Amazon.com 2004 Annual Report Download - page 53

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The following is a reconciliation of free cash flow to the most comparable GAAP measure, “Cash provided
by operating activities” for 2004, 2003, and 2002 (in thousands):
Year Ended December 31,
2004 2003 2002
Net cash provided by operating activities ........................... $566,560 $ 392,022 $ 174,291
Purchases of fixed assets, including internal-use software and website
development ................................................ (89,133) (45,963) (39,163)
Free cash flow ................................................ $477,427 $ 346,059 $ 135,128
Net cash provided by (used in) investing activities .................... $(317,631) $ 236,651 $(121,684)
Net cash provided by (used in) financing activities .................... $ (97,292) $(331,986) $ 106,894
Guidance
The Company provided guidance on February 2, 2005 in its earnings release furnished on Form 8-K as
follows:
First Quarter 2005 Guidance
•Net sales are expected to be between $1.80 billion and $1.95 billion, or grow between 18% and 27%,
compared with first quarter 2004.
•Operating income is expected to be between $80 million and $110 million, or decline between (28%)
and 0%, compared with first quarter 2004, assuming, among other things, that the Company adopts
SFAS No. 123R on January 1, 2005, stock-based compensation is $25 million, and there are no further
revisions to restructuring-related estimates.
Full Year 2005 Expectations
•Net sales are expected to be between $8.05 billion and $8.65 billion, or grow between 16% and 25%.
•Operating income is expected to be between $385 million and $510 million, or between (13%) and 16%
growth, compared with 2004, assuming, among other things, that the Company adopts SFAS No. 123R
on January 1, 2005, stock-based compensation is $115 million, and there are no further revisions to
restructuring-related estimates.
These projections are subject to substantial uncertainty. See Item 1 of Part 1, “Business — Additional
Factors That May Affect Future Results.”
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk for the effect of interest rate changes, foreign currency fluctuations, and
changes in the market values of our investments.
Information relating to quantitative and qualitative disclosure about market risk is set forth below and in
“Liquidity and Capital Resources,” above.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and
our long-term debt. All of our cash equivalent and marketable fixed income securities are designated as
available-for-sale and, accordingly, are presented at fair value on our balance sheets. We generally invest our
excess cash in “A” rated or higher, short- to intermediate-term fixed income securities and money market mutual
45