation of the Internet, IT infrastructure, data centers, retail, delivery, and other sectors, (ii) Internet content, and (iii) the sale of media and other products and services. For example, in order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated by PRC companies that are indirectly owned, either wholly or partially, by PRC nationals. In addition, we provide certain technology services in conjunction with third parties that hold PRC licenses to provide services. Although we believe these structures comply with existing PRC laws, they involve unique risks. There are substantial uncertainties regarding the interpretation of PRC laws and regulations, and it is possible that the PRC government will ultimately take a view contrary to ours. If our Chinese business interests were found to be in violation of any existing or future PRC laws or regulations or if interpretations of those laws and regulations were to change, the business could be subject to fines and other financial penalties, have licenses revoked, or be forced to shut down entirely. In addition, the Chinese businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or enforce contractual relationships with respect to management and control of such businesses.

If We Do Not Successfully Optimize and Operate Our Fulfillment and Data Centers, Our Business Could Be Harmed

If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment and data centers successfully, it could result in excess or insufficient fulfillment or data center capacity, or result in increased costs, impairment charges, or both, or harm our business in other ways. As we continue to add fulfillment, warehouse, and data center capability or add new businesses with different requirements, our fulfillment and data center networks become increasingly complex and operating them becomes more challenging. There can be no assurance that we will be able to operate our networks effectively.

In addition, a failure to optimize inventory in our fulfillment centers will increase our net shipping cost by requiring long-zone or partial shipments. Orders from several of our websites are fulfilled primarily from a single location, and we have only a limited ability to reroute orders to third parties for drop-shipping. We and our co-sourcers may be unable to adequately staff our fulfillment and customer service centers. If the other businesses on whose behalf we perform inventory fulfillment services deliver product to our fulfillment centers in excess of forecasts, we may be unable to secure sufficient storage space and may be unable to optimize our fulfillment centers.

We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results and customer experience. In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively affected by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God, and similar factors.

Third parties either drop-ship or otherwise fulfill an increasing portion of our customers’ orders, and we are increasingly reliant on the reliability, quality, and future procurement of their services. Under some of our commercial agreements, we maintain the inventory of other companies, thereby increasing the complexity of tracking inventory and operating our fulfillment centers. Our failure to properly handle such inventory or the inability of these other companies to accurately forecast product demand would result in unexpected costs and other harm to our business and reputation.

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The Seasonality of Our Business Places Increased Strain on Our Operations

We expect a disproportionate amount of our net sales to occur during our fourth quarter. If we do not stock or restock popular products in sufficient amounts such that we fail to meet customer demand, it could significantly affect our revenue and our future growth. If we overstock products, we may be required to take significant inventory markdowns or write-offs, which could reduce profitability. We may experience an increase in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many customers access our websites within a short period of time due to increased holiday demand, we may experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer service co-sourcers may be unable to meet the seasonal demand. We also face risks described elsewhere in this Item 1A relating to fulfillment center optimization and inventory.

We generally have payment terms with our retail vendors that extend beyond the amount of time necessary to collect proceeds from our consumer customers. As a result of holiday sales, as of December 31 of each year, our cash, cash equivalents, and marketable securities balances typically reach their highest level (other than as a result of cash flows provided by or used in investing and financing activities). This operating cycle results in a corresponding increase in accounts payable as of December 31. Our accounts payable balance generally declines during the first three months of the year, resulting in a corresponding decline in our cash, cash equivalents, and marketable securities balances.

Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Commercial Agreements, Strategic Alliances, and Other Business Relationships

We provide e-commerce and other services to businesses through commercial agreements, strategic alliances, and business relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage, and other services, as well as enable sellers to offer products or services through our websites. These arrangements are complex and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business we can service. We may not be able to implement, maintain, and develop the components of these commercial relationships, which may include web services, fulfillment, customer service, inventory management, tax collection, payment processing, hardware, content, and third-party software, and engaging third parties to perform services. The amount of compensation we receive under certain of our commercial agreements is partially dependent on the volume of the other company’s sales. Therefore, if the other company’s offering is not successful, the compensation we receive may be lower than expected or the agreement may be terminated. Moreover, we may not be able to enter into additional commercial relationships and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, maintaining, or developing these services.

As our agreements terminate, we may be unable to renew or replace these agreements on comparable terms, or at all. We may in the future enter into amendments on less favorable terms or encounter parties that have difficulty meeting their contractual obligations to us, which could adversely affect our operating results.

Our present and future e-commerce services agreements, other commercial agreements, and strategic alliances create additional risks such as:

• disruption of our ongoing business, including loss of management focus on existing businesses;

• impairment of other relationships;

• variability in revenue and income from entering into, amending, or terminating such agreements or relationships; and

• difficulty integrating under the commercial agreements.

Our Business Could Suffer if We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments

We have acquired and invested in a number of companies, and we may acquire or invest in or enter into joint ventures with additional companies. These transactions create risks such as:

• disruption of our ongoing business, including loss of management focus on existing businesses;

• problems retaining key personnel;

• additional operating losses and expenses of the businesses we acquired or in which we invested;

• the potential impairment of tangible and intangible assets and goodwill, including as a result of acquisitions;

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• the potential impairment of customer and other relationships of the company we acquired or in which we invested or our own customers as a result of any integration of operations;

• the difficulty of incorporating acquired technology and rights into our offerings and unanticipated expenses related to such integration;

• the difficulty of integrating a new company’s accounting, financial reporting, management, information and information security, human resource, and other administrative systems to permit effective management, and the lack of control if such integration is delayed or not implemented;

• for investments in which an investee’s financial performance is incorporated into our financial results, either in full or in part, the dependence on the investee’s accounting, financial reporting, and similar systems, controls, and processes;

• the difficulty of implementing at companies we acquire the controls, procedures, and policies appropriate for a larger public company;

• potential unknown liabilities associated with a company we acquire or in which we invest; and

• for foreign transactions, additional risks related to the integration of operations across different cultures and languages, and the economic, political, and regulatory risks associated with specific countries.

As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business. In addition, valuations supporting our acquisitions and strategic investments could change rapidly given the current global economic climate. We could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could adversely impact our financial results.

We Have Foreign Exchange Risk

The results of operations of, and certain of our intercompany balances associated with, our international websites and product and service offerings are exposed to foreign exchange rate fluctuations. Upon translation, operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. As we have expanded our international operations, our exposure to exchange rate fluctuations has increased. We also hold cash equivalents and/or marketable securities in foreign currencies including British Pounds, Chinese Yuan, Euros, Hong Kong Dollars, and Japanese Yen. If the U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, when translated, may be materially less than expected and vice versa.

The Loss of Key Senior Management Personnel Could Negatively Affect Our Business

We depend on our senior management and other key personnel, particularly Jeffrey P. Bezos, our President, CEO, and Chairman. We do not have “key person” life insurance policies. The loss of any of our executive officers or other key employees could harm our business.

We Could Be Harmed by Data Loss or Other Security Breaches

As a result of our services being web-based and the fact that we process, store, and transmit large amounts of data, including personal information, for our customers, failure to prevent or mitigate data loss or other security breaches, including breaches of our vendors’ technology and systems, could expose us or our customers to a risk of loss or misuse of such information, adversely affect our operating results, result in litigation or potential liability for us, and otherwise harm our business. We use third party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. Some subsidiaries had past security breaches, and, although they did not have a material adverse effect on our operating results, there can be no assurance of a similar result in the future. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party vendor, such measures cannot provide absolute security.

We Face Risks Related to System Interruption and Lack of Redundancy

We experience occasional system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us from efficiently fulfilling orders or providing services to third parties, which may reduce our net sales and the attractiveness of our products and services. If we are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure, and take other steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating results.

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Our computer and communications systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events or disruptions. Any of these events could cause system interruption, delays, and loss of critical data, and could prevent us from accepting and fulfilling customer orders and providing services, which could make our product and service offerings less attractive and subject us to liability. Our systems are not fully redundant and our disaster recovery planning may not be sufficient. In addition, we may have inadequate insurance coverage to compensate for any related losses. Any of these events could damage our reputation and be expensive to remedy.

We Face Significant Inventory Risk

In addition to risks described elsewhere in this Item 1A relating to fulfillment center and inventory optimization by us and third parties, we are exposed to significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to our products, and other factors. We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell. Demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. In addition, when we begin selling or manufacturing a new product, it may be difficult to establish vendor relationships, determine appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of inventory or components may require significant lead-time and prepayment and they may not be returnable. We carry a broad selection and significant inventory levels of certain products, such as consumer electronics, and we may be unable to sell products in sufficient quantities or during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.

We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of Infringing Intellectual Property Rights of Third Parties

We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers, and others to protect our proprietary rights. Effective intellectual property protection may not be available in every country in which our products and services are made available. We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.

We may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. Third parties that license our proprietary rights also may take actions that diminish the value of our proprietary rights or reputation. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to protect our intellectual property may not adequately protect our rights or prevent third parties from infringing or misappropriating our proprietary rights. We also cannot be certain that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights.

Other parties also may claim that we infringe their proprietary rights. We have been subject to, and expect to continue to be subject to, claims and legal proceedings regarding alleged infringement by us of the intellectual property rights of third parties. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against us, or the payment of damages, including to satisfy indemnification obligations. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. In addition, we may not be able to obtain or utilize on terms that are favorable to us, or at all, licenses or other rights with respect to intellectual property we do not own. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims.

Our digital content offerings depend in part on effective digital rights management technology to control access to digital content. If the digital rights management technology that we use is compromised or otherwise malfunctions, we could be subject to claims, and content providers may be unwilling to include their content in our service.

We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile

We have a rapidly evolving business model. The trading price of our common stock fluctuates significantly in response to, among other risks, the risks described elsewhere in this Item 1A, as well as:

• changes in interest rates;

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• conditions or trends in the Internet and the industry segments we operate in;

• quarterly variations in operating results;

• fluctuations in the stock market in general and market prices for Internet-related companies in particular;

• changes in financial estimates by us or securities analysts and recommendations by securities analysts;

• changes in our capital structure, including issuance of additional debt or equity to the public;

• changes in the valuation methodology of, or performance by, other e-commerce or technology companies; and

• transactions in our common stock by major investors and certain analyst reports, news, and speculation.

Volatility in our stock price could adversely affect our business and financing opportunities and force us to increase our cash compensation to employees or grant larger stock awards than we have historically, which could hurt our operating results or reduce the percentage ownership of our existing stockholders, or both.

Government Regulation Is Evolving and Unfavorable Changes Could Harm Our Business

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet, e-commerce, electronic devices, and other services. Existing and future laws and regulations may impede our growth. These regulations and laws may cover taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications, competition, consumer protection, web services, the provision of online payment services, information reporting requirements, unencumbered Internet access to our services, the design and operation of websites, and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content, and web services. Jurisdictions may regulate consumer-to-consumer online businesses, including certain aspects of our seller programs. Unfavorable regulations and laws could diminish the demand for our products and services and increase our cost of doing business.

We Do Not Collect Sales or Consumption Taxes in Some Jurisdictions

U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with respect to remote sales. However, an increasing number of states have considered or adopted laws or administrative practices that attempt to impose obligations on out-of-state retailers to collect taxes on their behalf. We support a Federal law that would allow states to require sales tax collection under a nationwide system. More than half of our revenue is already earned in jurisdictions where we collect sales tax or its equivalent. A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.

We Could be Subject to Additional Income Tax Liabilities

We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard. Except as required under U.S. tax law, we do not provide for U.S. taxes on our undistributed earnings of foreign subsidiaries that have not been previously taxed since we intend to invest such undistributed earnings indefinitely outside of the U.S. If our intent changes or if these funds are needed for our U.S. operations, our effective tax rate would be adversely affected. In addition, we are subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals. Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

37

Our Supplier Relationships Subject Us to a Number of Risks

We have significant suppliers, including licensors, and in some cases, limited or single-sources of supply, that are important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content, components, or services, particular payment terms, or the extension of credit limits. If our current suppliers were to stop selling or licensing merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one or more supplier bankruptcies due to poor economic conditions, as a result of natural disasters, or for other reasons, we may be unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all. In addition, if our suppliers or other vendors violate applicable laws, regulations, our code of standards and responsibilities, or implement practices regarded as unethical, unsafe, or hazardous to the environment, it could damage our reputation, limit our growth, and negatively affect our operating results.

We May be Subject to Risks Related to Government Contracts and Related Procurement Regulations

Our contracts with U.S., as well as state, local, and foreign, government entities are subject to various procurement regulations and other requirements relating to their formation, administration, and performance. We may be subject to audits and investigations relating to our government contracts, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination of contract, refunding or suspending of payments, forfeiture of profits, payment of fines, and suspension or debarment from future government business. In addition, such contracts may provide for termination by the government at any time, without cause.

We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell

Some of the products we sell or manufacture may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Certain third parties also sell products using our e-commerce platform that may increase our exposure to product liability claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.

We Are Subject to Payments-Related Risks

We accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options we offer to our customers, we may become subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our business if these companies become unwilling or unable to provide these services to us. We are also subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected. We also offer co-branded credit card programs, which could adversely affect our operating results if terminated.

In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties, or forced to cease providing certain services.

38

We Could Be Liable for Fraudulent or Unlawful Activities of Sellers

The law relating to the liability of providers of online payment services is currently unsettled. In addition, governmental agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’ descriptions. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these situations, and as our marketplace seller sales grow, the cost of this program will increase and could negatively affect our operating results. We also may be unable to prevent sellers on our sites or through other seller sites from selling unlawful goods, selling goods in an unlawful manner, or violating the proprietary rights of others, and could face civil or criminal liability for unlawful activities by our sellers.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

See exhibits listed under the Exhibit Index below.

39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMAZON.COM, INC. (REGISTRANT)
By:	/s/ Shelley Reynolds
	Shelley Reynolds
	Vice President, Worldwide Controller
	(Principal Accounting Officer)

Dated: July 24, 2014

40

EXHIBIT INDEX

Exhibit Number	Description
3.1	Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2000).
3.2	Restated Bylaws of the Company (incorporated by reference to the Company’s Current Report on Form 8-K, filed February 18, 2009).
31.1	Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification of Jeffrey P. Bezos, Chairman and Chief Executive Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of Amazon.com, Inc., pursuant to 18 U.S.C. Section 1350.
101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

41

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Jeffrey P. Bezos, certify that:

1. I have reviewed this Form 10-Q of Amazon.com, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Jeffrey P. Bezos

Jeffrey P. Bezos

Chairman and Chief Executive Officer

(Principal Executive Officer)

Date: July 24, 2014

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Thomas J. Szkutak, certify that:

1. I have reviewed this Form 10-Q of Amazon.com, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Thomas J. Szkutak

Thomas J. Szkutak

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: July 24, 2014

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report of Amazon.com, Inc. (the “Company”) on Form 10-Q for the three months ended June 30, 2014 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Jeffrey P. Bezos, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

/s/ Jeffrey P. Bezos

Jeffrey P. Bezos

Chairman and Chief Executive Officer

(Principal Executive Officer)

Date: July 24, 2014

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350

In connection with the Quarterly Report of Amazon.com, Inc. (the “Company”) on Form 10-Q for the three months ended June 30, 2014 as filed with the Securities and Exchange Commission (the “SEC”) on or about the date hereof (the “Report”), I, Thomas J. Szkutak, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

/s/ Thomas J. Szkutak

Thomas J. Szkutak

Senior Vice President and

Chief Financial Officer

(Principal Financial Officer)

Date: July 24, 2014

XML

Segment Information - Reportable Segments and Reconciliation to Consolidated Net Income (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended				12 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014	Jun. 30, 2013
Segment Reporting Disclosure [Line Items]
Net sales	$ 19,340		$ 15,704		$ 39,081		$ 31,774
Segment operating expenses	19,355		15,625		38,949		31,514
Income (loss) from operations	(15)		79		132		260
Stock-based compensation	(391)		(298)		(711)		(526)		(1,318)	(978)
Other operating income (expense), net	(28)		(32)		(63)		(64)
Total non-operating income (expense)	(12)		(62)		(39)		(162)
Benefit (provision) for income taxes	(94)		(13)		(167)		6
Equity-method investment activity, net of tax	(5)		(11)		56		(29)
Net income (loss)	(126)		(7)		(18)		75		181	(101)
Operating Segments
Segment Reporting Disclosure [Line Items]
Net sales	19,340		15,704		39,081		31,774
Segment operating expenses	18,936	[1]	15,295	[1]	38,175	[1]	30,924	[1]
Income (loss) from operations	404		409		906		850
Operating Segments | North America
Segment Reporting Disclosure [Line Items]
Net sales	11,998		9,495		23,856		18,886
Segment operating expenses	11,560	[1]	9,086	[1]	22,856	[1]	18,020	[1]
Income (loss) from operations	438		409		1,000		866
Operating Segments | International
Segment Reporting Disclosure [Line Items]
Net sales	7,342		6,209		15,225		12,888
Segment operating expenses	7,376	[1]	6,209	[1]	15,319	[1]	12,904	[1]
Income (loss) from operations	$ (34)		$ 0		$ (94)		$ (16)

[1] Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.

XML

Long-Term Debt - Long-Term Debt Obligations (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Long-term debt	$ 4,000	$ 3,967
Other long-term debt	1,000	967
Less current portion of long-term debt	(860)	(753)
Face value of long-term debt	3,140	3,214
0.65% Notes due on November 27, 2015
Debt Instrument [Line Items]
Stated interest rate	0.65%
Long-term debt	750	750
1.20% Notes due on November 29, 2017
Debt Instrument [Line Items]
Stated interest rate	1.20%
Long-term debt	1,000	1,000
2.50% Notes due on November 29, 2022
Debt Instrument [Line Items]
Stated interest rate	2.50%
Long-term debt	$ 1,250	$ 1,250

XML

Accounting Policies - Calculation of Diluted Shares (Detail) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share [Abstract]
Shares used in computation of basic earnings per share	461	456	460	455
Total dilutive effect of outstanding stock awards	0	0	0	8
Shares used in computation of diluted earnings per share	461	456	460	463

XML

Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Income Taxes [Line Items]
Benefit (provision) for income taxes	$ (94)	$ (13)	$ (167)	$ 6
Discrete tax benefits (provision)			(91)	51
Cash taxes paid, net of refunds	71	34	109	120	158	193
Tax contingencies	590		590		590		407
Tax examination, proposed additional tax expense including interest and penalties			1,500
France
Income Taxes [Line Items]
Tax examination, proposed additional tax expense including interest and penalties			$ 250

XML

Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Accounting Policies

ACCOUNTING POLICIES

Unaudited Interim Financial Information

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2014 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2013 Annual Report on Form 10-K.

Principles of Consolidation

The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and those entities in which we have a variable interest and of which we are the primary beneficiary (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes, valuation and impairment of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software and website development costs, acquisition purchase price allocations, investments in equity interests, and contingencies. Actual results could differ materially from those estimates.

Earnings per Share

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.

The following table shows the calculation of diluted shares (in millions):

	Three Months Ended   June 30,		Six Months Ended   June 30,
	2014	2013	2014	2013
Shares used in computation of basic earnings per share	461	456	460	455
Total dilutive effect of outstanding stock awards	—	—	—	8
Shares used in computation of diluted earnings per share	461	456	460	463

Equity-method Investments

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes operating and non-operating gains and charges, which can have a significant impact on our reported equity-method investment activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due.

We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the investment under the equity method.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

XML

Commitments and Contingencies - Principal Contractual Commitments Excluding Open Orders for Inventory Purchases That Support Normal Operations (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014
Long-term Purchase Commitment [Line Items]
Six Months Ended December 31, 2014	$ 2,574
Year Ended December 31, 2015	4,887
Year Ended December 31, 2016	2,076
Year Ended December 31, 2017	2,336
Year Ended December 31, 2018	982
Thereafter	6,006
Total	18,861
Operating leases
Six Months Ended December 31, 2014	423
Year Ended December 31, 2015	752
Year Ended December 31, 2016	714
Year Ended December 31, 2017	636
Year Ended December 31, 2018	563
Thereafter	2,472
Total	5,560
Unconditional purchase obligations
Six Months Ended December 31, 2014	304	[1]
Year Ended December 31, 2015	517	[1]
Year Ended December 31, 2016	250	[1]
Year Ended December 31, 2017	214	[1]
Year Ended December 31, 2018	61	[1]
Thereafter	47	[1]
Total	1,393	[1]
Other commitments
Six Months Ended December 31, 2014	525	[2],[3]
Year Ended December 31, 2015	583	[2],[3]
Year Ended December 31, 2016	269	[2],[3]
Year Ended December 31, 2017	149	[2],[3]
Year Ended December 31, 2018	119	[2],[3]
Thereafter	1,325	[2],[3]
Total	2,970	[2],[3]
Debt principal and interest
Long-term Purchase Commitment [Line Items]
Six Months Ended December 31, 2014	276
Year Ended December 31, 2015	1,485
Year Ended December 31, 2016	81
Year Ended December 31, 2017	1,081
Year Ended December 31, 2018	69
Thereafter	1,375
Total	4,367
Capital leases, including interest
Long-term Purchase Commitment [Line Items]
Six Months Ended December 31, 2014	1,012
Year Ended December 31, 2015	1,482
Year Ended December 31, 2016	693
Year Ended December 31, 2017	186
Year Ended December 31, 2018	98
Thereafter	129
Total	3,600
Financing lease obligations, including interest
Long-term Purchase Commitment [Line Items]
Six Months Ended December 31, 2014	34
Year Ended December 31, 2015	68
Year Ended December 31, 2016	69
Year Ended December 31, 2017	70
Year Ended December 31, 2018	72
Thereafter	658
Total	$ 971

[1] Includes unconditional purchase obligations related to long-term agreements to acquire and license digital content that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.

[2] Excludes $590 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

[3] Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that have not been placed in service and digital content liabilities associated with long-term digital content assets with initial terms greater than one year.

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Commitments and Contingencies - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	Apr. 30, 2012 Patent	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Loss Contingencies [Line Items]
Rental expense under operating lease agreements		$ 229	$ 180	$ 448	$ 348
Tax contingencies		590		590		407
Securities and Property and Equipment Owned and Pledged as Collateral, Fair Value		$ 550		$ 550		$ 482
Number of patents infringed	10

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Equity-Method Investments - Summarized Condensed Financial Information of LivingSocial (Detail) (LivingSocial, USD $) In Millions, unless otherwise specified	6 Months Ended				1 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jan. 31, 2014 Korean operations
Statement of Operations:
Revenue	$ 152		$ 205
Gross profit	120		154
Operating expenses	174		199
Operating loss from continuing operations	(54)		(45)
Net loss from continuing operations	(39)		(42)
Net income (loss) from discontinued operations	204	[1]	(35)	[1]
Net income (loss)	165		(77)
LivingSocial sale of its Korean operations					260
Gain on disposal					$ 205

[1] In January 2014, LivingSocial completed the sale of its Korean operations for approximately $260 million and, in Q1 2014, recognized a gain on disposal of $205 million, net of tax. The statement of operations information above has been recast to present the Korean operations as discontinued operations.

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Equity Method Investments - Additional Information (Detail) (LivingSocial, USD $) In Millions, unless otherwise specified	Jun. 30, 2014
LivingSocial
Schedule of Equity Method Investments [Line Items]
Equity and cost investment, ownership percentage	31.00%
Equity and cost investment, book value	$ 94

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock, par value (in usd per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	500,000,000	500,000,000
Preferred stock, Issued shares	0	0
Preferred stock, Outstanding shares	0	0
Common stock, par value (in usd per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	5,000,000,000	5,000,000,000
Common stock, Issued shares	486,000,000	483,000,000
Common stock, Outstanding shares	462,000,000	459,000,000

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Long-Term Debt - Additional Information (Detail) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Nov. 30, 2012 tranche
Debt Instrument [Line Items]
Carrying amount of other long term debt including current portion	$ 1,000,000,000	$ 967,000,000
Senior Notes
Debt Instrument [Line Items]
Face amount			3,000,000,000
Number of tranches of debt issued			3
Unamortized discount	21,000,000	23,000,000
Interest payment frequency	semi-annually in arrears in May and November
Total estimated fair value of notes	$ 2,900,000,000	$ 2,900,000,000
0.65% Notes due on November 27, 2015
Debt Instrument [Line Items]
Effective interest yields	0.84%
1.20% Notes due on November 29, 2017
Debt Instrument [Line Items]
Effective interest yields	1.38%
2.50% Notes due on November 29, 2022
Debt Instrument [Line Items]
Effective interest yields	2.66%
Other Long Term Debt
Debt Instrument [Line Items]
Long-term debt, weighted average interest rate	5.60%	5.50%

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Segment Information - Net Sales of Similar Products and Services (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Revenue from External Customer [Line Items]
Net sales	$ 19,340		$ 15,704		$ 39,081		$ 31,774
Media
Revenue from External Customer [Line Items]
Net sales	4,844		4,397		10,311		9,455
Electronics and other general merchandise
Revenue from External Customer [Line Items]
Net sales	13,278		10,415		26,296		20,629
Other
Revenue from External Customer [Line Items]
Net sales	$ 1,218	[1]	$ 892	[1]	$ 2,474	[1]	$ 1,690	[1]

[1] Includes sales from non-retail activities, such as Amazon Web Services (“AWS”), advertising services, and our co-branded credit card agreements.

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Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$ 5,074	$ 4,481	$ 8,658	$ 8,084	$ 3,704	$ 2,335
OPERATING ACTIVITIES:
Net income (loss)	(126)	(7)	(18)	75	181	(101)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and website development, and other amortization	1,109	756	2,119	1,457	3,916	2,673
Stock-based compensation	391	298	711	526	1,318	978
Other operating expense (income), net	28	32	62	63	113	139
Losses (gains) on sales of marketable securities, net	(1)	0	(1)	0	1	(6)
Other expense (income), net	(8)	42	(57)	110	(1)	367
Deferred income taxes	(49)	21	(234)	(58)	(332)	(243)
Excess tax benefits from stock-based compensation	0	0	(121)	0	(199)	(304)
Changes in operating assets and liabilities:
Inventories	92	(30)	791	505	(1,124)	(1,116)
Accounts receivable, net and other	(299)	(211)	428	518	(936)	(922)
Accounts payable	(344)	0	(5,018)	(4,187)	1,056	1,962
Accrued expenses and other	(15)	(77)	(746)	(780)	770	728
Additions to unearned revenue	894	516	1,986	1,200	3,477	2,217
Amortization of previously unearned revenue	(810)	(460)	(1,542)	(921)	(2,913)	(1,840)
Net cash provided by (used in) operating activities	862	880	(1,640)	(1,492)	5,327	4,532
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website development	(1,290)	(855)	(2,370)	(1,526)	(4,288)	(4,267)
Acquisitions, net of cash acquired, and other	(67)	(148)	(66)	(251)	(127)	(323)
Sales and maturities of marketable securities and other investments	962	696	1,555	1,296	2,565	2,544
Purchases of marketable securities and other investments	(336)	(1,113)	(773)	(1,888)	(1,710)	(3,774)
Net cash provided by (used in) investing activities	(731)	(1,420)	(1,654)	(2,369)	(3,560)	(5,820)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation	0	0	121	0	199	304
Proceeds from long-term debt and other	286	81	351	107	627	3,274
Repayments of long-term debt, capital lease, and finance lease obligations	(475)	(290)	(836)	(473)	(1,363)	(748)
Net cash provided by (used in) financing activities	(189)	(209)	(364)	(366)	(537)	2,830
Foreign-currency effect on cash and cash equivalents	41	(28)	57	(153)	123	(173)
Net increase (decrease) in cash and cash equivalents	(17)	(777)	(3,601)	(4,380)	1,353	1,369
CASH AND CASH EQUIVALENTS, END OF PERIOD	5,057	3,704	5,057	3,704	5,057	3,704
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest on long-term debt	31	39	49	52	94	68
Cash paid for income taxes (net of refunds)	71	34	109	120	158	193
Assets Held under Capital Leases
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired	920	447	1,636	787	2,716	1,233
Assets Held under Build-To-Suit Leases
SUPPLEMENTAL CASH FLOW INFORMATION:
Property and equipment acquired	$ 237	$ 244	$ 363	$ 394	$ 846	$ 392

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Consolidated Statements Of Comprehensive Income (Loss) (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
Foreign currency translation adjustments, tax	$ 0	$ (4)	$ 1	$ 13
Unrealized gains (losses), tax	0	3	(1)	4
Reclassification adjustment for losses (gains) included in other income (expense), net, tax	$ 0	$ 0	$ 0	$ 0

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Stockholders' Equity - Restricted Stock Unit Activity (Detail) (Restricted Stock Units, USD $) In Millions, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Restricted Stock Units
Number of units
Beginning balance (in shares)	16.3
Units granted (in shares)	5.1
Units vested (in shares)	(2.6)
Units forfeited (in shares)	(1.2)
Ending balance (in shares)	17.6
Weighted Average Grant-Date Fair Value
Beginning balance (in usd per share)	$ 233
Units granted (in usd per share)	$ 332
Units vested (in usd per share)	$ 192
Units forfeited (in usd per share)	$ 251
Ending balance (in usd per share)	$ 266

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Long-Term Debt (Tables)

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Long-Term Debt Obligations

The face value of our total long-term debt obligations is as follows (in millions):

	June 30, 2014			December 31, 2013
0.65% Notes due on November 27, 2015	$	750		$	750
1.20% Notes due on November 29, 2017	1,000			1,000
2.50% Notes due on November 29, 2022	1,250			1,250
Other long-term debt	1,000			967
Total debt	4,000			3,967
Less current portion of long-term debt	(860		)	(753		)
Face value of long-term debt	$	3,140		$	3,214

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Stockholders' Equity - Scheduled Vesting for Outstanding Restricted Stock Units (Detail) (Restricted Stock Units) In Millions, unless otherwise specified	Jun. 30, 2014
Restricted Stock Units
Schedule of Vesting [Line Items]
Six Months Ended December 31, 2014	2.6
Year Ended December 31, 2015	5.9
Year Ended December 31, 2016	5.7
Year Ended December 31, 2017	2.4
Year Ended December 31, 2018	0.7
Thereafter	0.3
Total	17.6

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Schedule of Segment Reporting Information by Segment

Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
North America
Net sales	$	11,998		$	9,495		$	23,856		$	18,886
Segment operating expenses (1)	11,560			9,086			22,856			18,020
Segment operating income	$	438		$	409		$	1,000		$	866
International
Net sales	$	7,342		$	6,209		$	15,225		$	12,888
Segment operating expenses (1)	7,376			6,209			15,319			12,904
Segment operating income (loss)	$	(34	)	$	—		$	(94	)	$	(16	)
Consolidated
Net sales	$	19,340		$	15,704		$	39,081		$	31,774
Segment operating expenses (1)	18,936			15,295			38,175			30,924
Segment operating income	404			409			906			850
Stock-based compensation	(391		)	(298		)	(711		)	(526		)
Other operating income (expense), net	(28		)	(32		)	(63		)	(64		)
Income (loss) from operations	(15		)	79			132			260
Total non-operating income (expense)	(12		)	(62		)	(39		)	(162		)
Benefit (provision) for income taxes	(94		)	(13		)	(167		)	6
Equity-method investment activity, net of tax	(5		)	(11		)	56			(29		)
Net income (loss)	$	(126	)	$	(7	)	$	(18	)	$	75

___________________

(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.

Revenue from External Customers by Products and Services

Net sales of similar products and services were as follows (in millions):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2014		2013		2014		2013
Net Sales:
Media	$	4,844	$	4,397	$	10,311	$	9,455
Electronics and other general merchandise	13,278		10,415		26,296		20,629
Other (1)	1,218		892		2,474		1,690
	$	19,340	$	15,704	$	39,081	$	31,774

___________________

(1) Includes sales from non-retail activities, such as Amazon Web Services (“AWS”), advertising services, and our co-branded credit card agreements.

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Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 5,057	$ 8,658
Marketable securities	2,929	3,789
Inventories	6,644	7,411
Accounts receivable, net and other	4,125	4,767
Total current assets	18,755	24,625
Property and equipment, net	14,089	10,949
Goodwill	2,677	2,655
Other assets	2,377	1,930
Total assets	37,898	40,159
Current liabilities:
Accounts payable	10,457	15,133
Accrued expenses and other	6,688	6,688
Unearned revenue	1,606	1,159
Total current liabilities	18,751	22,980
Long-term debt	3,119	3,191
Other long-term liabilities	5,426	4,242
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares - 500 Issued and outstanding shares - none	0	0
Common stock, $0.01 par value: Authorized shares - 5,000 Issued shares - 486 and 483 Outstanding shares - 462 and 459	5	5
Treasury stock, at cost	(1,837)	(1,837)
Additional paid-in capital	10,405	9,573
Accumulated other comprehensive loss	(143)	(185)
Retained earnings	2,172	2,190
Total stockholders’ equity	10,602	9,746
Total liabilities and stockholders’ equity	$ 37,898	$ 40,159

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Consolidated Statements Of Operations (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net product sales	$ 15,251	$ 12,752	$ 30,956	$ 26,023
Net services sales	4,089	2,952	8,125	5,751
Total net sales	19,340	15,704	39,081	31,774
Operating expenses
Cost of sales	13,399	11,209	27,453	23,010
Fulfillment	2,382	1,837	4,699	3,633
Marketing	943	675	1,813	1,307
Technology and content	2,226	1,586	4,217	2,969
General and administrative	377	286	704	531
Other operating expense (income), net	28	32	63	64
Total operating expenses	19,355	15,625	38,949	31,514
Income (loss) from operations	(15)	79	132	260
Interest income	11	9	21	19
Interest expense	(45)	(33)	(87)	(66)
Other income (expense), net	22	(38)	27	(115)
Total non-operating income (expense)	(12)	(62)	(39)	(162)
Income (loss) before income taxes	(27)	17	93	98
Benefit (provision) for income taxes	(94)	(13)	(167)	6
Equity-method investment activity, net of tax	(5)	(11)	56	(29)
Net income (loss)	$ (126)	$ (7)	$ (18)	$ 75
Basic earnings per share (in usd per share)	$ (0.27)	$ (0.02)	$ (0.04)	$ 0.16
Diluted earnings per share (in usd per share)	$ (0.27)	$ (0.02)	$ (0.04)	$ 0.16
Weighted average shares used in computation of earnings per share:
Basic (in shares)	461	456	460	455
Diluted (in shares)	461	456	460	463

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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Unaudited Interim Financial Information

Unaudited Interim Financial Information

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our consolidated balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for 2014 due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2013 Annual Report on Form 10-K.

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Amazon.com, Inc., its wholly-owned subsidiaries, and those entities in which we have a variable interest and of which we are the primary beneficiary (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, determining the selling price of products and services in multiple element revenue arrangements and determining the lives of these elements, incentive discount offers, sales returns, vendor funding, stock-based compensation forfeiture rates, income taxes, valuation and impairment of investments, inventory valuation and inventory purchase commitments, collectability of receivables, valuation of acquired intangibles and goodwill, depreciable lives of property and equipment, internal-use software and website development costs, acquisition purchase price allocations, investments in equity interests, and contingencies. Actual results could differ materially from those estimates.

Earnings per Share

Earnings per Share

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards from the diluted loss per share calculation as their inclusion would have an antidilutive effect.

Equity-method Investments

Equity-method Investments

Equity investments are accounted for using the equity method of accounting if the investment gives us the ability to exercise significant influence, but not control, over an investee. The total of our investments in equity-method investees, including identifiable intangible assets, deferred tax liabilities, and goodwill, is included within “Other assets” on our consolidated balance sheets. Our share of the earnings or losses as reported by equity-method investees, amortization of the related intangible assets, and related gains or losses, if any, are classified as “Equity-method investment activity, net of tax” on our consolidated statements of operations. Our share of the net income or loss of our equity-method investees includes operating and non-operating gains and charges, which can have a significant impact on our reported equity-method investment activity and the carrying value of those investments. In the event that net losses of the investee reduce our equity-method investment carrying amount to zero, additional net losses may be recorded if other investments in the investee, not accounted for under the equity method, are at-risk even if we have not committed to provide financial support to the investee. We regularly evaluate these investments, which are not carried at fair value, for other-than-temporary impairment. We also consider whether our equity-method investments generate sufficient cash flows from their operating or financing activities to meet their obligations and repay their liabilities when they come due.

We record purchases, including incremental purchases, of shares in equity-method investees at cost. Reductions in our ownership percentage of an investee, including through dilution, are generally valued at fair value, with the difference between fair value and our recorded cost reflected as a gain or loss in our equity-method investment activity. In the event we no longer have the ability to exercise significant influence over an equity-method investee, we would discontinue accounting for the investment under the equity method.

Recently Adopted Accounting Standards Policy [Text Block]

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016, with early adoption prohibited. We are currently evaluating the impact this ASU will have on our consolidated financial statements.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 16, 2014
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Trading Symbol	AMZN
Entity Registrant Name	AMAZON COM INC
Entity Central Index Key	0001018724
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		462,036,113

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Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Schedule of Weighted Average Number of Shares

The following table shows the calculation of diluted shares (in millions):

	Three Months Ended   June 30,		Six Months Ended   June 30,
	2014	2013	2014	2013
Shares used in computation of basic earnings per share	461	456	460	455
Total dilutive effect of outstanding stock awards	—	—	—	8
Shares used in computation of diluted earnings per share	461	456	460	463

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Consolidated Statements Of Operations (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Fulfillment
Stock-based compensation	$ 104	$ 81	$ 184	$ 142
Marketing
Stock-based compensation	32	24	59	40
Technology and content
Stock-based compensation	206	155	375	274
General and administrative
Stock-based compensation	$ 49	$ 38	$ 93	$ 70

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Equity-Method Investments

6 Months Ended

Jun. 30, 2014

Equity Method Investments and Joint Ventures [Abstract]

Equity-Method Investments

EQUITY-METHOD INVESTMENTS

LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in millions):

	Six Months Ended   June 30,
	2014			2013
Statements of Operations:
Revenue	$	152		$	205
Gross profit	120			154
Operating expenses	174			199
Operating loss from continuing operations	(54		)	(45		)
Net loss from continuing operations	(39		)	(42		)
Net income (loss) from discontinued operations (1)	204			(35		)
Net income (loss)	$	165		$	(77	)

___________________

(1) In January 2014, LivingSocial completed the sale of its Korean operations for approximately $260 million and, in Q1 2014, recognized a gain on disposal of $205 million, net of tax. The statement of operations information above has been recast to present the Korean operations as discontinued operations.

As of June 30, 2014, our total investment in LivingSocial is approximately 31% of voting stock and has a book value of $94 million.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Commitments

We have entered into non-cancellable operating, capital, and financing leases for equipment and office, fulfillment center, and data center facilities. Rental expense under operating lease agreements was $229 million and $180 million for Q22014 and Q22013, and $448 million and $348 million for the six months ended June 30, 2014 and 2013.

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of June 30, 2014 (in millions):

	Six Months Ended December 31,		Year Ended December 31,
	2014		2015		2016		2017		2018		Thereafter		Total
Operating and capital commitments:
Debt principal and interest	$	276	$	1,485	$	81	$	1,081	$	69	$	1,375	$	4,367
Capital leases, including interest	1,012		1,482		693		186		98		129		3,600
Financing lease obligations, including interest	34		68		69		70		72		658		971
Operating leases	423		752		714		636		563		2,472		5,560
Unconditional purchase obligations (1)	304		517		250		214		61		47		1,393
Other commitments (2) (3)	525		583		269		149		119		1,325		2,970
Total commitments	$	2,574	$	4,887	$	2,076	$	2,336	$	982	$	6,006	$	18,861

___________________

(1) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital content that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.

(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that have not been placed in service and digital content liabilities associated with long-term digital content assets with initial terms greater than one year.

(3) Excludes $590 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.

Pledged Assets

As of June 30, 2014, and December 31, 2013, we have pledged or otherwise restricted $550 million and $482 million of our cash, marketable securities, and certain property and equipment as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions.

Legal Proceedings

The Company is involved from time to time in claims, proceedings, and litigation, including the matters described in Item 8 of Part II, “Financial Statements and Supplementary Data — Note 8 — Commitments and Contingencies — Legal Proceedings” of our 2013 Annual Report on Form 10-K and in Item 1 of Part I, "Financial Statements — Note 3 — Commitments and Contingencies — Legal Proceedings" of our Quarterly Report on Form 10-Q for the Period Ended March 31, 2014, as supplemented by the following:

In April 2011, Walker Digital LLC filed several complaints against Amazon.com, Inc. for patent infringement in the United States District Court for the District of Delaware.  The complaints allege that we infringe several of the plaintiff’s U.S. patents by, among other things, providing “cross benefits” to customers through our promotions (U.S. Patent Nos. 7,831,470 and 7,827,056), using a customer’s identified original product to offer a substitute product (U.S. Patent No. 7,236,942), using our product recommendations and personalization features to offer complementary products together (U.S. Patent Nos. 6,601,036 and 6,138,105), enabling customers to subscribe to a delivery schedule for products they routinely use at reduced prices (U.S. Patent No. 5,970,470), and offering personalized advertising based on customers’ preferences identified using a data pattern (U.S. Patent No. 7,933,893).  Another complaint, filed in the same court in October 2011, alleges that we infringe plaintiff’s U.S. Patent No. 8,041,711 by offering personalized advertising based on customer preferences that associate data with resource locators. Another complaint, filed in the same court in February 2012, alleges that we infringe plaintiff’s U.S. Patent No. 8,112,359 by using product information received from customers to identify and offer substitute products using a manufacturer database.  In January 2013, the plaintiff filed another complaint in the same court alleging that we infringe U.S. Patent No. 6,381,582 by allowing customers to make local payments for products ordered online. All of the complaints seek monetary damages, interest, injunctive relief, costs, and attorneys’ fees.  In March 2013, the complaints asserting U.S. Patent Nos. 7,236,942 and 7,933,893 were voluntarily dismissed with prejudice. In April 2013, the case asserting U.S. Patent No. 8,041,711 was stayed pending final resolution of the reexamination of that patent. In June 2013, the court granted defendants’ motions to dismiss the complaints asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 8,112,359 for lack of standing.  In July 2013, we filed motions seeking entry of a final judgment dismissing those claims with prejudice and for attorneys' fees, and plaintiff filed notices of appeal from the June 2013 order granting the motions to dismiss.   In October 2013, the court ruled that its dismissals are with prejudice, and Walker has appealed those rulings. In March 2014, the court stayed the case asserting U.S. Patent Nos. 6,601,036 and 6,138,105 pending the appeal of the cases asserting U.S. Patent Nos. 7,831,470, 7,827,056, and 7,236,942.  We dispute the remaining allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In December 2011, Round Rock Research, LLC filed a complaint against Amazon.com, Inc. in the United States District Court for the District of Delaware.  The complaint alleges, among other things, that “RFID products” and “Kindle products with unlicensed DRAM” infringe: U.S. Patent Nos. 5,500,650 and 5,627,544, entitled “Data Communication Method Using Identification Protocol”; U.S. Patent No. 5,974,078, entitled "Modulated Spread Spectrum In RF Identification Systems Method”; U.S. Patent No. 6,459,726, entitled “Backscatter Interrogators, Communication Systems And Backscatter Communication Methods”; U.S. Patent No. RE41,531, entitled “Communications Systems For Radio Frequency Identification (RFID)”; U.S. Patent Nos. 6,975,556 and 7,106,646, entitled “Circuit And Method For Controlling A Clock Synchronizing Circuit For Low Power Refresh Operation”; U.S. Patent No. 7,221,020, entitled “Method To Construct A Self Aligned Recess Gate For DRAM Access Devices”; and U.S. Patent No. 7,389,369, entitled “Active Termination Control.”  In February 2012, the plaintiff filed an amended complaint that further alleges, among other things, that Kindle products allegedly including “unlicensed flash memory” infringe U.S. Patent No. 5,801,985, entitled “Memory System Having Programmable Control Parameters” and U.S. Patent No. 5,880,996, entitled “Memory System Having Non-Volatile Data Storage Structure For Memory Control Parameters And Method.”  In April 2012, the plaintiff filed a second amended complaint further alleging, among other things, that “RFID products” infringe U.S. Patent No. 5,266,925, entitled “Electronic Tag Interrogation Method,” U.S. Patent No. 5,583,850, entitled “Data Communication System Using Identification Protocol,” U.S. Patent No. 5,986,570, entitled “Method For Resolving Signal Collisions Between Multiple RFID Transponders In A Field,” U.S. Patent No. 7,265,674, entitled “Thin, Flexible RFID Labels, And Methods And Apparatus For Use,” and U.S. Patent No. RE41,562, entitled “System And Method For Electronic Tracking Of Units Associated With A Batch.”  The second amended complaint seeks an unspecified amount of damages, enhanced damages, interest, costs, and attorneys’ fees.  In April 2012, the case was stayed pending reexamination of ten of the asserted patents.  In April 2014, Round Rock dismissed without prejudice its claims concerning U.S. Patent Nos. 6,975,556, 7,106,646, 7,221,020, and 7,389,369.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In March 2012, OIP Technologies, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the United States District Court for the Northern District of California. The complaint alleged, among other things, that certain aspects of our pricing methods infringed U.S. Patent No. 7,970,713, entitled “Method And Apparatus For Automatic Pricing In Electronic Commerce.” The complaint sought three times an unspecified amount of damages, attorneys’ fees, and interest. In September 2012, the court invalidated the plaintiff’s patent and dismissed the case with prejudice. In September 2012, OIP appealed the judgment of the district court to the United States Court of Appeals for the Federal Circuit, which, in November 2012, stayed all proceedings pending its decision in a separate case that raises a related question of law and, in June 2013, continued the stay pending a decision by the United States Supreme Court. In July 2014, the court of appeals lifted the stay.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In April 2014, Spansion LLC filed complaints for patent infringement against Amazon.com, Inc. in both the United States District Court for the Northern District of California and the United States International Trade Commission. The complaints allege, among other things, that the Amazon Kindle Paperwhite infringes U.S. Patent No. 6,246,611, entitled “System For Erasing A Memory Cell,” and U.S. Patent No. 6,744,666, entitled “Method And System To Minimize Page Programming Time For Flash Memory Devices.” The district court complaint seeks an unspecified amount of damages, enhanced damages, attorneys’ fees, interest, and injunctive relief. The International Trade Commission complaint seeks an exclusion order preventing the importation of Kindle Paperwhites into the United States, as well as a cease-and-desist order barring sale of Kindle Paperwhites after importation. In June 2014, the district court case was stayed pending resolution of the International Trade Commission action. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in these matters.

In June 2014, SimpleAir, Inc. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas.  The complaint alleges, among other things, that Amazon Device Messaging and Simple Notification Service infringe U.S Patent Nos. 7,035,914, 8,090,803, 8,572,279, 8,601,154, and 8,639,838, all of which are entitled “System and Method for Transmission of Data.” The complaint seeks an unspecified amount of damages, pre-judgment interest, costs, attorneys’ fees, enhanced damages, and injunctive relief.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

In June 2014, Enterprise Systems Technologies S.a.r.l. filed a complaint against Amazon.com, Inc. in the United States District Court for the Eastern District of Texas.  The complaint alleges, among other things, that Amazon’s sale of consumer electronics from Apple, Samsung, and Motorola infringes U.S. Patent No. 5,870,610, entitled “Autoconfigurable Method And System Having Automated Downloading,” U.S. Patent No. 6,785,381, entitled “Telephone Having Improved Hands Free Operation Audio Quality And Method Of Operation Thereof,” U.S. Patent No. 6,549,366, entitled “Headset/Radio Audio Sensing Jack,” and U.S. Patent No. 7,454,201, entitled “System For Providing Messages Through A Private Network And Mobile Station.”  The complaint further alleges that Kindle Fire HDX devices infringe U.S. Patent No. 6,236,642, entitled “Apparatus And Method For Network Resource Preservation.”  The complaint seeks an unspecified amount of damages, interest, costs, and attorneys’ fees.  We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.

The outcomes of our legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to our operating results and cash flows for a particular period.  In addition, for some matters for which a loss is probable or reasonably possible, an estimate of the amount of loss or range of loss is not possible and we may be unable to estimate the possible loss or range of loss that could potentially result from the application of non-monetary remedies.

See also “Note 7 — Income Taxes.”

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Nonvested Restricted Stock Units Activity

The following table summarizes our restricted stock unit activity for the six months ended June 30, 2014 (in millions):

	Number of Units		Weighted Average Grant-Date Fair Value
Outstanding as of December 31, 2013	16.3		$	233
Units granted	5.1		332
Units vested	(2.6	)	192
Units forfeited	(1.2	)	251
Outstanding as of June 30, 2014	17.6		$	266

Nonvested Share Activity

Scheduled vesting for outstanding restricted stock units as of June 30, 2014, is as follows (in millions):

	Six Months Ended December 31,	Year Ended December 31,
	2014	2015	2016	2017	2018	Thereafter	Total
Scheduled vesting—restricted stock units	2.6	5.9	5.7	2.4	0.7	0.3	17.6

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Cash, Cash Equivalents, and Marketable Securities (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Fair Value by Balance Sheet Grouping

The following table summarizes, by major security type, our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions):

	June 30, 2014										December 31, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Total Estimated Fair Value			Total Estimated Fair Value
Cash	$	2,962	$	—	$	—		$	2,962		$	3,008
Level 1 securities:
Money market funds	2,462		—		—			2,462			5,914
Equity securities	2		1		—			3			4
Level 2 securities:
Foreign government and agency securities	358		2		—			360			758
U.S. government and agency securities	1,799		2		(2		)	1,799			2,222
Corporate debt securities	681		4		—			685			741
Asset-backed securities	68		—		—			68			65
Other fixed income securities	36		—		—			36			36
	$	8,368	$	9	$	(2	)	$	8,375		$	12,748
Less: Restricted cash, cash equivalents, and marketable securities (1)								(389		)	(301		)
Total cash, cash equivalents, and marketable securities								$	7,986		$	12,447

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(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions. We classify cash and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 3 — Commitments and Contingencies.”

Investments Classified by Contractual Maturity Date

The following table summarizes the contractual maturities of our cash equivalent and marketable fixed-income securities as of June 30, 2014 (in millions):

	Amortized Cost		Estimated Fair Value
Due within one year	$	3,598	$	3,599
Due after one year through five years	1,462		1,467
Due after five years through ten years	126		126
Due after ten years	218		218
	$	5,404	$	5,410

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Income Taxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do business, acquisitions (including integrations) and investments, audit developments, foreign currency gains (losses), changes in law, regulations, and administrative practices, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, our effective tax rate can be more or less volatile based on the amount of pre-tax income. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

In 2014, our effective tax rate will be significantly affected by the favorable impact of earnings in lower tax rate jurisdictions and the adverse effect of losses incurred in certain foreign jurisdictions for which we may not realize a tax benefit. Income earned in lower tax jurisdictions is primarily related to our European operations, which are headquartered in Luxembourg. Losses for which we may not realize a related tax benefit, primarily due to losses of foreign subsidiaries, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase our effective tax rate. We have recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax benefit. Our effective tax rate may also be adversely impacted by the amount of our pretax income relative to our income tax expense, nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at the end of 2013.

Tax expense for the six months ended June 30, 2014 was $167 million, which included $91 million of discrete tax items primarily attributable to audit-related developments. In the six months ended June 30, 2013, we recognized an income tax benefit of $6 million, which included $51 million of discrete tax benefits primarily resulting from the retroactive reinstatement of the federal research and development credit that was enacted in January 2013.

Cash paid for income taxes (net of refunds) was $71 million and $34 million in Q22014 and Q22013, and $109 million and $120 million for the six months ended June 30, 2014 and 2013.

As of June 30, 2014, and December 31, 2013, tax contingencies were $590 million and $407 million. We expect the total amount of tax contingencies will grow in 2014. In addition, changes in state, federal, and foreign tax laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on prior years’ tax filings.

We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for the calendar year 2005 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses. As previously disclosed, we have received Notices of Proposed Adjustment from the IRS for the 2005 and 2006 calendar years relating to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S. taxable income by an amount that would result in additional federal tax over a seven year period beginning in 2005, totaling approximately $1.5 billion, subject to interest. To date, we have not resolved this matter administratively and, in December 2012, we petitioned the U.S. Tax Court to resolve the matter. We continue to disagree with these IRS positions and intend to defend ourselves vigorously in this matter.

Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by the French Tax Administration (“FTA”) for calendar year 2006 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes. While we have not yet received a final assessment from the FTA, in September 2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. The notices propose additional French tax of approximately $250 million, including interest and penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it vigorously. We plan to pursue all available administrative remedies at the FTA, and if we are not able to resolve this matter with the FTA, we plan to pursue judicial remedies. We are also subject to taxation in various states and other foreign jurisdictions including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments by these particular tax authorities for the calendar year 2003 and thereafter.

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Long-Term Debt

6 Months Ended

Jun. 30, 2014

Debt Disclosure [Abstract]

Long-Term Debt

LONG-TERM DEBT

In November 2012, we issued $3.0 billion of unsecured senior notes in three tranches as described in the table below (collectively, the “Notes”). As of June 30, 2014, and December 31, 2013, the unamortized discount on the Notes was $21 million and $23 million. We also have other long-term debt with a carrying amount, including the current portion, of $1.0 billion and $967 million as of June 30, 2014 and December 31, 2013. The face value of our total long-term debt obligations is as follows (in millions):

	June 30, 2014			December 31, 2013
0.65% Notes due on November 27, 2015	$	750		$	750
1.20% Notes due on November 29, 2017	1,000			1,000
2.50% Notes due on November 29, 2022	1,250			1,250
Other long-term debt	1,000			967
Total debt	4,000			3,967
Less current portion of long-term debt	(860		)	(753		)
Face value of long-term debt	$	3,140		$	3,214

The effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%. Interest on the Notes is payable semi-annually in arrears in May and November. We may redeem the Notes at any time in whole, or from time to time, in part at specified redemption prices. We are not subject to any financial covenants under the Notes. We used the net proceeds from the issuance of the Notes for general corporate purposes. The estimated fair value of the Notes was approximately $2.9 billion as of June 30, 2014 and December 31, 2013, which is based on quoted prices for our publicly-traded debt as of those dates.

The other debt, including the current portion, had a weighted average interest rate of 5.6% and 5.5% as of June 30, 2014 and December 31, 2013. We used the net proceeds from the issuance of the debt to primarily fund certain international operations. The estimated fair value of the other long-term debt, which is based on Level 2 inputs, approximated its carrying value as of June 30, 2014 and December 31, 2013.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2014

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS' EQUITY

Stock Repurchase Activity

In January 2010, our Board of Directors authorized the Company to repurchase up to $2.0 billion of our common stock with no fixed expiration. We have $763 million remaining under the $2.0 billion repurchase program.

Stock Award Activity

Common shares outstanding plus shares underlying outstanding stock awards totaled 480 million as of June 30, 2014, and 476 million as of December 31, 2013. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. The following table summarizes our restricted stock unit activity for the six months ended June 30, 2014 (in millions):

	Number of Units		Weighted Average Grant-Date Fair Value
Outstanding as of December 31, 2013	16.3		$	233
Units granted	5.1		332
Units vested	(2.6	)	192
Units forfeited	(1.2	)	251
Outstanding as of June 30, 2014	17.6		$	266

Scheduled vesting for outstanding restricted stock units as of June 30, 2014, is as follows (in millions):

	Six Months Ended December 31,	Year Ended December 31,
	2014	2015	2016	2017	2018	Thereafter	Total
Scheduled vesting—restricted stock units	2.6	5.9	5.7	2.4	0.7	0.3	17.6

As of June 30, 2014, there was $2.2 billion of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis with approximately half of the compensation expected to be expensed in the next twelve months, and has a weighted average recognition period of 1.2 years.

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Segment Information

6 Months Ended

Jun. 30, 2014

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

We have organized our operations into two segments: North America and International. We present our segment information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and allocating resources.

We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative,” but exclude from our allocations the portions of these expense lines attributable to stock-based compensation. We do not allocate the line item “Other operating expense (income), net” to our segment operating results. A majority of our costs for “Technology and content” are incurred in the U.S. and most of these costs are allocated to our North America segment. There are no internal revenue transactions between our reporting segments.

Information on reportable segments and reconciliation to consolidated net income (loss) is as follows (in millions):

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2014			2013			2014			2013
North America
Net sales	$	11,998		$	9,495		$	23,856		$	18,886
Segment operating expenses (1)	11,560			9,086			22,856			18,020
Segment operating income	$	438		$	409		$	1,000		$	866
International
Net sales	$	7,342		$	6,209		$	15,225		$	12,888
Segment operating expenses (1)	7,376			6,209			15,319			12,904
Segment operating income (loss)	$	(34	)	$	—		$	(94	)	$	(16	)
Consolidated
Net sales	$	19,340		$	15,704		$	39,081		$	31,774
Segment operating expenses (1)	18,936			15,295			38,175			30,924
Segment operating income	404			409			906			850
Stock-based compensation	(391		)	(298		)	(711		)	(526		)
Other operating income (expense), net	(28		)	(32		)	(63		)	(64		)
Income (loss) from operations	(15		)	79			132			260
Total non-operating income (expense)	(12		)	(62		)	(39		)	(162		)
Benefit (provision) for income taxes	(94		)	(13		)	(167		)	6
Equity-method investment activity, net of tax	(5		)	(11		)	56			(29		)
Net income (loss)	$	(126	)	$	(7	)	$	(18	)	$	75

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(1) Represents operating expenses, excluding stock-based compensation and “Other operating expense (income), net,” which are not allocated to segments.

Net sales of similar products and services were as follows (in millions):

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2014		2013		2014		2013
Net Sales:
Media	$	4,844	$	4,397	$	10,311	$	9,455
Electronics and other general merchandise	13,278		10,415		26,296		20,629
Other (1)	1,218		892		2,474		1,690
	$	19,340	$	15,704	$	39,081	$	31,774

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(1) Includes sales from non-retail activities, such as Amazon Web Services (“AWS”), advertising services, and our co-branded credit card agreements.

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Stockholders Equity - Additional Information (Detail) (USD $) Share data in Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2014 Share Repurchase Program, 2010	Jan. 31, 2010 Share Repurchase Program, 2010
Stockholders Equity Note [Line Items]
Repurchase program authorized by Board of Directors				$ 2,000,000,000
Repurchase program authorized, remaining common stock			763,000,000
Common shares outstanding plus shares underlying outstanding stock awards, including all stock-based awards outstanding, including estimated forfeiture	480	476
Net unrecognized compensation cost related to unvested stock-based compensation arrangements	$ 2,200,000,000
Net unrecognized compensation cost related to unvested stock-based compensation arrangements, weighted average recognition period (in years)	1 year 2 months 12 days

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Equity-Method Investments (Tables)

6 Months Ended

Jun. 30, 2014

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments Summarized Financial Information

LivingSocial’s summarized condensed financial information, as provided to us by LivingSocial, is as follows (in millions):

	Six Months Ended   June 30,
	2014			2013
Statements of Operations:
Revenue	$	152		$	205
Gross profit	120			154
Operating expenses	174			199
Operating loss from continuing operations	(54		)	(45		)
Net loss from continuing operations	(39		)	(42		)
Net income (loss) from discontinued operations (1)	204			(35		)
Net income (loss)	$	165		$	(77	)

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(1) In January 2014, LivingSocial completed the sale of its Korean operations for approximately $260 million and, in Q1 2014, recognized a gain on disposal of $205 million, net of tax. The statement of operations information above has been recast to present the Korean operations as discontinued operations.

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Cash, Cash Equivalents, and Marketable Securities - Summary by Major Security Type Cash Cash Equivalents and Marketable Securities Measured at Fair Value on Recurring Basis and Categorized Using Fair Value Hierarchy (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Cash, cash equivalents and marketable securities [Line Items]
Less: Restricted cash, cash equivalents, and marketable securities	$ (389)	[1]	$ (301)	[1]
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	7,986		12,447
Cash
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	2,962
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	2,962		3,008
Cash, cash equivalents, and marketable securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	8,368
Gross Unrealized Gains	9
Gross Unrealized Losses	(2)
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	8,375		12,748
Level 1 Securities | Money market funds
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	2,462
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	2,462		5,914
Level 1 Securities | Equity securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	2
Gross Unrealized Gains	1
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	3		4
Level 2 Securities | Foreign government and agency securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	358
Gross Unrealized Gains	2
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	360		758
Level 2 Securities | U.S. government and agency securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	1,799
Gross Unrealized Gains	2
Gross Unrealized Losses	(2)
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	1,799		2,222
Level 2 Securities | Corporate debt securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	681
Gross Unrealized Gains	4
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	685		741
Level 2 Securities | Asset-backed securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	68
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	68		65
Level 2 Securities | Other fixed income securities
Cash, cash equivalents and marketable securities [Line Items]
Cost or Amortized Cost	36
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Cash, Cash Equivalents, and Short-term Investments Total Estimated Fair Value	$ 36		$ 36

[1] We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions. We classify cash and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 3 — Commitments and Contingencies.”

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net income (loss)	$ (126)	$ (7)	$ (18)	$ 75
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $0, $(4), $1 and $(13)	11	7	39	(71)
Net change in unrealized gains on available-for-sale securities:
Unrealized gains (losses), net of tax of $0, $3, $(1) and $4	3	(7)	4	(9)
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0, $0, $0 and $0	(1)	0	(1)	0
Net unrealized gains (losses) on available-for-sale securities	2	(7)	3	(9)
Total other comprehensive income (loss)	13	0	42	(80)
Comprehensive income (loss)	$ (113)	$ (7)	$ 24	$ (5)

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Cash, Cash Equivalents, and Marketable Securities

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Cash, Cash Equivalents, and Marketable Securities

CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES

As of June 30, 2014, and December 31, 2013, our cash, cash equivalents, and marketable securities primarily consisted of cash, U.S. and foreign government and agency securities, AAA-rated money market funds, and other investment grade securities. Cash equivalents and marketable securities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

We measure the fair value of money market funds and equity securities based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data. We did not hold any cash, cash equivalents, or marketable securities categorized as Level 3 as of June 30, 2014 or December 31, 2013.

The following table summarizes, by major security type, our cash, cash equivalents, and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in millions):

	June 30, 2014										December 31, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Total Estimated Fair Value			Total Estimated Fair Value
Cash	$	2,962	$	—	$	—		$	2,962		$	3,008
Level 1 securities:
Money market funds	2,462		—		—			2,462			5,914
Equity securities	2		1		—			3			4
Level 2 securities:
Foreign government and agency securities	358		2		—			360			758
U.S. government and agency securities	1,799		2		(2		)	1,799			2,222
Corporate debt securities	681		4		—			685			741
Asset-backed securities	68		—		—			68			65
Other fixed income securities	36		—		—			36			36
	$	8,368	$	9	$	(2	)	$	8,375		$	12,748
Less: Restricted cash, cash equivalents, and marketable securities (1)								(389		)	(301		)
Total cash, cash equivalents, and marketable securities								$	7,986		$	12,447

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(1) We are required to pledge or otherwise restrict a portion of our cash, cash equivalents, and marketable securities as collateral for standby and trade letters of credit, guarantees, debt, real estate leases, and amounts due to third-party sellers in certain jurisdictions. We classify cash and marketable securities with use restrictions of less than twelve months as “Accounts receivable, net and other” and of twelve months or longer as non-current “Other assets” on our consolidated balance sheets. See “Note 3 — Commitments and Contingencies.”

The following table summarizes the contractual maturities of our cash equivalent and marketable fixed-income securities as of June 30, 2014 (in millions):

	Amortized Cost		Estimated Fair Value
Due within one year	$	3,598	$	3,599
Due after one year through five years	1,462		1,467
Due after five years through ten years	126		126
Due after ten years	218		218
	$	5,404	$	5,410

Actual maturities may differ from the contractual maturities because borrowers may have certain prepayment conditions.

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Cash, Cash Equivalents, and Marketable Securities - Summary of Contractual Maturities of Cash Equivalent and Marketable Fixed Income Securities (Detail) (USD $) In Millions, unless otherwise specified	Jun. 30, 2014
Investments Classified by Contractual Maturity Date [Line Items]
Amortized Cost	$ 5,404
Estimated Fair Value	5,410
Due within one year
Investments Classified by Contractual Maturity Date [Line Items]
Amortized Cost	3,598
Estimated Fair Value	3,599
Due after one year through five years
Investments Classified by Contractual Maturity Date [Line Items]
Amortized Cost	1,462
Estimated Fair Value	1,467
Due after five years through ten years
Investments Classified by Contractual Maturity Date [Line Items]
Amortized Cost	126
Estimated Fair Value	126
Due after ten years
Investments Classified by Contractual Maturity Date [Line Items]
Amortized Cost	218
Estimated Fair Value	$ 218

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Segment Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2014 Segment
Segment Reporting [Abstract]
Number of segments	2

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments Disclosure

The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of June 30, 2014 (in millions):

	Six Months Ended December 31,		Year Ended December 31,
	2014		2015		2016		2017		2018		Thereafter		Total
Operating and capital commitments:
Debt principal and interest	$	276	$	1,485	$	81	$	1,081	$	69	$	1,375	$	4,367
Capital leases, including interest	1,012		1,482		693		186		98		129		3,600
Financing lease obligations, including interest	34		68		69		70		72		658		971
Operating leases	423		752		714		636		563		2,472		5,560
Unconditional purchase obligations (1)	304		517		250		214		61		47		1,393
Other commitments (2) (3)	525		583		269		149		119		1,325		2,970
Total commitments	$	2,574	$	4,887	$	2,076	$	2,336	$	982	$	6,006	$	18,861

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(1) Includes unconditional purchase obligations related to long-term agreements to acquire and license digital content that are not reflected on the consolidated balance sheets. For those agreements with variable terms, we do not estimate what the total obligation may be beyond any minimum quantities and/or pricing as of the reporting date. Purchase obligations associated with renewal provisions solely at the option of the content provider are included to the extent such commitments are fixed or a minimum amount is specified.

(2) Includes the estimated timing and amounts of payments for rent and tenant improvements associated with build-to-suit lease arrangements that have not been placed in service and digital content liabilities associated with long-term digital content assets with initial terms greater than one year.

(3) Excludes $590 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any.