10-Q 1 amzn-20150630x10q.htm 10-Q AMZN-2015.06.30-10Q
 
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, 2015
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

467,710,218 shares of common stock, par value $0.01 per share, outstanding as of July 15, 2015
 



AMAZON.COM, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 2015
INDEX
 


2


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,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$
10,237

 
$
5,074

 
$
14,557

 
$
8,658

 
$
5,057

 
$
3,704

OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
92

 
(126
)
 
35

 
(18
)
 
(188
)
 
181

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, including capitalized content costs
1,504

 
1,109

 
2,930

 
2,119

 
5,557

 
3,916

Stock-based compensation
563

 
391

 
969

 
711

 
1,755

 
1,318

Other operating expense (income), net
42

 
28

 
87

 
62

 
153

 
113

Losses (gains) on sales of marketable securities, net
1

 
(1
)
 
2

 
(1
)
 
(1
)
 
1

Other expense (income), net
18

 
(8
)
 
109

 
(57
)
 
229

 
(1
)
Deferred income taxes
(43
)
 
(49
)
 
(45
)
 
(234
)
 
(130
)
 
(332
)
Excess tax benefits from stock-based compensation
(95
)
 

 
(117
)
 
(121
)
 
(1
)
 
(199
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
Inventories
(27
)
 
92

 
693

 
791

 
(1,291
)
 
(1,124
)
Accounts receivable, net and other
(430
)
 
(299
)
 
11

 
428

 
(1,456
)
 
(936
)
Accounts payable
373

 
(344
)
 
(3,876
)
 
(5,018
)
 
2,901

 
1,056

Accrued expenses and other
(129
)
 
(15
)
 
(1,068
)
 
(746
)
 
387

 
770

Additions to unearned revenue
1,397

 
894

 
3,200

 
1,986

 
5,647

 
3,477

Amortization of previously unearned revenue
(1,269
)
 
(810
)
 
(2,432
)
 
(1,542
)
 
(4,582
)
 
(2,913
)
Net cash provided by (used in) operating activities
1,997

 
862

 
498

 
(1,640
)
 
8,980

 
5,327

INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment, including internal-use software and website development
(1,213
)
 
(1,290
)
 
(2,084
)
 
(2,370
)
 
(4,607
)
 
(4,288
)
Acquisitions, net of cash acquired, and other
(8
)
 
(67
)
 
(374
)
 
(66
)
 
(1,287
)
 
(127
)
Sales and maturities of marketable securities
470

 
962

 
845

 
1,555

 
2,639

 
2,565

Purchases of marketable securities
(625
)
 
(336
)
 
(1,610
)
 
(773
)
 
(3,379
)
 
(1,710
)
Net cash provided by (used in) investing activities
(1,376
)
 
(731
)
 
(3,223
)
 
(1,654
)
 
(6,634
)
 
(3,560
)
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Excess tax benefits from stock-based compensation
95

 

 
117

 
121

 
1

 
199

Proceeds from long-term debt
44

 
286

 
226

 
351

 
6,236

 
627

Repayments of long-term debt
(215
)
 
(178
)
 
(531
)
 
(247
)
 
(797
)
 
(334
)
Principal repayments of capital lease obligations
(580
)
 
(285
)
 
(1,082
)
 
(535
)
 
(1,832
)
 
(969
)
Principal repayments of finance lease obligations
(35
)
 
(12
)
 
(74
)
 
(54
)
 
(155
)
 
(60
)
Net cash provided by (used in) financing activities
(691
)
 
(189
)
 
(1,344
)
 
(364
)
 
3,453

 
(537
)
Foreign-currency effect on cash and cash equivalents
102

 
41

 
(219
)
 
57

 
(587
)
 
123

Net increase (decrease) in cash and cash equivalents
32

 
(17
)
 
(4,288
)
 
(3,601
)
 
5,212

 
1,353

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
10,269

 
$
5,057

 
$
10,269

 
$
5,057

 
$
10,269

 
$
5,057

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
 
 
 
 
 
 
 
Cash paid for interest on long-term debt
$
152

 
$
31

 
$
169

 
$
49

 
$
212

 
$
94

Cash paid for income taxes (net of refunds)
65

 
71

 
119

 
109

 
188

 
158

Property and equipment acquired under capital leases
1,384

 
920

 
2,338

 
1,636

 
4,710

 
2,716

Property and equipment acquired under build-to-suit leases
153

 
237

 
256

 
363

 
813

 
846

See accompanying notes to consolidated financial statements.

3


AMAZON.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
 
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net product sales
$
17,104

 
$
15,251

 
$
34,187

 
$
30,956

Net service sales
6,081

 
4,089

 
11,714

 
8,125

Total net sales
23,185

 
19,340

 
45,901

 
39,081

Operating expenses (1):
 
 
 
 
 
 
 
Cost of sales
15,160

 
13,399

 
30,555

 
27,453

Fulfillment
2,876

 
2,382

 
5,634

 
4,699

Marketing
1,150

 
943

 
2,233

 
1,813

Technology and content
3,020

 
2,226

 
5,774

 
4,217

General and administrative
467

 
377

 
894

 
704

Other operating expense (income), net
48

 
28

 
92

 
63

Total operating expenses
22,721

 
19,355

 
45,182

 
38,949

Income (loss) from operations
464

 
(15
)
 
719

 
132

Interest income
12

 
11

 
23

 
21

Interest expense
(114
)
 
(45
)
 
(228
)
 
(87
)
Other income (expense), net

 
22

 
(131
)
 
27

Total non-operating income (expense)
(102
)
 
(12
)
 
(336
)
 
(39
)
Income (loss) before income taxes
362

 
(27
)
 
383

 
93

Provision for income taxes
(266
)
 
(94
)
 
(337
)
 
(167
)
Equity-method investment activity, net of tax
(4
)
 
(5
)
 
(11
)
 
56

Net income (loss)
$
92

 
$
(126
)
 
$
35

 
$
(18
)
Basic earnings per share
$
0.20

 
$
(0.27
)
 
$
0.07

 
$
(0.04
)
Diluted earnings per share
$
0.19

 
$
(0.27
)
 
$
0.07

 
$
(0.04
)
Weighted average shares used in computation of earnings per share:
 
 
 
 
 
 
 
Basic
467

 
461

 
466

 
460

Diluted
476

 
461

 
475

 
460

_____________
 
 
 
 
 
 
 
(1)    Includes stock-based compensation as follows:
 
 
 
 
 
 
 
Fulfillment
$
132

 
$
104

 
$
222

 
$
184

Marketing
50

 
32

 
84

 
59

Technology and content
319

 
206

 
552

 
375

General and administrative
62

 
49

 
111

 
93

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,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
92

 
$
(126
)
 
$
35

 
$
(18
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments, net of tax of $1, $0, $0, and $1
128

 
11

 
(114
)
 
39

Net change in unrealized gains on available-for-sale securities:
 
 
 
 
 
 
 
Unrealized gains, net of tax of $(8), $0, $(8), and $(1)
6

 
3

 
7

 
4

Reclassification adjustment for losses included in “Other income (expense), net,” net of tax of $0, $0, $(1), and $0
1

 
(1
)
 
1

 
(1
)
Net unrealized gains on available-for-sale securities
7

 
2

 
8

 
3

Total other comprehensive income (loss)
135

 
13

 
(106
)
 
42

Comprehensive income (loss)
$
227

 
$
(113
)
 
$
(71
)
 
$
24

See accompanying notes to consolidated financial statements.


5


AMAZON.COM, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
 
 
June 30, 2015
 
December 31, 2014
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
10,269

 
$
14,557

Marketable securities
3,732

 
2,859

Inventories
7,470

 
8,299

Accounts receivable, net and other
4,920

 
5,612

Total current assets
26,391

 
31,327

Property and equipment, net
19,479

 
16,967

Goodwill
3,523

 
3,319

Other assets
3,047

 
2,892

Total assets
$
52,440

 
$
54,505

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
12,391

 
$
16,459

Accrued expenses and other
8,959

 
9,807

Unearned revenue
2,562

 
1,823

Total current liabilities
23,912

 
28,089

Long-term debt
8,250

 
8,265

Other long-term liabilities
8,510

 
7,410

Commitments and contingencies (Note 3)


 


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 — 491 and 488
 
 
 
Outstanding shares — 468 and 465
5

 
5

Treasury stock, at cost
(1,837
)
 
(1,837
)
Additional paid-in capital
12,233

 
11,135

Accumulated other comprehensive loss
(617
)
 
(511
)
Retained earnings
1,984

 
1,949

Total stockholders’ equity
11,768

 
10,741

Total liabilities and stockholders’ equity
$
52,440

 
$
54,505

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 2015 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 2014 Annual Report on Form 10-K.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation, including the expanded presentation of “Net cash provided by (used in) financing activities” on our consolidated statements of cash flows and recasting the segment financial information within “Note 4 — Acquisitions, Goodwill, and Acquired Intangible Assets” and “Note 8 — Segment Information” as a result of changing our reportable segments to include an Amazon Web Services (“AWS”) segment.
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 amortization period 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 have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect. In Q2 2014 and for the six months ended June 30, 2014, we excluded stock awards of 8 million.
The following table shows the calculation of diluted shares (in millions):
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Shares used in computation of basic earnings per share
467

 
461

 
466

 
460

Total dilutive effect of outstanding stock awards
9

 

 
9

 

Shares used in computation of diluted earnings per share
476

 
461

 
475

 
460


7


Note 2 — CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
As of June 30, 2015, and December 31, 2014, 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 assets as of June 30, 2015, or December 31, 2014.
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, 2015
 
December 31, 2014
  
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Total
Estimated
Fair Value
 
Total
Estimated
Fair Value
Cash
$
4,368

 
$

 
$

 
$
4,368

 
$
4,155

Level 1 securities:
 
 
 
 
 
 
 
 
 
Money market funds
6,056

 

 

 
6,056

 
10,718

Equity securities
4

 
18

 

 
22

 
4

Level 2 securities:
 
 
 
 
 
 
 
 
 
Foreign government and agency securities
63

 

 

 
63

 
80

U.S. government and agency securities
3,037

 
2

 
(2
)
 
3,037

 
2,406

Corporate debt securities
468

 
1

 
(1
)
 
468

 
401

Asset-backed securities
111

 

 

 
111

 
69

Other fixed income securities
44

 

 

 
44

 
33

 
$
14,151

 
$
21

 
$
(3
)
 
$
14,169

 
$
17,866

Less restricted cash, cash equivalents, and marketable securities (1)
 
 
 
 
 
 
(168
)
 
(450
)
Total cash, cash equivalents, and marketable securities
 
 
 
 
 
 
$
14,001

 
$
17,416

___________________
(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, cash equivalents, 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.”


8


The following table summarizes the contractual maturities of our cash equivalents and marketable fixed-income securities as of June 30, 2015 (in millions):

 
Amortized
Cost
 
Estimated
Fair Value
Due within one year
$
8,230

 
$
8,230

Due after one year through five years
1,218

 
1,218

Due after five years through ten years
145

 
145

Due after ten years
186

 
186

Total
$
9,779

 
$
9,779

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 finance leases for equipment and office, fulfillment, sortation, delivery, data center, and renewable energy facilities. Rental expense under operating lease agreements was $267 million and $229 million for Q2 2015 and Q2 2014, and $533 million and $448 million for the six months ended June 30, 2015 and 2014.
The following summarizes our principal contractual commitments, excluding open orders for purchases that support normal operations, as of June 30, 2015 (in millions): 
 
Six Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Operating and capital commitments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt principal and interest
$
1,392

 
$
323

 
$
1,322

 
$
310

 
$
1,272

 
$
9,403

 
$
14,022

Capital lease obligations, including interest
1,459

 
2,436

 
1,795

 
461

 
182

 
126

 
6,459

Finance lease obligations, including interest
93

 
134

 
137

 
140

 
142

 
1,339

 
1,985

Operating leases
500

 
861

 
798

 
709

 
620

 
2,600

 
6,088

Unconditional purchase obligations (1)
278

 
581

 
455

 
318

 
101

 
15

 
1,748

Other commitments (2) (3)
578

 
355

 
223

 
151

 
113

 
1,110

 
2,530

Total commitments
$
4,300

 
$
4,690

 
$
4,730

 
$
2,089

 
$
2,430

 
$
14,593

 
$
32,832

___________________
(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 the total obligation 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 media content liabilities associated with long-term media content assets with initial terms greater than one year.
(3)
Excludes $854 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, 2015, and December 31, 2014, we have pledged or otherwise restricted $311 million and $602 million of our cash, cash equivalents, and marketable securities, and certain property and equipment as collateral for standby and trade letters of credit, guarantees, debt relating to certain international operations, real estate leases, and amounts due to third-party sellers in certain jurisdictions.

9


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 2014 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, 2015, as supplemented by the following:
In December 2013, Appistry, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the Eastern District of Missouri. The complaint alleges, among other things, that Amazon’s Elastic Compute Cloud infringes U.S. Patent Nos. 8,200,746, entitled “System And Method For Territory-Based Processing Of Information,” and 8,341,209, entitled “System And Method For Processing Information Via Networked Computers Including Request Handlers, Process Handlers, And Task Handlers.” The complaint seeks injunctive relief, an unspecified amount of monetary damages, treble damages, costs, and interest. In March 2015, the case was transferred to the United States District Court for the Western District of Washington. In July 2015, the court granted our motion for judgment on the pleadings and invalidated the patents-in-suit. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In December 2013, ContentGuard Holdings, Inc. filed a complaint against Amazon.com, Inc. for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that certain digital rights management software used by various Kindle Fire software applications, including the Kindle Reader and Amazon Instant Video, infringe seven U.S. Patents: Nos. 6,963,859, entitled “Content Rendering Repository”; 7,523,072, entitled “System For Controlling The Distribution And Use Of Digital Works”; 7,269,576, entitled “Content Rendering Apparatus”; 8,370,956, entitled “System And Method For Rendering Digital Content In Accordance With Usage Rights Information”; 8,393,007, entitled “System And Method For Distributing Digital Content In Accordance With Usage Rights Information”; 7,225,160, entitled “Digital Works Having Usage Rights And Method For Creating The Same”; and 8,583,556, entitled “Method For Providing A Digital Asset For Distribution.” In January 2014, ContentGuard filed an amended complaint that, among other things, added HTC Corporation and HTC America as defendants. The complaint seeks an unspecified amount of damages, an injunction, enhanced damages, attorneys’ fees, costs, and interest. In May 2015, ContentGuard’s damages expert opined that in the event of a finding of liability Amazon could be subject to up to $230 million in damages. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In March 2014, Kaavo, Inc. filed a complaint against Amazon.com, Inc. and Amazon Web Services, Inc. for patent infringement in the United States District Court for the District of Delaware. The complaint alleges, among other things, that Amazon Web Services’ Elastic Beanstalk and CloudFormation infringe U.S. Patent No. 8,271,974, entitled “Cloud Computing Lifecycle Management For N-Tier Applications.” The complaint seeks injunctive relief, an unspecified amount of monetary damages, costs, and interest. In June 2015, the case was stayed pending resolution of a motion for judgment on the pleadings in a related case. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In December 2014, Smartflash LLC and Smartflash Technologies Limited filed a complaint against Amazon.com, Inc., Amazon.com, LLC, AMZN Mobile, LLC, Amazon Web Services, Inc. and Audible, Inc. for patent infringement in the United States District Court for the Eastern District of Texas. The complaint alleges, among other things, that Amazon Appstore, Amazon Instant Video, Amazon Music, Audible Audiobooks, the Amazon Mobile Ad Network, certain Kindle and Fire devices, Kindle e-bookstore, Amazon’s proprietary Android operating system, and the servers involved in operating Amazon Appstore, Amazon Instant Video, Amazon Music, the Fire TV app, Audible Audiobooks, Cloud Drive, Cloud Player, Amazon Web Services, and Amazon Mobile Ad Network infringe seven related U.S. Patents: Nos. 7,334,720; 7,942,317; 8,033,458; 8,061,598; 8,118,221; 8,336,772; and 8,794,516, all entitled “Data Storage and Access Systems.” In May 2015, the case was stayed until further notice. The complaint seeks an unspecified amount of damages, an injunction, enhanced damages, attorneys’ fees, costs, and interest. We dispute the allegations of wrongdoing and intend to defend ourselves vigorously in this matter.
In June 2015, the European Commission opened a proceeding against Amazon.com, Inc. and Amazon EU S.à.r.l. to investigate whether provisions in Amazon’s contracts with European publishers violate European competition rules. We believe we comply with European competition rules and are cooperating with the Commission.
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 losses is not possible and we may be unable to estimate the possible loss or range of losses that could potentially result from the application of non-monetary remedies.
See also “Note 7 — Income Taxes.”

10


Note 4 — ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS
During the six months ended June 30, 2015, we acquired certain companies for an aggregate purchase price of $349 million. The primary reasons for these acquisitions, none of which was individually material to our consolidated financial statements, were to acquire technologies and know-how to enable Amazon to serve customers more effectively. Acquisition activity for the six months ended June 30, 2014 was not material.
Acquisition-related costs were expensed as incurred and not significant. The aggregate purchase price of these acquisitions was allocated as follows (in millions):
Purchase Price
 
Cash paid, net of cash acquired
$
303

Indemnification holdback
46

 
$
349

Allocation
 
Goodwill
$
218

Intangible assets (1):
 
Contract-based
1

Technology-based
155

Customer-related
4

 
160

Property and equipment
1

Deferred tax assets
27

Other assets acquired
20

Deferred tax liabilities
(54
)
Other liabilities assumed
(23
)
 
$
349

 ___________________
(1)
Acquired intangible assets have estimated useful lives of between one and six years, with a weighted-average amortization period of five years.
We determined the estimated fair value of identifiable intangible assets acquired primarily by using the income approach. These assets are included within “Other assets” on our consolidated balance sheets and are being amortized to operating expenses on a straight-line over their estimated useful lives.
Pro Forma Financial Information (unaudited)
The acquired companies were consolidated into our financial statements starting on their respective acquisition dates. The aggregate net sales and operating loss of the companies acquired was $7 million and $29 million for the six months ended June 30, 2015. The following financial information, which excludes certain acquired companies for which the pro forma impact is not meaningful, presents our results as if the current year acquisitions had occurred at the beginning of 2014 (in millions):
  
  
Six Months Ended June 30,
 
2015
 
2014
Net sales
$
45,904

 
$
39,082

Net income (loss)
$
32

 
$
(45
)
Goodwill
The goodwill of the acquired companies is generally not deductible for tax purposes and is primarily related to expected improvements in technology performance and functionality, as well as sales growth from future product and service offerings and new customers, together with certain intangible assets that do not qualify for separate recognition.

11


The following summarizes our goodwill activity in 2015 by segment (in millions):
 
 
North
America
 
International
 
AWS
 
Consolidated
Goodwill - January 1, 2015
$
1,978

 
$
735

 
$
606

 
$
3,319

New acquisitions
41

 
17

 
160

 
218

Other adjustments (1)
(2
)
 
(15
)
 
3

 
(14
)
Goodwill - June 30, 2015
$
2,017

 
$
737

 
$
769

 
$
3,523

 ___________________
(1)
Primarily includes changes in foreign exchange rates.

During the second quarter of 2015, we changed the measurement date of our annual goodwill impairment test from October 1 to April 1. This change was not material to our consolidated financial statements as it did not result in the delay, acceleration, or avoidance of an impairment charge. We believe this timing better aligns the goodwill impairment test with our strategic business planning process, which is a key component of the goodwill impairment test. We have completed the required annual testing of goodwill for impairment for all reporting units as of April 1, 2015 and have determined that goodwill is not impaired.
Note 5 — LONG-TERM DEBT
In December 2014 and November 2012, we issued $6.0 billion and $3.0 billion of unsecured senior notes as described in the table below (collectively, the “Notes”). As of June 30, 2015, and December 31, 2014, the unamortized discount on the Notes was $93 million and $96 million. We also have other long-term debt with a carrying amount, including the current portion, of $602 million and $881 million as of June 30, 2015, and December 31, 2014. The face value of our total long-term debt obligations is as follows (in millions):

 
June 30,
2015
 
December 31, 2014
0.65% Notes due on November 27, 2015 (1)
$
750

 
$
750

1.20% Notes due on November 29, 2017 (1)
1,000

 
1,000

2.50% Notes due on November 29, 2022 (1)
1,250

 
1,250

2.60% Notes due on December 5, 2019 (2)
1,000

 
1,000

3.30% Notes due on December 5, 2021 (2)
1,000

 
1,000

3.80% Notes due on December 5, 2024 (2)
1,250

 
1,250

4.80% Notes due on December 5, 2034 (2)
1,250

 
1,250

4.95% Notes due on December 5, 2044 (2)
1,500

 
1,500

Other long-term debt
602

 
881

Total debt
9,602

 
9,881

Less current portion of long-term debt
(1,259
)
 
(1,520
)
Face value of long-term debt
$
8,343

 
$
8,361

_____________________________
(1)
Issued in November 2012, effective interest rates of the 2015, 2017, and 2022 Notes were 0.84%, 1.38%, and 2.66%.
(2)
Issued in December 2014, effective interest rates of the 2019, 2021, 2024, 2034, and 2044 Notes were 2.73%, 3.43%, 3.90%, 4.92%, and 5.11%.
Interest on the Notes issued in 2014 is payable semi-annually in arrears in June and December. Interest on the Notes issued in 2012 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. The proceeds from the Notes are used for general corporate purposes. The estimated fair value of the Notes was approximately $9.0 billion and $9.1 billion as of June 30, 2015, and December 31, 2014, 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 4.3% and 5.5% as of June 30, 2015, and December 31, 2014. We used the net proceeds from the issuance of this debt primarily to fund certain international

12


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, 2015, and December 31, 2014.
On September 5, 2014, we entered into an unsecured revolving credit facility (the “Credit Agreement”) with a syndicate of lenders that provides us with a borrowing capacity of up to $2.0 billion. The Credit Agreement has a term of two years, but it may be extended for up to three additional one-year terms if approved by the lenders. The initial interest rate applicable to outstanding balances under the Credit Agreement is the London interbank offered rate (“LIBOR”) plus 0.625%, under our current credit ratings. If our credit ratings are downgraded this rate could increase to as much as LIBOR plus 1.00%. There were no borrowings outstanding under the Credit Agreement as of June 30, 2015.
Note 6 — STOCKHOLDERS’ EQUITY
Stock Award Activity
Common shares outstanding plus shares underlying outstanding stock awards totaled 488 million as of June 30, 2015, and 483 million as of December 31, 2014. These totals include all vested and unvested stock awards outstanding, including those awards we estimate will be forfeited. The compensation expense for stock options, the total intrinsic value for stock options outstanding, the amount of cash received from the exercise of stock options, and the related tax benefits were not material for the six months ended June 30, 2015.
The following table summarizes our restricted stock unit activity for the six months ended June 30, 2015 (in millions):
 
Number of Units
 
Weighted Average
Grant-Date
Fair Value
Outstanding as of December 31, 2014
17.4

 
$
285

Units granted
7.2

 
380

Units vested
(2.8
)
 
243

Units forfeited
(1.4
)
 
298

Outstanding as of June 30, 2015
20.4

 
$
323

Scheduled vesting for outstanding restricted stock units as of June 30, 2015, is as follows (in millions):
 
Six Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Scheduled vesting—restricted stock units
2.9

 
6.6

 
6.8

 
2.9

 
0.9

 
0.3

 
20.4

As of June 30, 2015, there was $3.2 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-related 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 or loss. 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 2015, 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

13


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 record 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, or loss, 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 2014.
Our income tax provision for the six months ended June 30, 2015 was $337 million, which included $41 million of discrete tax items primarily attributed to acquisition integrations. Our income tax provision 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. Cash paid for income taxes (net of refunds) was $65 million and $71 million in Q2 2015 and Q2 2014, and $119 million and $109 million for the six months ended June 30, 2015 and 2014.
As of June 30, 2015, and December 31, 2014, tax contingencies were $854 million and $710 million. We expect the total amount of tax contingencies will grow in 2015. 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 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or our net operating losses with respect to years under examination as well as subsequent periods. As previously disclosed, we have received Notices of Proposed Adjustment from the IRS for transactions undertaken in 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 of approximately $1.5 billion, subject to interest. To date, we have not resolved this matter administratively and are currently contesting it in U.S. Tax Court. We continue to disagree with these IRS positions and intend to defend ourselves vigorously in this matter. In addition to the risk of additional tax for 2005 and 2006 transactions, if this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, we could be subject to significant additional tax liabilities.
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 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes. In September 2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. In June 2015, we received final tax collection notices for these years assessing additional French tax of €196 million, including interest and penalties through September 2012. We disagree with the 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. In addition to the risk of additional tax for years 2006 through 2010, if this litigation is adversely determined or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities. In addition, in October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be required to pay, additional amounts with respect to current and prior periods and our taxes in the future could increase. We are also subject to taxation in various states and other foreign jurisdictions including Canada, China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments in respect of these particular jurisdictions for 2003 and thereafter.

14


Note 8 — SEGMENT INFORMATION
Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and AWS. These segments reflect the way the Company evaluates its business performance and manages its operations.

We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and “General and administrative” based on usage, which is generally reflected in the segment in which the costs are incurred. The majority of technology infrastructure costs are allocated to the AWS segment based on usage. The majority of the remaining non-infrastructure technology costs are incurred in the U.S. and are allocated to our North America segment. We exclude from our allocations the portions of these operating expense lines attributable to stock-based compensation. We do not allocate the line item “Other operating expense (income), net” to our segment operating results. There are no internal revenue transactions between our reportable segments.
North America
The North America segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused websites such as www.amazon.com, www.amazon.ca, and www.amazon.com.mx. This segment includes export sales from these websites.
International
The International segment consists primarily of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through internationally-focused websites. This segment includes export sales from these internationally-focused websites (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from our North American websites.
AWS
The AWS segment consists of amounts earned from sales of compute, storage, database, and other AWS service offerings for start-ups, enterprises, government agencies, and academic institutions.

15



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,
 
2015
 
2014
 
2015
 
2014
North America
 
 
 
 
 
 
 
Net sales
$
13,796

 
$
10,994

 
$
27,202

 
$
21,802

Segment operating expenses (1)
13,093

 
10,665

 
25,982

 
21,183

Segment operating income (loss)
$
703

 
$
329

 
$
1,220

 
$
619

International
 
 
 
 
 
 
 
Net sales
$
7,565

 
$
7,341

 
$
15,310

 
$
15,224

Segment operating expenses (1)
7,584

 
7,343

 
15,405

 
15,259

Segment operating income (loss)
$
(19
)
 
$
(2
)
 
$
(95
)
 
$
(35
)
AWS
 
 
 
 
 
 
 
Net sales
$
1,824

 
$
1,005

 
$
3,389

 
$
2,055

Segment operating expenses (1)
1,433

 
928

 
2,734

 
1,733

Segment operating income (loss)
$
391

 
$
77

 
$
655

 
$
322

Consolidated
 
 
 
 
 
 
 
Net sales
$
23,185

 
$
19,340

 
$
45,901

 
$
39,081

Segment operating expenses (1)
22,110

 
18,936

 
44,121

 
38,175

Segment operating income (loss)
1,075

 
404

 
1,780

 
906

Stock-based compensation
(563
)
 
(391
)
 
(969
)
 
(711
)
Other operating income (expense), net
(48
)
 
(28
)
 
(92
)
 
(63
)
Income (loss) from operations
464

 
(15
)
 
719

 
132

Total non-operating income (expense)
(102
)
 
(12
)
 
(336
)
 
(39
)
Provision for income taxes
(266
)
 
(94
)
 
(337
)
 
(167
)
Equity-method investment activity, net of tax
(4
)
 
(5
)
 
(11
)
 
56

Net income (loss)
$
92

 
$
(126
)
 
$
35

 
$
(18
)
___________________
(1)
Excludes stock-based compensation and “Other operating expense (income), net” which are not allocated to segments.

We have aggregated our products and services into groups of similar products and services and provided the supplemental disclosure of net sales (in millions) below. We evaluate whether additional disclosure is appropriate when a product or service category begins to approach a significant level of net sales. For the periods presented, no individual product or service represented more than 10% of net sales.
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net Sales:
 
 
 
Media
$
4,714

 
$
4,844

 
$
10,002

 
$
10,311

Electronics and other general merchandise
16,412

 
13,278

 
32,041

 
26,296

AWS
1,824

 
1,005

 
3,389

 
2,055

Other (1)
235

 
213

 
469

 
419

Consolidated
$
23,185

 
$
19,340

 
$
45,901

 
$
39,081

___________________
(1)
Includes sales from non-retail activities, such as certain advertising services and our co-branded credit card agreements.


16


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 customer 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, sortation, delivery, 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 2014 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 2014 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 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, 2015, we would have recorded an additional cost of sales of approximately $85 million.
In addition, we enter into supplier commitments for certain electronic device components. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. During the second quarter of 2015, we changed the measurement date of our annual goodwill impairment test from October 1 to April 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

17


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.
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 interim impairment test. As a measure of sensitivity, a 10% decrease in the fair value of any of our reporting units as of December 31, 2014, would have had no impact on the carrying value of our goodwill.
Financial and credit market volatility directly impacts the fair value measurement through our weighted average cost of capital that we use to determine a 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 short-term in nature or a longer-term trend. We have not made any significant changes to the accounting methodology used to evaluate goodwill for 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, 2015 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 and the fair value of stock options is estimated on the date of grant using a Black-Scholes model. The estimated number of stock awards that will ultimately vest requires judgment, 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 classification, 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 $43 million impact on our Q2 2015 operating income. Our estimated forfeiture rates as of June 30, 2015, and December 31, 2014, were 28% and 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. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other conditions, and 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 jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions 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 laws, 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 and our effective tax rate would be adversely affected. We are also subject to audit in various jurisdictions, and such jurisdictions may assess additional income tax liabilities against us. In addition, in October 2014, the European Commission opened a formal investigation to examine whether decisions by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with European Union rules on state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be required to pay, additional

18


amounts with respect to current and prior periods and our taxes in the future could increase. Although we believe our tax estimates are reasonable, the final outcome of tax audits, investigations, 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. For instance, the IRS is seeking to increase our U.S. taxable income related to transfer pricing with our foreign subsidiaries for transactions undertaken in 2005 and 2006, and we are currently contesting the matter in U.S. Tax Court. In addition to the risk of additional tax for 2005 and 2006 transactions, if this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, Amazon could be subject to significant additional tax liabilities.


19


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,
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Operating activities
$
1,997

 
$
862

 
$
498

 
$
(1,640
)
 
$
8,980

 
$
5,327

Investing activities
(1,376
)
 
(731
)
 
(3,223
)
 
(1,654
)
 
(6,634
)
 
(3,560
)
Financing activities
(691
)
 
(189
)
 
(1,344
)
 
(364
)
 
3,453

 
(537
)
Our financial focus is on long-term, sustainable growth in free cash flow1. Free cash flow, a non-GAAP financial measure, was $4.4 billion for the trailing twelve months ended June 30, 2015, compared to $1.0 billion for the trailing twelve months ended June 30, 2014. See “Non-GAAP Financial Measures” 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, 2015, 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, including our decision to finance property and equipment under capital leases and other finance lease arrangements, 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 $14.0 billion and $17.4 billion as of June 30, 2015, and December 31, 2014. Amounts held in foreign currencies were $4.4 billion and $5.4 billion as of June 30, 2015, and December 31, 2014, and were primarily British Pounds, Chinese Yuan, Euros, and Japanese Yen.
Cash provided by (used in) operating activities was $2.0 billion and $862 million for Q2 2015 and Q2 2014, and $498 million and $(1.6) billion for the six months ended June 30, 2015 and 2014. 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, 2015, compared to the comparable prior year period, was primarily due to the increase in non-cash charges to net income (loss), including depreciation, amortization, and stock-based compensation, and an increase in working capital.
Cash provided by (used in) investing activities corresponds with cash 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 $(1.4) billion and $(731) million for Q2 2015 and Q2 2014, and $(3.2) billion and $(1.7) billion for the six months ended June 30, 2015 and 2014, with the variability caused primarily by changes in capital expenditures, purchases, maturities, and sales of marketable securities, and changes in cash paid for acquisitions. Cash capital expenditures were $1.2 billion and $1.3 billion during Q2 2015 and Q2 2014, and $2.1 billion and $2.4 billion for the six months ended June 30, 2015 and 2014. This primarily reflects additional investments in support of continued business growth due to investments in technology infrastructure, the majority of which is to support AWS, and additional capacity to support our fulfillment operations. Capital expenditures included $150 million and $141 million for internal-use software and website development during Q2 2015 and Q2 2014, and $279 million and $269 million for the six months ended June 30, 2015 and 2014. 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 $8 million and $67 million during Q2 2015 and Q2 2014, and $374 million and $66 million for the six months ended June 30, 2015 and 2014.
______________________
(1)
Free cash flow, a non-GAAP financial measure, is defined as net cash provided by operating activities less cash expenditures for 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 for additional information as well as alternative free cash flow measures.
(2)
Working capital consists of accounts receivable, inventory, and accounts payable.

20


Cash provided by (used in) financing activities was $(691) million and $(189) million for Q2 2015 and Q2 2014, and $(1.3) billion and $(364) million for the six months ended June 30, 2015 and 2014. Cash outflows from financing activities result from principal payments on obligations related to capital and finance leases and repayments of long-term debt. Principal payments on obligations related to capital leases, finance leases, and repayments of long-term debt were $830 million and $475 million in Q2 2015 and Q2 2014, and $1.7 billion and $836 million for the six months ended June 30, 2015 and 2014. Property and equipment acquired under capital leases were $1.4 billion and $920 million during Q2 2015 and Q2 2014, and $2.3 billion and $1.6 billion for the six months ended June 30, 2015 and 2014. This reflects additional investments in support of continued business growth primarily due to investments in technology infrastructure for AWS. We expect this trend to continue over time. 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 were $44 million and $286 million in Q2 2015 and Q2 2014, and $226 million and $351 million for the six months ended June 30, 2015 and 2014. 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 were $95 million and $0 in Q2 2015 and Q2 2014, and $117 million and $121 million for the six months ended June 30, 2015 and 2014.
We had no borrowings outstanding under our $2.0 billion Credit Agreement as of June 30, 2015. See Item 1 of Part I, “Financial Statements — Note 5 — Long-Term Debt” for additional information. 
We recorded tax provisions of $266 million and $94 million in Q2 2015 and Q2 2014, and $337 million and $167 million for the six months ended June 30, 2015 and 2014. Except as required under U.S. tax laws, 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, and our effective tax rate would be adversely affected. We have tax benefits relating to excess stock-based compensation deductions that are being utilized to reduce our U.S. taxable income. In 2014, 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 2014. Cash paid for income taxes (net of refunds) was $65 million and $71 million for Q2 2015 and Q2 2014, and $119 million and $109 million for the six months ended June 30, 2015 and 2014. As of December 31, 2014, our federal net operating loss carryforward was approximately $1.9 billion and we had approximately $443 million of federal tax credits potentially available to offset future tax liabilities. Our federal tax credits are primarily related to the U.S. federal research and development credit, which expired in December 2014. As we utilize our federal net operating losses and tax credits, we expect cash paid for taxes to significantly increase. We endeavor to manage 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. These restrictions 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, 2015, and December 31, 2014, restricted cash, cash equivalents, and marketable securities were $168 million and $450 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 $6.5 billion as of June 30, 2015. 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 Q2 2015 and Q2 2014. 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 third-party 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 third-party fulfillment providers.
_______________________
(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.




21


We believe that cash flows generated from operations, our cash, cash equivalents, and marketable securities balances, and borrowing available under our credit agreements 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, obtain capital, finance, and operating lease arrangements, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position.
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.

22


Results of Operations
Beginning in the first quarter of 2015, we changed our reportable segments to North America, International, and AWS. These segments reflect changes in the way the Company evaluates its business performance and manages its operations. See Item 1 of Part I, “Financial Statements — Note 8 — Segment Information.”
Net Sales
Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross. Service sales represent third-party seller fees earned (including commissions) and related shipping fees, digital content subscriptions, AWS sales, advertising services, and our co-branded credit card agreements. Amazon Prime membership fees are allocated between product sales and service 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,
 
2015
 
2014
 
2015
 
2014
Net Sales:
 
 
 
 
 
 
 
North America
$
13,796

 
$
10,994

 
$
27,202

 
$
21,802

International
7,565

 
7,341

 
15,310

 
15,224

AWS
1,824

 
1,005

 
3,389

 
2,055

Total consolidated
$
23,185

 
$
19,340

 
$
45,901

 
$
39,081

Year-over-year Percentage Growth:
 
 
 
 
 
 
 
North America
26
%
 
25
%
 
25
%
 
24
%
International
3

 
18

 
1

 
18

AWS
81

 
43

 
65

 
55

Total consolidated
20

 
23

 
17

 
23

Year-over-year Percentage Growth, excluding effect of foreign exchange rates:
 
 
 
 
 
 
 
North America
26
%
 
25
%
 
25
%
 
24
%
International
22

 
14

 
18

 
16

AWS
81

 
43

 
65

 
55

Total consolidated
27

 
22

 
24

 
22

Net Sales Mix:
 
 
 
 
 
 
 
North America
59
%
 
57
%
 
59
%
 
56
%
International
33

 
38

 
33

 
39

AWS
8

 
5

 
8

 
5

Total consolidated
100
%
 
100
%
 
100
%
 
100
%
Sales increased 20% in Q2 2015 and 17% for the six months ended June 30, 2015, compared to the comparable prior year periods. Changes in foreign currency exchange rates impacted net sales by $(1.4) billion and $237 million for Q2 2015 and Q2 2014, and by $(2.7) billion and $247 million for the six months ended June 30, 2015 and 2014. For a discussion of the effect on sales growth of foreign exchange rates, see “Effect of Foreign Exchange Rates” below.
North America sales increased 26% in Q2 2015 and 25% for the six months ended June 30, 2015, 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, from sales in faster growing categories such as electronics and other general merchandise, increased in-stock inventory availability, and increased selection of product offerings.
International sales increased 3% in Q2 2015 and 1% for the six months ended June 30, 2015, compared to the comparable prior year periods. The sales growth primarily reflects increased unit sales, including sales by marketplace sellers, offset by the unfavorable effect of foreign exchange rates. Changes in foreign currency exchange rates impacted International net sales by $(1.4) billion and $246 million for Q2 2015 and Q2 2014, and $(2.6) billion and $271 million for the six months ended June 30, 2015 and 2014. Increased unit sales were driven largely by our continued efforts to reduce prices for our customers, including

23


from our shipping offers, from sales in faster growing categories such as electronics and other general merchandise, increased in-stock inventory availability, and increased selection of product offerings.
AWS sales increased 81% in Q2 2015 and 65% for the six months ended June 30, 2015, compared to the comparable prior year periods. The sales growth primarily reflects increased customer usage, partially offset by pricing changes. Pricing changes were driven largely by our continued efforts to reduce prices for our customers.

Segment Operating Income (Loss)
Segment operating income (loss) is as follows (in millions):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Segment Operating Income (Loss)
 
 
 
 
 
 
 
North America
$
703

 
$
329

 
$
1,220

 
$
619

International
(19
)
 
(2
)
 
(95
)
 
(35
)
AWS
391

 
77

 
655

 
322

The increase in North America segment operating income in absolute dollars in Q2 2015 and for the six months ended June 30, 2015, compared to the comparable prior year periods, is primarily due to increased unit sales, partially offset by increased levels of operating expenses to expand our fulfillment capacity and spending on technology infrastructure. There was a favorable impact from foreign exchange rates of $9 million and $13 million for Q2 2015 and for the six months ended June 30, 2015.
The increase in International segment operating loss in absolute dollars in Q2 2015 and for the six months ended June 30, 2015, compared to the comparable prior year periods, is primarily due to the unfavorable impact of foreign exchange rates. Excluding the effect of foreign exchange rates of $89 million and $168 million for Q2 2015 and for the six months ended June 30, 2015, segment operating income increased primarily due to increased unit sales, partially offset by increased levels of operating expenses to expand our fulfillment capacity and spending on technology infrastructure and marketing efforts.
The increase in AWS segment operating income in absolute dollars in Q2 2015 and for the six months ended June 30, 2015, compared to the comparable prior year periods, is primarily due to increased customer usage, partially offset by pricing changes and increased spending on technology infrastructure, which was primarily driven by additional investments to support the business growth. There was a favorable impact from foreign exchange rates of $71 million and $123 million for Q2 2015 and for the six months ended June 30, 2015.


24


Supplemental Information
Supplemental information about outbound shipping results for our North America and International segments is as follows (in millions):
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Outbound Shipping Activity:
 
 
 
 
 
 
 
Shipping revenue (1)(2)(3)
$
1,399

 
$
889

 
$
2,698

 
$
1,738

Shipping costs (4)
(2,340
)
 
(1,812
)
 
(4,649
)
 
(3,641
)
Net shipping cost
$
(941
)
 
$
(923
)
 
$
(1,951
)
 
$
(1,903
)
Year-over-year Percentage Growth:
 
 
 
 
 
 
 
Shipping revenue
57
 %
 
38
 %
 
55
 %
 
36
 %
Shipping costs
29

 
33

 
28

 
32

Net shipping cost
2

 
29

 
3

 
28

Percent of Net Sales: (5)
 
 
 
 
 
 
 
Shipping revenue
6.6
 %
 
4.9
 %
 
6.3
 %
 
4.7
 %
Shipping costs
(11.0
)
 
(9.9
)
 
(10.9
)
 
(9.8
)
Net shipping cost
(4.4
)%
 
(5.0
)%
 
(4.6
)%
 
(5.1
)%
___________________
(1)
Excludes amounts charged 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.
(4)
Includes sortation and delivery center costs.
(5)
Includes North America and International segment net sales.
We expect our 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.

25


We have aggregated our North America and International segment products and services into groups of similar products and services and provided the supplemental disclosure of net sales (in millions) below. We evaluate whether additional disclosure is appropriate when a product or service category begins to approach a significant level of net sales. For the periods presented no individual product or service represented more than 10% of net sales.
  
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2015
 
2014
 
2015
 
2014
Net Sales:
 
 
 
North America
 
 
 
 
 
 
 
Media
$
2,620

 
$
2,464

 
$
5,589

 
$
5,289

Electronics and other general merchandise
10,987

 
8,366

 
21,237

 
16,196

Other (1)
189

 
164

 
376

 
317

Total North America
$
13,796

 
$
10,994

 
$
27,202

 
$
21,802

International
 
 
 
 
 
 
 
Media
$
2,094

 
$
2,380

 
$
4,413

 
$
5,022

Electronics and other general merchandise
5,425

 
4,912

 
10,804

 
10,100

Other (1)
46

 
49

 
93

 
102

Total International
$
7,565

 
$
7,341

 
$
15,310

 
$
15,224

Year-over-year Percentage Growth:
 
 
 
 
 
 
 
North America
 
 
 
 
 
 
 
Media
6
 %
 
13
 %
 
6
 %
 
13
%
Electronics and other general merchandise
31

 
29

 
31

 
28

Other
16

 
17

 
19

 
18

Total North America
26

 
25

 
25

 
24

International
 
 
 
 
 
 
 
Media
(12
)%
 
7
 %
 
(12
)%
 
5
%
Electronics and other general merchandise
10

 
25

 
7

 
26

Other
(7
)
 
4

 
(10
)
 
8

Total International
3

 
18

 
1

 
18

Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:
 
 
 
 
 
 
 
North America
 
 
 
 
 
 
 
Media
7
 %
 
14
 %
 
6
 %
 
13
%
Electronics and other general merchandise
32

 
29

 
31

 
29

Other
16

 
17

 
19

 
18

Total North America
26

 
25

 
25

 
24

International
 
 
 
 
 
 
 
Media
3
 %
 
4
 %
 
2
 %
 
4
%
Electronics and other general merchandise
31

 
20

 
26

 
23

Other
8

 
(1
)
 
5

 
5

Total International
22

 
14

 
18

 
16

_____________________________
(1)
Includes sales from non-retail activities, such as certain advertising services and our co-branded credit card agreements.



26


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,
 
2015
 
2014
 
2015
 
2014
  
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
$
15,160

 
$

 
$
15,160

 
$
13,399

 
$

 
$
13,399

 
$
30,555

 
$

 
$
30,555

 
$
27,453

 
$

 
$
27,453

Fulfillment
2,876

 
(132
)
 
2,744

 
2,382

 
(104
)
 
2,278

 
5,634

 
(222
)
 
5,412

 
4,699

 
(184
)
 
4,515

Marketing
1,150