Amazon.com 2011 Annual Report Download - page 30

Liquidity and Capital Resources
Cash flow information is as follows:
Year Ended December 31,
2011 2010 2009
(in millions)
Cash provided by (used in):
Operating activities .............................................. $3,903 $ 3,495 $ 3,293
Investing activities ............................................... (1,930) (3,360) (2,337)
Financing activities .............................................. (482) 181 (280)
Our financial focus is on long-term, sustainable growth in free cash flow. Free cash flow, a non-GAAP
financial measure, was $2.09 billion for 2011, compared to $2.52 billion and $2.92 billion for 2010 and 2009.
See “Results of Operations—Non-GAAP Financial Measures” below for a reconciliation of free cash flow to
cash provided by operating activities. The decrease in free cash flow in 2011 was primarily due to increased
capital expenditures and changes in working capital, partially offset by increases in sales of gift certificates to our
customers, decreased tax benefits on excess stock-based compensation deductions, and increases in net income,
excluding depreciation, amortization, and stock-based compensation expense. The decrease in free cash flow in
2010 was primarily due to increased capital expenditures, changes in working capital, and utilization of excess
stock-based compensation deductions, partially offset by increases in net income, excluding depreciation,
amortization, and stock-based compensation expense. Tax benefits relating to excess stock-based compensation
deductions are presented in the statement of cash flows as financing cash inflows; accordingly, as such tax
benefits decline, a greater amount of cash is classified as operating cash inflow. Operating cash flows and free
cash flows can be volatile and are sensitive to many factors, including changes in working capital, the timing and
magnitude of capital expenditures, and our federal taxable income. 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, 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 $9.6 billion, $8.8 billion, and $6.4 billion, at
December 31, 2011, 2010, and 2009. Amounts held in foreign currencies were $4.1 billion, $3.4 billion, and $2.8
billion at December 31, 2011, 2010, and 2009, and were primarily Euros, British Pounds, and Japanese Yen.
Cash provided by operating activities was $3.9 billion, $3.5 billion, and $3.3 billion in 2011, 2010, and
2009. Our operating cash flows result primarily from cash received from our consumer, seller, and enterprise
customers, miscellaneous marketing and promotional agreements, and our co-branded credit card agreements,
offset by cash payments we make for products and services, employee compensation (less amounts capitalized
related to internal use software that are reflected as cash used in investing activities), payment processing and
related transaction costs, operating leases, and interest payments on our long-term obligations. Cash received
from our consumer, seller, and enterprise customers, and other activities generally corresponds to our net sales.
Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly.
Changes to our operating cash flows have historically been driven primarily by changes in operating income and
changes to the components of working capital, including changes to receivable and payable days and inventory
turns, as well as changes to non-cash items such as excess stock-based compensation and deferred taxes.
Cash used in investing activities corresponds with capital expenditures, including leasehold improvements,
internal-use software and website development costs, cash outlays for acquisitions, investments in other companies
and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash used in investing
activities was $(1.9) billion, $(3.4) billion, and $(2.3) billion in 2011, 2010, and 2009, with the variability caused
primarily by changes in capital expenditures and changes in cash paid for acquisitions, and purchases, maturities,
and sales of marketable securities and other investments. Capital expenditures were $1.8 billion, $979 million, and
$373 million in 2011, 2010, and 2009, with the sequential increases primarily reflecting additional investments in
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