Amazon.com 2001 Annual Report Download - page 72

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Based upon quoted market prices, the fair value of the 4.75% Convertible Subordinated Notes as of
December 31, 2001 and December 31, 2000 was $625 million and $471 million, respectively.
Senior Discount Notes
In 1998, the Company completed the offering of approximately $326 million of 10% Senior Discount Notes
due May 1, 2008 ( “Original Senior Discount Notes”). Pursuant to a registration statement on Form S-4 in
September 1998, the Company completed an exchange offer of 10% Senior Discount Notes due 2008
(“Exchange Notes” or “Senior Discount Notes”), which are registered under the Securities Act of 1933, as
amended, for all outstanding Original Senior Discount Notes. The Exchange Notes have identical terms in all
material respects to the terms of the Original Senior Discount Notes, except that the Exchange Notes generally
are freely transferable (the Exchange Notes are referred to throughout these notes to consolidated financial
statements interchangeably with the Original Senior Discount Notes). The Exchange Notes were issued under the
indenture governing the Original Senior Discount Notes (“Indenture”). The Original Senior Discount Notes were
sold at a substantial discount from their principal amount at maturity of $530 million. Prior to November 1, 2003,
no cash interest payments are required; instead, interest will accrete during this period to the aggregate principal
amount at maturity. From and after May 1, 2003, the Senior Discount Notes will bear interest at a rate of 10% per
annum payable in cash on each May 1 and November 1. The Senior Discount Notes are redeemable, at the option
of the Company, in whole or in part, at any time on or after May 1, 2003, at the redemption prices set forth in the
Indenture, plus accrued interest, if any, to the date of redemption.
During 1999, the Company repurchased $266 million (principal amount) of the Senior Discount Notes,
representing accreted value of $178 million. The Company recorded an immaterial loss on extinguishment of this
debt. No repurchases of Senior Discount Notes occurred in 2001 or 2000.
The Senior Discount Notes are senior unsecured indebtedness of the Company ranking equally with the
Company’s existing and future unsubordinated, unsecured indebtedness and senior in right of payment to all
subordinated indebtedness of the Company. The Senior Discount Notes are effectively subordinated to all
secured indebtedness and to all existing and future liabilities of the Company’s subsidiaries.
The Indenture contains certain covenants that, among other things, limit the ability of the Company and its
Restricted Subsidiaries (as defined in the Indenture) to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, create liens, engage in transactions with stockholders
and affiliates, sell assets and engage in mergers and consolidations. However, these limitations are subject to a
number of important qualifications and exceptions. The Company was in compliance with all financial covenants
at December 31, 2001 and 2000.
Based upon quoted market prices, the fair value of the outstanding Senior Discount Notes as of
December 31, 2001 and December 31, 2000 was $194 million and $134 million, respectively.
63