Amazon.com 2004 Annual Report Download - page 52

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Effect of Exchange Rates
The effect on our consolidated statements of operations from changes in exchange rates versus the U.S.
Dollar is as follows:
Year Ended December 31,
2004 2003 2002
(in thousands, except
per share amounts)
Exchange-rate effect on (1):
Net sales ................................................... $275,653 $232,370 $ 46,950
Gross profit ................................................. 52,183 46,392 9,930
Operating expenses .......................................... 32,011 32,054 6,039
Operating income ............................................ 20,172 14,338 3,891
Net interest expense and other .................................. 8,801 11,135 2,393
Remeasurements and other (2) .................................. 15,023 98,729 100,879
Net income (loss) ............................................ (3,652) (95,526) (99,381)
Diluted earnings (loss) per share ................................ $ (0.01) $ (0.23) $ (0.26)
(1) Represents the effect on reported results due to year-over-year changes in exchange rates. Absent year-over-
year changes in exchange rates, reported amounts would have been lower (higher) by these amounts.
(2) Includes foreign-currency gains (losses) on remeasurement of 6.875% PEACS and intercompany balances,
and realized currency-related gains associated with sales of Euro-denominated investments held by a U.S.
functional-currency subsidiary. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note
10—Remeasurements and Other.”
Non-GAAP Financial Measure: Free Cash Flow
Regulation G, Conditions for Use of Non-GAAP Financial Measures,and other provisions of the 1934 Act
define and prescribe the conditions for use of certain non-GAAP financial information. Our measure of “Free
cash flow” meets the definition of a non-GAAP financial measure. Free cash flow is used in addition to and in
conjunction with results presented in accordance with GAAP and free cash flow should not be relied upon to the
exclusion of GAAP financial measures. Free cash flow reflects an additional way of viewing our liquidity that,
when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our
cash flows. Management strongly encourages investors to review our financial statements and publicly-filed
reports in their entirety and to not rely on any single financial measure.
Free cash flow, which we reconcile to “Cash provided by (used in) operating activities,” is cash flow from
operations reduced by “Purchases of fixed assets, including internal-use software and website development.” We
use free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to
cash flow from operations, we believe it is a more conservative measure of cash flows since purchases of fixed
assets are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales
of fixed assets exceed purchases, free cash flow would exceed cash flow from operations. However, since we do
not anticipate being a net seller of fixed assets, we expect free cash flow to be less than operating cash flows.
Free cash flow has limitations due to the fact that it does not represent the residual cash flow available for
discretionary expenditures. For example, free cash flow does not incorporate payments made on capital lease
obligations or cash payments for business acquisitions such as our 2004 acquisition of Joyo.com (see Item 8 of
Part II, “Financial Statements and Supplementary Data—Note 1—Description of Business and Accounting
Policies”). Therefore, we believe it is important to view free cash flow as a complement to our entire
consolidated statements of cash flows.
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