Company hit with more taxes due to profitability.

Amazon.com released its quarterly earnings report July 26 which revealed a jump in sales, but a dip in net income from the same period the previous year, primarily due to taxes. For most of the company's existence it hasn't had to pay them but does now because it's profitable. Additionally the company had a higher tax rate due to moving operational assets overseas.

In the three-month period ended June 30, Amazon.com generated $52 million in net income, or 12 cents per diluted share on sales of $1.75 billion which is down from the $76 million in net income, or 18 cents per diluted share, produced in the company's second quarter in 2004 on sales of $1.39 billion.

Between the two periods, sales grew a whopping 26.3% and while the company's net income dropped one-third, it was mainly due because Amazon had to pay $56 million in this quarter in taxes.
In the past, its almost nine-year string of losses, generated a loss carried forward, which allowed it to largely escape income tax payments or pay very little.

This was the case in the second quarter of 2004 when its income tax bill was $5 million. In addition, the company's tax rate during the second quarter was higher than the 35% statutory rate due to taxable income associated with the transfer of certain operating assets from the U.S. to international locations during the first quarter. While that transfer will result in higher tax rates throughout the current year, longterm it is expected to generate a beneficial tax impact.

Its sales growth, coupled with slightly better than expected earnings apparently helped to propel appreciation in the company's share price as its stock closed at $43.65, up $5.91 from its previous day close of $37.84. The company's 52-week price range is $30.60-$45.58.

While net income was down, earnings before interest, taxes, depreciation and amortization was $129 million in its second quarter this year, versus the $104 million in EBIDTA the company generated in 2004's second quarter.

In the second quarter, media sales, which include books, music, movies, and video rental, totaled almost $1.25 billion, or 71% of the company's total sales for that period. But the product segment only grew at a 20% rate, while electronics and other general merchandise grew at a 40% pace, reaching $456 million during the period. The company also generated $51 million in other income, which consists of non-retail activities such as the company's co-branded credit card program and other marketing and promotional activities.

Within media sales, $632 million was produced by the North American operation, up 16.8% from the $541 million in the second quarter of 2004. International media sales totaled $614 million, up 24% from the $496 million the company garnered in the corresponding earlier period. Fueling growth within the media segment, Amazon reported that it had received orders for more than 1.5 million copies of “Harry Potter and the Half-Blood Prince,” which it termed its largest new product release.

During the quarter, the company's overall international business continued to outpace the growth of its North American operation, with a 33% growth versus 21%. In total, international sales reached $793 million, versus the $596 million generated in 2004's second quarter, while North America revenues increased to $960 million from $791 million.

For the six-month period, Amazon garnered $130 million in net income, or 32 cents per diluted share, on sales of $3.66 billion in sales. In the year-earlier six-month period, the company produced $188 million in net income or 46 cents per diluted share, on sales of $2.92 billion.

In updating its earning guidance, Amazon said it expects operating income to be between $415 million and $515 million, while net sales are expected to be between $8.28 billion and $8.68 billion for the full year of 2005.

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