Amazon.com 2013 Annual Report Download - page 40

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29
Equity-Method Investment Activity, Net of Tax
Equity-method investment activity, net of tax, was $(71) million, $(155) million, and $(12) million in 2013, 2012, and
2011. Details of the activity are provided below (in millions):
Year Ended December 31,
2013 2012 2011
Equity in earnings (loss) of LivingSocial:
Impairment charges recorded by LivingSocial $(12) $ (170) $ —
Gain on existing equity interests, LivingSocial acquisitions — 75 —
Operating and other losses (58)(96)(178)
Total equity in earnings (loss) of LivingSocial (70)(191)(178)
Other equity-method investment activity:
Amazon dilution gains on LivingSocial investment — 37 114
Recovery on sale of equity position — — 49
Other, net (1)(1) 3
Total other equity-method investment activity (1) 36 166
Equity-method investment activity, net of tax $(71) $ (155) $ (12)
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 (in millions):
Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended December 31, 2011
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2) As
Reported
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2) As
Reported
At Prior
Year
Rates (1)
Exchange
Rate
Effect (2) As
Reported
Net sales $ 75,736 $ (1,284) $ 74,452 $ 61,947 $ (854) $ 61,093 $ 46,985 $ 1,092 $ 48,077
Operating expenses 74,962 (1,255) 73,707 61,257 (840) 60,417 46,176 1,039 47,215
Income from operations 774 (29) 745 690 (14) 676 809 53 862
___________________
(1) Represents the outcome that would have resulted had exchange rates in the reported period been the same as those in
effect in the comparable prior year period for operating results.
(2) Represents the increase or decrease in reported amounts resulting from changes in exchange rates from those in effect
in the comparable prior year period for operating results.
Non-GAAP Financial Measures
Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the
conditions for use of certain non-GAAP financial information. Our measures of “Free cash flow,” operating expenses with and
without stock-based compensation, and the effect of exchange rates on our consolidated statements of operations, meet the
definition of non-GAAP financial measures.
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, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow from operations
reduced by “Purchases of property and equipment, including internal-use software and website development,” which are
included in cash flow from investing activities. 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 typically will present a more conservative
measure of cash flow from operations since purchases of property and equipment, including internal-use software and website
development, are a necessary component of ongoing operations.
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 the portion of payments representing principal reductions of
debt, property and equipment acquired under capital leases and other leases accounted for as financing arrangements, or cash