Amazon.com 2008 Annual Report Download - page 34

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determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other
Intangible Assets. FSP No. 142-3 is effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is prohibited. We do not expect the adoption of FSP No. 142-3 will have a
material impact on our consolidated financial statements.
In June 2008, the FASB ratified the consensus reached on EITF Issue No. 07-05, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. EITF Issue No. 07-05 clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which
would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. EITF Issue No. 07-05 is effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption for an existing instrument is not permitted. We do not expect the adoption of
EITF Issue No. 07-05 will have a material impact on our consolidated financial statements.
Liquidity and Capital Resources
Cash flow information is as follows:
Year Ended December 31,
2008 2007 2006
(in millions)
Cash provided by (used in):
Operating activities ................................................. $1,697 $1,405 $ 702
Investing activities ................................................. (1,199) 42 (333)
Financing activities ................................................. (198) 50 (400)
Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP
financial measure, was $1.36 billion for 2008, compared to $1.18 billion and $486 million for 2007 and 2006.
See “Results of Operations—Non-GAAP Financial Measures” below for a reconciliation of free cash flow to
cash provided by operating activities. The increase in free cash flow in 2008 primarily resulted from increased
operating income, offset by increased capital expenditures. The increase in free cash flow in 2007 primarily
resulted from increased operating income. Operating cash flows and free cash flows can be volatile and are
sensitive to many factors, including changes in working capital, and the timing and magnitude of capital
expenditures. Working capital at any specific point in time is subject to many variables, including seasonality,
inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms,
valuation of cash equivalents and marketable securities, and fluctuations in foreign exchange rates.
Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents,
and marketable securities balances, which, at fair value, were $3.7 billion, $3.1 billion, and $2.0 billion at
December 31, 2008, 2007 and 2006. Amounts held in foreign currencies were $1.7 billion, $1.2 billion, and $623
million at December 31, 2008, 2007, and 2006, and were primarily Euros, British Pounds, and Japanese Yen. See
Item 8 of Part II, “Financial Statements and Supplementary Data—Note 12—Income Taxes.”
Cash provided by operating activities was $1.7 billion, $1.4 billion, and $702 million in 2008, 2007, and
2006. Our operating cash flows result primarily from cash received from our customers, from sellers, and from
non-retail activities such as through our co-branded credit card agreements, other seller services, and
miscellaneous marketing and promotional agreements, offset by cash payments we make for products and
services, employee compensation (less amounts capitalized pursuant to SOP 98-1 that are reflected as cash used
in investing activities), payment processing and related transaction costs, operating leases, and interest payments
on our long-term debt obligations. Cash received from customers, sellers, developers, and other activities
generally corresponds to our net sales. Because our customers primarily use credit cards to buy from us, our
receivables from customers settle quickly.
Cash provided by (used in) investing activities corresponds with purchases, sales, and maturities of
marketable securities, cash outlays for acquisitions, equity-method investments and intellectual property rights,
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