Amazon.com 2011 Annual Report Download - page 39

Free cash flow, which we reconcile to “Net cash provided by (used in) operating activities,” is cash flow
from operations reduced by “Purchases of fixed assets, including internal-use software and website
development.” 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 flows since purchases of fixed assets 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 obligations related to capital leases and leases accounted for as financing
arrangements or cash payments for business acquisitions. Therefore, we believe it is important to view free cash
flow as a complement to our entire consolidated statements of cash flows.
The following is a reconciliation of free cash flow to the most comparable GAAP measure, “Net cash
provided by operating activities” for 2011, 2010, and 2009 (in millions):
Year Ended December 31,
2011 2010 2009
Net cash provided by operating activities ................................. $3,903 $ 3,495 $ 3,293
Purchases of fixed assets, including internal-use software and website
development ...................................................... (1,811) (979) (373)
Free cash flow ...................................................... $2,092 $ 2,516 $ 2,920
Net cash used in investing activities ..................................... $(1,930) $(3,360) $(2,337)
Net cash provided by (used in) financing activities .......................... $ (482) $ 181 $ (280)
Operating expenses with and without stock-based compensation is provided to show the impact of stock-
based compensation, which is non-cash and excluded from our internal operating plans and measurement of
financial performance (although we consider the dilutive impact to our shareholders when awarding stock-based
compensation and value such awards accordingly). In addition, unlike other centrally-incurred operating costs,
stock-based compensation is not allocated to segment results and therefore excluding it from operating expense is
consistent with our segment presentation in our footnotes to the consolidated financial statements.
Operating expenses without stock-based compensation has limitations since it does not include all expenses
primarily related to our workforce. More specifically, if we did not pay out a portion of our compensation in the
form of stock-based compensation, our cash salary expense included in the “Fulfillment,” “Technology and
content,” “Marketing,” and “General and administrative” line items would be higher.
Information regarding the effect of exchange rates, versus the U.S. Dollar, on our consolidated statements of
operations is provided to show reported period operating results had the exchange rates remained the same as
those in effect in the comparable prior year period.
Guidance
We provided guidance on January 31, 2012 in our earnings release furnished on Form 8-K as set forth
below. These forward-looking statements reflect Amazon.com’s expectations as of January 31, 2012. Our results
are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign
exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth
of the Internet and online commerce and the various factors detailed below.
First Quarter 2012 Guidance
• Net sales are expected to be between $12.0 billion and $13.4 billion, or to grow between 22% and 36%
compared with first quarter 2011.
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