America Online 2014 Annual Report Download - page 70

AOL INC.
PART II—ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
offset by the use of $36.6 million of the net proceeds from the sale of the Notes for the convertible note hedge
and warrant transactions. In addition, repurchases of common stock decreased by $36.2 million in 2014
compared to 2013 which was offset by a decrease in proceeds from exercise of stock options of $19.8 million and
increase in capital lease payments of $10.7 million.
Cash used by financing activities decreased $985.4 million for the year ended December 31, 2013, as
compared to the year ended December 31, 2012, primarily due to a decrease in cash paid for the repurchase of
our common stock in 2012 and a $434.4 million dividend payment made during the fourth quarter of 2012.
Free Cash Flow
We use Free Cash Flow as a supplemental measure of our performance. We define Free Cash Flow as cash
provided by operating activities, less capital expenditures, product development costs and principal payments on
capital leases. We consider Free Cash Flow to be a liquidity measure that provides useful information to
management and investors about the amount of cash generated by the business that, after capital expenditures,
capitalized product development costs and principal payments on capital leases, can be used for strategic
opportunities, including investing in our business, making strategic acquisitions and strengthening the balance
sheet. Analysis of Free Cash Flow also facilitates management’s comparisons of our operating results to
competitors’ operating results. A limitation on the use of this metric is that Free Cash Flow does not represent the
total increase or decrease in cash for the period because it excludes certain non-operating cash flows.
Free Cash Flow is a non-GAAP financial measure and may be different than similarly-titled non-GAAP
financial measures used by other companies. The presentation of this financial information is not intended to be
considered in isolation or as a substitute for the financial information prepared and presented in accordance with
GAAP.
The following table presents our reconciliation of Free Cash Flow to cash provided by operating activities
(in millions):
Years Ended December 31,
2014 2013 2012
Cash provided by operating activities ................................... $ 409.7 $ 318.9 $ 365.6
Less: Capital expenditures and product development costs ............... 73.9 65.7 64.9
Less: Principal payments on capital leases ........................... 71.8 61.1 55.6
Free Cash Flow ..................................................... $ 264.0 $ 192.1 $ 245.1
Free Cash Flow increased $71.9 million for the year ended December 31, 2014 as compared to the year
ended December 31, 2013. This increase is primarily due to the increase in cash provided by operating activities,
discussed in “Summary Cash Flow Information-Operating Activities” above, partially offset by increases in
capital expenditures and product development costs and increases in principal payments on capital leases.
Free Cash Flow decreased for the year ended December 31, 2013 as compared to the year ended
December 31, 2012. This decrease is due to the decline in cash provided by operating activities, discussed in
“Summary Cash Flow Information-Operating Activities” above.
Contractual Obligations and Commitments
We have obligations under certain contractual arrangements to make future payments for outstanding long-
term debt and goods and services. These contractual obligations secure the future rights to various assets and
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