Amazon.com 2001 Annual Report Download - page 70

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 7—LONG-TERM DEBT AND OTHER
The Company’s long-term debt and other long-term liabilities are summarized as follows:
December 31,
2001 2000
(in thousands)
6.875% PEACS ............................................... $ 608,787 $ 650,463
Euro Currency Swap ........................................... 33,265 —
4.75% Convertible Subordinated Notes ............................ 1,249,807 1,249,807
Senior Discount Notes ......................................... 231,830 210,278
Capital Lease Obligations ....................................... 16,415 24,837
Long-term Restructuring ........................................ 20,640 —
Other Long-term Debt ......................................... 10,381 8,656
2,171,125 2,144,041
Less current portion of long-term debt ............................. (5,070) (4,831)
Less current portion of capital lease obligations ..................... (9,922) (11,746)
$2,156,133 $2,127,464
6.875% PEACS
On February 16, 2000, the Company completed an offering of 690 million Euros of 6.875% PEACS due
2010. The 6.875% PEACS are convertible into the Company’s common stock at a conversion price of
84.883 Euros per share. The initial conversion price of the 6.875% PEACS was 104.947 Euros per share, which
was adjusted down to the current price on February 16, 2001 due to a reset provision in the note. The conversion
price can be reset a final time on February 16, 2002, but in no event will the price be reset lower than the current
84.883 Euros per share. Interest on the 6.875% PEACS is payable annually in arrears in February of each year.
The 6.875% PEACS are unsecured and are subordinated to all of the Company’s existing and future senior
indebtedness. The 6.875% PEACS rank equally with the Company’s outstanding 4.75% Convertible
Subordinated Notes. Subject to certain conditions, the 6.875% PEACS may be redeemed at the Company’s
option on or after February 20, 2003, in whole or in part, at the redemption price of 1,000 Euros per note, plus
accrued and unpaid interest.
In order to hedge a portion of the risk of exchange rate fluctuations between the U.S. dollar and the Euro,
the Company entered into a cross-currency swap agreement and into a series of foreign currency forward
purchase agreements in 2000. Under the swap agreement, the Company agreed to pay at inception and receive
upon maturity 75 million Euros in exchange for receiving at inception and paying at maturity $67 million. In
addition, the Company agreed to receive in February of each year 27 million Euros for interest payments on 390
million Euros of the 6.875% PEACS and, simultaneously, to pay $32 million. The agreement expires February
16, 2010 and is cancelable, in whole or in part, at the Company’s option at no cost on or after February 20, 2003
if the Company’s underlying stock price (converted into Euros) is greater than or equal to the minimum
conversion price of the 6.875% PEACS. The Company has designated the swap agreement as a cash flow hedge
of the foreign exchange rate risk on a portion of the 6.875% PEACS principal and interest in accordance with the
guidelines of SFAS No. 133 adopted January 1, 2001. Each period, gains or losses resulting from changes in the
fair value of the swap contract are recorded to “Accumulated other comprehensive loss” and a portion of such
gain or loss is immediately reclassified to the statement of operations, “Other gains (losses), net,” to offset the
foreign currency loss or gain attributable to remeasurement of the hedged portion of the 6.875% PEACS. For the
year ended December 31, 2001, a currency swap loss of $5 million was reclassified to offset a $5 million
currency gain on the 6.875% PEACS. The terms of the swap contract have been structured to match the terms of
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