Facebook 2012 Annual Report Download - page 46

Free Cash Flow
In addition to other financial measures presented in accordance with U.S. generally accepted accounting
principles (GAAP), we monitor free cash flow (FCF) as a non-GAAP measure to manage our business, make
planning decisions, evaluate our performance, and allocate resources. We define FCF as net cash provided by
operating activities reduced by purchases of property and equipment and property and equipment acquired under
capital leases.
We believe that FCF is one of the key financial indicators of our business performance over the long term
and provides useful information regarding how cash provided by operating activities compares to the property
and equipment investments required to maintain and grow our business. We have chosen to subtract both
purchases of property and equipment and property and equipment acquired under capital leases in our calculation
of FCF because we believe that these two items collectively represent the amount of property and equipment we
need to procure to support our business, regardless of whether we finance such property or equipment with a
capital lease. The market for financing servers and other technical equipment is dynamic and we expect our use
of capital leases could vary significantly from year to year.
We have chosen our definition for FCF because we believe that this methodology can provide useful
supplemental information to help investors better understand underlying trends in our business. We use FCF in
discussions with our senior management and board of directors.
FCF has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for
analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the
limitations of FCF are:
• FCF does not reflect our future contractual commitments; and
• other companies in our industry present similarly titled measures differently than we do, limiting their
usefulness as comparative measures.
Management compensates for the inherent limitations associated with using the FCF measure through
disclosure of such limitations, presentation of our financial statements in accordance with GAAP, and
reconciliation of FCF to the most directly comparable GAAP measure, net cash provided by operating activities,
as presented below.
The following is a reconciliation of FCF to the most comparable GAAP measure, net cash provided by
operating activities:
Year Ended December 31,
2012 2011 2010 2009 2008
(in millions)
Net cash provided by operating activities(1) ............... $ 1,612 $ 1,549 $ 698 $ 155 $ 8
Purchases of property and equipment .................... (1,235) (606) (293) (33) (70)
Property and equipment acquired under capital leases ....... (340) (473) (217) (56) (26)
Free cash flow ...................................... $ 37 $ 470 $ 188 $ 66 $ (88)
1) For the year ended December 31, 2012, net cash provided by operating activities was reduced by $451 million of income tax refundable
from income tax loss carrybacks due to the recognition of tax benefits related to share-based compensation from RSUs granted prior to
January 1, 2011. We expect to receive this refund in the first six months of 2013, at which time, our FCF will increase by this amount.
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