Amazon.com 2002 Annual Report Download - page 51

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Estimated
Fair Value at
December 31,
2002 2003 2004 2005 2006 Thereafter Total 2001
Treasury notes and bonds ÏÏÏ 11,900 72,100 36,700 Ì Ì Ì 120,700 125,947
Weighted average
interest rate ÏÏÏÏÏÏÏÏÏÏÏ 2.05% 2.44% 3.42% Ì Ì Ì 2.70%
Cash equivalents and
marketable Ñxed-
income securities ÏÏÏÏÏÏÏÏ $455,366 $171,690 $194,265 $ Ì $ Ì $1,767 $823,088 $833,465
At December 31, 2002, we have long-term debt of $2.28 billion primarily associated with our 6.875%
PEACS, 4.75% Convertible Subordinated Notes and Senior Discount Notes, which are due in 2010, 2009
and 2008, respectively. Our payment commitments associated with these debt instruments are Ñxed during
the corresponding terms and are comprised of interest payments, principal payments, or a combination
thereof. The market value of our long-term debt will Öuctuate with movements of interest rates, increasing
in periods of declining rates of interest and declining in periods of increasing rates of interest. Based upon
quoted market prices, the fair value of the 6.875% PEACS was $531 million and $310 million at
December 31, 2002 and 2001, respectively, the fair value of the 4.75% Convertible Subordinated Notes
was $925 million and $625 million at December 31, 2002 and 2001, respectively, and the fair value of the
outstanding Senior Discount Notes was $263 million and $194 million as of December 31, 2002 and
December 31, 2001, respectively.
Foreign Exchange Risk
During 2002, net sales from Ñve of our internationally-focused Web sites (www.amazon.co.uk,
www.amazon.de, www.amazon.fr, www.amazon.co.jp and www.amazon.ca) accounted for 30% of our
consolidated revenues. Net sales generated from these Web sites, as well as most of the related expenses
incurred, are denominated in the functional currencies of the corresponding Web sites. The functional
currency of our subsidiaries that either operate or support www.amazon.co.uk, www.amazon.de,
www.amazon.fr, www.amazon.co.jp and www.amazon.ca is the same as the local currency of the United
Kingdom, Germany, France, Japan and Canada, respectively. Results of operations from our foreign
subsidiaries and our subsidiaries that operate our internationally-focused Web sites are exposed to foreign
exchange Öuctuations as the Ñnancial results of these subsidiaries are translated into U.S. Dollars at
average rates prevailing during the year upon consolidation. As exchange rates vary, net sales and other
operating results, when translated, may diÅer materially from expectations. The eÅect of foreign exchange
Öuctuations for 2002 on our internationally-focused Web sites increased net sales by $47 million and
increased results from operations by $4 million.
At December 31, 2002, we were also exposed to foreign exchange risk related to Euro-denominated
cash equivalents and marketable securities (""Euro Investments''), as well as our 6.875% PEACS. As of
December 31, 2002 the Euro Investments, classiÑed as available-for-sale, had a balance of 60 million
Euros ($63 million, based on the exchange rate as of December 31, 2002). Our 6.875% PEACS have an
outstanding principal balance of 690 million Euros ($725 million, based on the exchange rate as of
December 31, 2002), of which 75 million Euros principal is hedged. Based on the outstanding Euro
Investment balance at December 31, 2002, an assumed 5%, 10% and 20% strengthening of the U.S. Dollar
in relation to the Euro would result in a corresponding decline in the total fair value of such investments
of approximately $3 million, $6 million and $13 million, respectively. Based on the outstanding
(unhedged) 6.875% PEACS' principal balance of 615 million Euros at December 31, 2002, an assumed
5%, 10% and 20% weakening of the U.S. Dollar in relation to the Euro would result in corresponding
currency losses of approximately $32 million, $65 million and $129 million, respectively, recorded to
""Other gains (losses), net.''
We hedge the foreign exchange risk on our 6.875% PEACS' principal of 75 million Euros and a
portion of the interest payments using a cross-currency swap agreement. Under the swap agreement, we
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