beatandraise : SEC Filings Research with AI

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Positi�F�]Statement Of Shareholders Equit�F}iDESCRIPTION OF BUSINESS AND ACC�FLkCASH, CASH EQUIVALENTS, AND MAR� mFIXED ASSETS�F�nACQUISITIONS, GOODWILL, AND ACQ�$�pLONG-TERM DEBT�>�rOTHER LONG-TERM LIABILITIES�BWtCOMMITMENTS AND CONTINGENCIES�0&vSTOCKHOLDERS' EQUITY�<�wOTHER COMPREHENSIVE INCOME� �yINCOME TAXES�.�{SEGMENT INFORMATION�*b}QUARTERLY RESULTS�01Document Information�,��Entity Information��T�� (Statement Of Cash Flows Indirect (USD $)In Millions 12 Months Ended Dec. 31, 2009 12 Months Ended Dec. 31, 2008 12 Months Ended Dec. 31, 2007 .CASH AND CASH EQUIVALENTS, BEGINNING OF PERIODOPERATING ACTIVITIES: Net incomeJAdjustments to reconcile net income to net cash from operating activities:mDepreciation of fixed assets, including internal-use software and website development, and other amortizationStock-based compensation%Other operating expense (income), net5Losses (gains) on sales of marketable securities, netOther expense (income), netDeferred income taxes1Excess tax benefits from stock-based compensation,Changes in operating assets and liabilities:Inventories"Accounts receivable, net and otherAccounts payableAccrued expenses and otherAdditions to unearned revenue+Amortization of previously unearned revenue3Net cash provided by (used in) operating activitiesINVESTING ACTIVITIES:RPurchases of fixed assets, including internal-use software and website development-Acquisitions, net of cash acquired, and otherCSales and maturities of marketable securities and other investments8Purchases of marketable securities and other investments3Net cash provided by (used in) investing activitiesFINANCING ACTIVITIES:Common stock repurchased&Proceeds from long-term debt and other:Repayments of long-term debt and capital lease obligations3Net cash provided by (used in) financing activities4Foreign-currency effect on cash and cash equivalents)Net increase in cash and cash equivalents(CASH AND CASH EQUIVALENTS, END OF PERIOD#SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid for interestCash paid for income taxesKFixed assets acquired under capital leases and other financing arrangements0Fixed assets acquired under build-to-suit leasesConversion of debtStatement Of Income (USD $)"In Millions, except Per Share data Net sales Cost of salesGross profitOperating expenses:Fulfillment[1] MarketingTechnology and contentGeneral and administrativeTotal operating expensesIncome from operationsInterest incomeInterest expenseOther income (expense), net$Total non-operating income (expense)Income before income taxesProvision for income taxes-Equity-method investment activity, net of taxBasic earnings per shareDiluted earnings per shareBWeighted average shares used in computation of earnings per share:BasicDiluted[1]Includes stock-based compensation as follows: Fulfillment $ 79 $ 61 $ 39 Marketing 20 13 8 Technology and content 182 151 103 General and administrative 60 50 35+Statement Of Income (Parenthetical) (USD $)%Stock-based compensation, Fulfillment#Stock-based compensation, Marketing0Stock-based compensation, Technology and content4Stock-based compensation, General and administrative2Statement Of Financial Position Classified (USD $)Dec. 31, 2009 Dec. 31, 2008 Current assets:Cash and cash equivalentsMarketable securitiesDeferred tax assetsTotal current assetsFixed assets, netGoodwillOther assetsTotal assetsCurrent liabilities:Total current liabilitiesLong-term debtOther long-term liabilitiesStockholders' equity:ZPreferred stock, $0.01 par value: Authorized shares-500 Issued and outstanding shares-noneoCommon stock, $0.01 par value: Authorized shares-5,000 Issued shares-461 and 445 Outstanding shares-444 and 428Treasury stock, at costAdditional paid-in capital-Accumulated other comprehensive income (loss)'Retained earnings (accumulated deficit)Total stockholders' equity*Total liabilities and stockholders' equityBStatement Of Financial Position Classified (Parenthetical) (USD $)-Share data in Millions, except Per Share dataPreferred stock, par value"Preferred stock, Authorized sharesPreferred stock, Issued shares#Preferred stock, outstanding sharesCommon stock, par valueCommon stock, Authorized sharesCommon stock, Issued shares Common stock, Outstanding sharesGStatement Of Shareholders Equity And Other Comprehensive Income (USD $)Common Sto< ck Treasury Stock Additional Paid-In Capital /Accumulated Other Comprehensive Income (Loss) 2Retained Earnings (Accumulated Deficit) [Member] Total "Beginning Balance at Dec. 31, 20066Foreign currency translation gains (losses) net of taxPChange in unrealized gains (losses) on available-for-sale securities, net of taxLAmortization of unrealized loss on terminated Euro Currency Swap, net of taxChange in accounting principle>Unrecognized excess tax benefits from stock-based compensation Exercise of common stock optionsRepurchase of common stockDStock-based compensation and issuance of employee benefit plan stockEnding Balance at Dec. 31, 2007Ending Balance at Dec. 31, 20081Issuance of common stock for acquisition activityEnding Balance at Dec. 31, 2009/DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES.12 Months Ended Dec. 31, 2009 USD / shares � Note 1DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES Description of Business Amazon.com opened its virtual doors on the World Wide Web in July 1995 and offers Earths Biggest Selection. We seek to be Earths most customer-centric company for three primary customer sets: consumers, sellers, and developers. We serve consumers through our retail websites and focus on selection, price, and convenience. We also manufacture and sell the Kindle e-reader. We offer programs that enable sellers to sell their products on our websites and their own branded websites and to fulfill orders through us. We serve developers through Amazon Web Services, which provides access to technology infrastructure that developers can use to enable virtually any type of business. In addition, we generate revenue through co-branded credit card agreements and other marketing and promotional services, such as online advertising. We have organized our operations into two principal segments: North America and International. See Note11Segment Information. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. 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, valuation of investments, collectability of receivables, sales returns, incentive discount offers, valuation of inventory, depreciable lives of fixed assets and internally-developed software, valuation of acquired intangibles and goodwill, income taxes, stock-based compensation, and contingencies. Actual results could differ materially from those estimates. Subsequent Events We have evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through January28, 2010, the day the financial statements were issued. 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. The following table shows the calculation of diluted shares (in millions): Year Ended December31, 2009 2008 2007 Shares used in computation of basic earnings per share 433 423 413 Total dilutive effect of outstanding stock awards (1) 9 9 11 Shares used in computation of diluted earnings per share 442 432 424 (1) Calculated using the treasury stock method, which assumes proceeds are used to reduce the dilutive effect of outstanding stock awards. Assumed proceeds include the unrecognized deferred compensation of stock a1CASH, CASH EQUIVALENTS, AND< MARKETABLE SECURITIES� Note 2CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES As of December31, 2009 and 2008 our cash, cash equivalents, and marketable securities primarily consisted of cash, government and government agency securities, AAA-rated money market funds and other investment grade securities. Such amounts are recorded at fair value. The following table summarizes, by major security type, our cash, cash equivalents and marketable securities (in millions): December31, 2009 Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated FairValue Cash $ 391 $ $ $ 391 Money market funds 2,750 2,750 Foreign government and agency securities 1,992 7 1,999 Corporate debt securities (1) 206 5 211 U.S. government and agency securities 1,268 5 (5 ) 1,268 Asset-backed securities 44 2 46 Other fixed income securities 6 6 Equity securities 2 (1 ) 1 $ 6,659 $ 19 $ (6 ) $ 6,672 Less: Long-term marketable securities (2) (306 ) Total cash, cash equivalents, and marketable securities $ 6,366 December31, 2008 Cost or Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Total Estimated FairValue Cash $ 355 $ $ $ 355 Money market funds 1,682 1,682 Foreign government and agency securities 1,120 8 1,128 Corporate debt securities (1) 194 2 (2 ) 194 U.S. government and agency securities 589 5 594 Asset-backed securities 62 (4 ) 58 Other fixed income securities 23 23 Equity securities 2 (1 ) 1 $ 4,027 $ 15 $ (7 ) $ 4,035 Less: Long-term marketable securities (2) (308 ) Total cash, cash equivalents, and marketable securities $ 3,727 (1) Corporate debt securities include investments in financial, insurance, and corporate institutions. No single issuer represents a significant portion of the total corporate debt securities portfolio. (2) We are required to pledge or otherwise restrict a portion of our marketable securities as collateral for standby letters of credit, guarantees, debt, and real estate lease agreements. We classify cash and marketable securities with use restrictions of twelve months or longer as non-current Other assets on our consolidated balance sheets. See Note 7Commitments and Contingencies. The following table summarizes gross gains and gross losses realized on sales of available-for-sale marketable securities (in millions): YearEndedDecember31, 2009 2008 2007 Realized gains $ 4 $ 9 $ 2 Realized lFIXED ASSETS� Note 3FIXED ASSETS Fixed assets, at cost, consisted of the following (in millions): December31, 2009 2008 Gross Fixed Assets: Fulfillment and customer service $ 551 $ 564 Technology infrastructure 551 348 Internal-use software, content, and website development 398 331 Construction in progress (1) 278 87 Other corporate assets 137 79 Gross fixed assets 1,915 1,409 Accumulated Depreciation: Fulfillment and customer service 202 254 Technology infrastructure 178 82 Internal-use software, content, and website development 207 159 Other corporate assets 38 60 Total accumulated depreciation 625 555 Total fixed assets, ne< t $ 1,290 $ 854 (1) We capitalize construction in progress and record a corresponding long-term liability for certain lease agreements, including our Seattle, Washington corporate office space subject to leases scheduled to begin upon completion of development between 2010 and 2013. See Note 6Other Long-Term Liabilities and Note 7Commitments and Contingencies for further discussion. Depreciation expense on fixed assets was $384 million, $311 million, and $258 million, which includes amortization of fixed assets acquired under capital lease obligations of $88 million, $50 million, and $40 million for 2009, 2008, and 2007. Gross assets remaining under capital leases were $430 million and $304 million at December31, 2009 and 2008. Accumulated depreciation associated with capital leases was $184 million and $116 million at December31, 2009 and 2008. 6ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS� Note 4ACQUISITIONS, GOODWILL, AND ACQUIRED INTANGIBLE ASSETS 2009 Acquisition Activity On November1, 2009, we acquired 100% of the outstanding equity of Zappos.com, Inc. (Zappos), in exchange for shares of our common stock, to expand our presence in softline retail categories, such as shoes and apparel. The fair value of Zappos stock options assumed was determined using the Black-Scholes model. The following table summarizes the consideration paid for Zappos (in millions): Stock issued $ 1,079 Assumed stock options, net 55 $ 1,134 The purchase price was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase price recorded as goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using the income approach. Purchased identifiable intangible assets are amortized on a straight-line and accelerated basis over their respective useful lives. The following summarizes the allocation of the Zappos purchase price (in millions): Goodwill $ 778 Other net assets acquired 83 Deferred tax liabilities net (167 ) Intangible assets (1): Marketing-related 223 Contract-based 103 Customer-related 114 $ 1,134 (1) Acquired intangible assets have estimated useful lives of between 1 and 10 years. Zappos financial results have been included in our consolidated statements of income as of November1, 2009. The following pro forma financial information presents the results as if the Zappos acquisition had occurred at the beginning of each year presented (in millions): YearEndedDecember31, 2009 2008 Net sales $ 25,064 $ 19,801 Net income 853 606 We acquired certain additional companies during 2009 for an aggregate purchase price of $26 million, resulting in goodwill of $16 million and acquired intangible assets of $5 million. The results of operations of each of the businesses acquired have been included in our consolidated results from each transactions closing date forward. The effect of these acquisitions on consolidated net sales and operating income during 2009 was not significant. 2008 and 2007 Acquisition Activity We acquired certain companies during 2008 for an aggregate purchase price of $432 million, resulting in goodwill of $210 million and acquired intangible assets of $162 million. We acquired certain companies during 2007 for an aggregate purchase price of $33 million, resulting in goodwill of $21 million and acquired intangible assets of $18 million. We also made principal payments of $13million on acquired debt in connection with one of these acquisitions. The results of operations of each of the businesses acquired in 2008 and 2007 have been included in our consolidated results from each transaction closing date forward. The effect of these acquisitions on consolidated net sales and operating income durin< g 2008 and 2007 was not significant. LONG-TERM DEBT� Note 5LONG-TERM DEBT Our long-term debt is summarized as follows: December31, 2009 2008 (in millions) 6.875% PEACS $ $ 335 Other long-term debt 131 133 131 468 Less current portion of long-term debt (22 ) (59 ) $ 109 $ 409 In February 2008 our Board of Directors authorized a debt repurchase program, replacing our previous debt repurchase authorization in its entirety, and pursuant to which we redeemed for cash the remaining 240million ($319 million based on the Euro to U.S.Dollar exchange rate on the date of redemption) in principal of our 6.875% PEACS in 2009, and we redeemed the remaining principal amount of $899 million of our outstanding 4.75% Convertible Subordinated Notes in 2008. Other long-term debt relates to amounts borrowed to fund certain international operations. OTHER LONG-TERM LIABILITIESk Note 6OTHER LONG-TERM LIABILITIES Our other long-term liabilities are summarized as follows: December31, 2009 2008 (in millions) Tax contingencies $ 202 $ 144 Long-term capital lease obligations 143 124 Construction liability 278 87 Other 460 132 $ 1,083 $ 487 Tax Contingencies As of December31, 2009 and 2008, we have provided tax reserves for tax contingencies, inclusive of accrued interest and penalties, of approximately $202 million and $144 million for U.S. and foreign income taxes. These contingencies primarily relate to transfer pricing, state income taxes, and research and development credits. See Note 10Income Taxes for discussion of tax contingencies. Capital Leases Certain of our equipment fixed assets, primarily related to technology infrastructure, have been acquired under capital leases. Long-term capital lease obligations are as follows: December31,2009 (in millions) Gross capital lease obligations $ 276 Less imputed interest (14 ) Present value of net minimum lease payments 262 Less current portion (119 ) Total long-term capital lease obligations $ 143 Construction Liabilities We capitalize construction in progress and record a corresponding long-term liability for certain lease agreements, including our Seattle, Washington corporate office space subject to leases scheduled to begin upon completion of development between 2010 and 2013. For build-to-suit lease arrangements where we are involved in the construction of structural improvements prior to the commencement of the lease or take some level of construction risk, we are considered the owner of the assets during the construction period. Accordingly, as the landlord incurs the construction project costs, the assets and corresponding financial obligation are recorded in Fixed assets, net and Other long-term liabilities on our consolidated balance sheet. Once the construction is completed, if the lease meets certain sale-leaseback criteria, we will remove the asset and related financial obligation from the balance sheet and treat the building lease as an operating lease. If upon completion of construction, the project does not meet the sale-leaseback criteria, the leased property will be treated as a capital lease for financial reporting purposes. The remainder of our other long-term liabilities primarily include deferred tax liabilities, unearned revenue, asset retirement obligations, and deferred rental liabilities COMMITMENTS AND CONTINGENCIES� Note 7COMMITMENTS AND CONTINGENCIES Commitments We lease office, fulfillment center, and data center facilities and fixed assets under non-cancelable operating and capital leases. Rental expense under operating lease agreements was $171 million, $158 million, and $141 million for 2009, 2008, and 2007. In December 2007, we entered into a series of leases and other< agreements for the lease of corporate office space to be developed in Seattle, Washington with initial terms of up to 16 years commencing on completion of development between 2010 and 2013, with options to extend for two five-year periods. We expect to occupy approximately 1.7million square feet of office space. We also have an option to lease up to an additional approximately 500,000 square feet at rates based on fair market values at the time the option is exercised, subject to certain conditions. In addition, if interest rates exceed a certain threshold, we have the option to provide financing for some of the buildings. The following summarizes our principal contractual commitments, excluding open orders for inventory purchases that support normal operations, as of December31, 2009: Year Ended December31, Thereafter Total 2010 2011 2012 2013 2014 (in millions) Operating and capital commitments: Debt principal and interest $ 31 $ 47 $ 36 $ 36 $ $ $ 150 Capital leases, including interest 130 95 44 8 3 280 Operating leases 162 146 130 122 115 317 992 Other commitments (1)(2) 187 101 93 89 88 1,181 1,739 Total commitments $ 510 $ 389 $ 303 $ 255 $ 206 $ 1,498 $ 3,161 (1) Includes the estimated timing and amounts of payments for rent, operating expenses, and tenant improvements associated with approximately 1.7million square feet of corporate office space. The amount of space available and our financial and other obligations under the lease agreements are affected by various factors, including government approvals and permits, interest rates, development costs and other expenses and our exercise of certain rights under the lease agreements. (2) Excludes $181 million of tax contingencies for which we cannot make a reasonably reliable estimate of the amount and period of payment, if any. Pledged Securities We have pledged or otherwise restricted a portion of our cash and marketable securities as collateral for standby letters of credit, guarantees, debt, and real estate leases. We classify cash and marketable securities with use restrictions of twelve months or longer as non-current Other assets on our consolidated balance sheets. The amount required to be pledged for certain real estate lease agreements changes over the life of our leases based on our credit rating and changes in our market capitalization. Information about collateral required to be pledged under these agreements is as follows: StSTOCKHOLDERS' EQUITY%1/1/2009 - 12/31/2009 USD / shares � Note 8STOCKHOLDERS EQUITY Preferred Stock We have authorized 500million shares of $0.01 par value Preferred Stock. No preferred stock was outstanding for any period presented. Common Stock Common shares outstanding plus shares underlying outstanding stock awards totaled 461million, 446million, and 435million at December31, 2009, 2008 and 2007. These totals include all stock-based awards outstanding, without regard for estimated forfeitures, consisting of vested and unvested awards. Common shares outstanding increased in 2009 due primarily to issuance of stock to acquire Zappos and vesting of restricted stock units. Stock Repurchase Activity We did not repurchase any of our common stock in 2009. We repurchased 2.2million shares of common stock for $100 million in 2008 under the $1 billion repurchase program authorized by our Board of Directors in February 2008. We repurchased 6.3million shares of common stock for $248 million in 2007 under the $500 million repurchase program authorized by our Board of Directors in August 2006. In January 2010, our Board of Directors authorized a program to repurchase up to $2 billion of our common stock which replaces the Boards prior authorization. < Stock Award Plans Employees vest in restricted stock unit awards over the corresponding service term, generally between two and five years. Stock Award Activity We granted restricted stock units representing 6.0million, 7.3million, 7.6million shares of common stock during 2009, 2008, and 2007 with a per share weighted average fair value of $79.24, $72.21, and $47.04. The following summarizes our restricted stock unit activity (in millions): NumberofUnits Outstanding at January1, 2007 14.5 Units granted 7.6 Units vested (3.3 ) Units forfeited (2.5 ) Outstanding at December31, 2007 16.3 Units granted 7.3 Units vested (5.5 ) Units forfeited (1.4 ) Outstanding at December31, 2008 16.7 Units granted 6.0 Units vested (6.0 ) Units forfeited (1.0 ) Outstanding at December31, 2009 15.7 Scheduled vesting for outstanding restricted stock units at December31, 2009 is as follows (in millions): Year Ended December31, Thereafter Total 2010 2011 2012 2013 2014 Scheduled vestingrestricted stock units 5.9 5.5 2.6 1.4 0.2 0.1 15.7 As of December31, 2009, there was $415 million of net unrecognized compensation cost related to unvested stock-based compensation arrangements. This compensation is recognized on an accelerated basis resulting in 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. During 2009 and 2008, the fair value of restricted stock units that vested was $551 million and $362 million. As matching contributions under our 401(k) savings plan, we granted 0.1million shares of common stock in both 2009 and 2008. Shares granted as matching contributions under our 401(k) plan are included in outstanding common!OTHER COMPREHENSIVE INCOME (LOSS){ Note 9OTHER COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income (loss) are as follows: YearEndedDecember31, 2009 2008 2007 (in millions) Net income $ 902 $ 645 $ 476 Net change in unrealized gains/losses on available-for-sale securities: Unrealized gains (losses), net of tax of $(2), $0, and $(4) 7 8 Reclassification adjustment for losses (gains) included in net income, net of tax effect of $1, $1, and $0 (3 ) (1 ) Net unrealized gains (losses) on available for sale securities 4 (1 ) 8 Foreign currency translation adjustment, net of tax effect of $0, $3, and $6 62 (127 ) (3 ) Amortization of net unrealized losses on terminated Euro Currency Swap, net of tax effect of $0, $0, and $0 1 1 Other comprehensive income (loss) 67 (128 ) 6 Comprehensive income $ 969 $ 517 $ 482 Balances within accumulated other comprehensive income (loss) are as follows: December31, 2009 2008 (in millions) Net unrealized losses on foreign currency translation, net of tax $ (66 ) $ (128 ) Net unrealized gains on available-for-sale securities, net of tax 10 6 Net unrealized losses on terminated Euro Currency Swap, net of tax (1 ) Total accumulated other comprehensive income (loss) $ (56 ) $ (123 ) INCOME TAXES� Note 10INCOME TAXES In 2009, 2008 and 2007 we recorded net tax provisions of $253 million, $247 million, and $184 million. A majority of this provision is non-cash. We have current tax benefits and net operating losses relating to excess stock-based compensation that are being utilized to reduce our U.S. taxable income. As such, cash taxes paid, net of refunds, were $48 million, $53 million, and $24 million for 2009< , 2008, and 2007. The components of the provision for income taxes, net are as follows: Year Ended December31, 2009 2008 2007 (in millions) Current taxes: U.S. and state $ 149 $ 227 $ 275 International 23 25 8 Current taxes 172 252 283 Deferred taxes: U.S. and state 89 3 (109 ) International (8 ) (8 ) 10 Deferred taxes 81 (5 ) (99 ) Provision for income taxes, net $ 253 $ 247 $ 184 U.S. and international components of income before income taxes are as follows: YearEndedDecember31, 2009 2008 2007 (in millions) U.S. $ 529 $ 436 $ 360 International (1) 632 465 300 Income before income taxes $ 1,161 $ 901 $ 660 (1) Included in 2008 is the impact of the $53 million non-cash gain associated with the sale of our European DVD rental assets. This gain was taxed at rates substantially below the 35% U.S. federal statutory rate. The items accounting for differences between income taxes computed at the federal statutory rate and the provision recorded for income taxes are as follows: YearEndedDecember31, 2009 2008 2007 Federal statutory rate 35.0 % 35.0 % 35.0 % Effect of: Impact of foreign tax differential (16.9 ) (13.8 ) (11.7 ) State taxes, net of federal benefits 1.1 2.8 2.1 Tax credits (0.4 ) (2.2 ) (1.1 ) Nondeductible stock-based compensation 1.7 1.7 1.4 Valuation allowance 0.4 2.6 (1.2 ) Other, net 1.0 1.3 3.4 Total 21.9 % 27.4 % 27.9 % The effective tax rate in 2009, 2008, and 2007 was lower than the 35% U.S. federal statutory rate primarily due to earnings of our subsidiaries outside of the U.S. in jurisdictions where our effective tax rate is lower than in the U.S. Included in the total tax provision as a discrete item during 2008 is the impact related to the $53 million noncash gain associated with the sale of our European DVD rental assets. This gain was taxed at rates substantially below the 35% U.S. federal statutory rate. Deferred income tax assets and liabilities are as follows: December31, 2009 2008 (in millions) Deferred tax assets: Net operating lossesstock-based compensation (1) $ 120 $ 120 Net operating lossSEGMENT INFORMATION� Note 11SEGMENT INFORMATION We have organized our operations into two principal segments: North America and International. We present our segment information along the same lines that our chief executive 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 significant majority of our costs for Technology and content are incurred in the United States and most of these costs are allocated to our North America segment. There are no internal revenue transactions between our reporting segments. North America The North America segment consists of amounts earned from retail sales of consumer products (including from sellers) and subscriptions through North America-focused websites such as www.amazon.com and www.amazon.ca. This segment includes export sales from www.amazon.com and www.amazon.ca. International The International segment consists of amounts earned from retail sales of consumer products (includ< ing from sellers) and subscriptions through internationally focused websites such as www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, and www.amazon.cn. This segment includes export sales from these internationally based sites (including export sales from these sites to customers in the U.S. and Canada), but excludes export sales from www.amazon.com and www.amazon.ca. Information on reportable segments and reconciliation to consolidated net income is as follows: Year Ended December31, 2009 2008 2007 (in millions) North America Net sales $ 12,828 $ 10,228 $ 8,095 Cost of sales 9,538 7,733 6,064 Gross profit 3,290 2,495 2,031 Direct segment operating expenses 2,581 2,050 1,631 Segment operating income $ 709 $ 445 $ 400 International Net sales $ 11,681 $ 8,938 $ 6,740 Cost of sales 9,440 7,163 5,418 Gross profit 2,241 1,775 1,322 Direct segment operating expenses 1,378 1,127 873 Segment operating income $ 863 $ 648 $ 449 Consolidated Net sales $ 24,509 $ 19,166 $ 14,835 Cost of sales 18,978 14,896 11,482 Gross profit 5,531 4,270 3,353 Direct segment operating expenses 3,959 3,177 2,504 Segment operating income 1,572 1,093 849 Stock-based compensation (341 ) (275 ) (185 ) Other operating expense, net (102 ) 24 (9 ) QUARTERLY RESULTS (UNAUDITED)� Note 12QUARTERLY RESULTS (UNAUDITED) The following tables contain selected unaudited statement of operations information for each quarter of 2009 and 2008. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Our business is affected by seasonality, which historically has resulted in higher sales volume during our fourth quarter. Unaudited quarterly results are as follows (in millions, except per share data): Year Ended December31, 2009 (1) Fourth Quarter Third Quarter Second Quarter First Quarter Net sales $ 9,519 $ 5,449 $ 4,651 $ 4,889 Gross profit 1,976 1,273 1,133 1,148 Income before income taxes 471 262 179 248 Provision for income taxes 85 60 39 69 Net income 384 199 142 177 Basic earnings per share $ 0.87 $ 0.46 $ 0.33 $ 0.41 Diluted earnings per share $ 0.85 $ 0.45 $ 0.32 $ 0.41 Shares used in computation of earnings per share: Basic 440 432 431 429 Diluted 450 441 440 437 Year Ended December 31, 2008 (1) Fourth Quarter Third Quarter Second Quarter First Quarter Net sales (2) $ 6,704 $ 4,264 $ 4,063 $ 4,135 Gross profit 1,348 999 967 956 Income before income taxes 302 182 208 207 Provision for income taxes 79 59 46 62 Net income 225 118 158 143 Basic earnings per share $ 0.52 $ 0.28 $ 0.38 $ 0.34 Diluted earnings per share $ 0.52 $ 0.27 $ 0.37 $ 0.34 Shares used in computation of earnings per share: Basic 428 427 420 417 Diluted 436 436 430 426 (1) The sum of quarterly amounts, including per share amounts, may not equal amounts reported for year-to-date periods. This< is due to the effects of rounding and changes in the number of weighted-average shares outstanding for each period. (2) Our year-over-year revenue growth was 36% for the first three quarters of 2008. For Q4 2008, our quarterly revenue growth rates declined to 18%, driven primarily by decreased consumer demand following disruptions in the global financial markets and changes in foreign exchange rates (excluding the $320 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the fourth quarter, net sales would have grown 24% compared with Q4 2007). 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