Amazon.com 2013 Annual Report Download - page 39

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Other Operating Expense (Income), Net
Other operating expense (income), net was $114 million, $159 million, and $154 million during 2013, 2012, and 2011,
and was primarily related to the amortization of intangible assets, partially offset by the settlement of certain unclaimed
property and indemnification claims in Q3 2013.
Income from Operations
For the reasons discussed above, income from operations increased 10% in 2013, decreased 22% in 2012, and decreased
39% in 2011.
Interest Income and Expense
Our interest income was $38 million, $40 million, and $61 million during 2013, 2012, and 2011. We generally invest our
excess cash in investment grade short- to intermediate-term fixed income securities and AAA-rated money market funds. Our
interest income corresponds with the average balance of invested funds and the prevailing rates we are earning on them, which
vary depending on the geographies and currencies in which they are invested.
The primary components of our interest expense are related to our long-term debt and capital and financing lease
arrangements. Interest expense was $141 million, $92 million, and $65 million in 2013, 2012, and 2011.
Our long-term debt was $3.2 billion and $3.1 billion as of December 31, 2013 and 2012. Our other long-term liabilities
were $4.2 billion and $2.3 billion as of December 31, 2013 and 2012. See Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 6—Long-Term Debt and Note 7—Other Long-Term Liabilities” for additional information.
Other Income (Expense), Net
Other income (expense), net was $(136) million, $(80) million, and $76 million during 2013, 2012, and 2011. The
primary component of other income (expense), net is related to foreign-currency gains (losses) on intercompany balances.
Income Taxes
Our effective tax rate is subject to significant variation due to several factors, including variability in 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 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.
We recorded a provision for income taxes of $161 million, $428 million, and $291 million in 2013, 2012, and 2011. Our
effective tax rate in 2013 was lower than the 35% U.S. federal statutory rate and our effective tax rate in 2012 primarily due to
the favorable impact of earnings in lower tax rate jurisdictions, a decline in the proportion of our losses for which we may not
realize a related tax benefit, and the retroactive extension of the U.S. federal research and development credit, which expired in
December 2013. The favorable impact of earnings in lower tax rate jurisdictions primarily relates to our European operations,
which are headquartered in 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. In 2013, we recognized tax benefits for a greater proportion of these losses as compared to 2012. We have
recorded valuation allowances against the deferred tax assets associated with losses for which we may not realize a related tax
benefit.
In 2012, our effective tax rate was higher than the 35% U.S. federal statutory rate and our effective tax rate in 2011
primarily due to the adverse impact of foreign jurisdiction losses of subsidiaries primarily located outside of Europe for which
we may not realize a tax benefit. The adverse impact of these losses was partially offset by the favorable impact of earnings in
lower tax rate jurisdictions primarily related to our European operations. Additionally, our effective tax rate in 2012 was more
volatile as compared to 2011 due to the lower level of pre-tax income generated during the year, relative to our tax expense.
Our effective tax rate in 2012 was also adversely impacted by acquisitions (including integrations), audit developments,
nondeductible expenses, and changes in tax law such as the expiration of the U.S. federal research and development credit at
the end of 2011.
We have tax benefits relating to excess stock-based compensation deductions that are being utilized to reduce our U.S.
taxable income. As of December 31, 2013, our federal net operating loss carryforward was approximately $275 million and we
had approximately $295 million of federal tax credits potentially available to offset future tax liabilities.