Amazon.com 2003 Annual Report Download - page 70

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
If we redeem or otherwise restructure our 6.875% PEACS prior to maturity in 2010, any remaining cumulative
unrealized loss associated with the Euro Currency Swap will be recorded as a charge to “Remeasurement of
6.875% PEACS and other.”
Based upon quoted market prices, the fair value of the 6.875% PEACS was $870 million and $531 million
as of December 31, 2003 and 2002. The fair value of the swap obligation was $12 million at December 31, 2002.
4.75% Convertible Subordinated Notes
On February 3, 1999, we completed an offering of $1.25 billion of 4.75% Convertible Subordinated
Notes. The 4.75% Convertible Subordinated Notes are convertible into our common stock at the holders’
option at a conversion price of $78.0275 per share. Interest on the 4.75% Convertible Subordinated Notes is
payable semi-annually in arrears in February and August of each year. The 4.75% Convertible Subordinated
Notes are unsecured and are subordinated to any existing and future Senior Indebtedness as defined in the
indenture governing the 4.75% Convertible Subordinated Notes. We have the right to redeem the 4.75%
Convertible Subordinated Notes, in whole or in part, by paying the principal plus a redemption premium, plus
any accrued and unpaid interest. At December 31, 2003, the redemption premium was 2.85% of the principal,
and decreased to 2.375% on February 1, 2004 and will decrease by 47.5 basis points annually until maturity.
Upon the occurrence of a “fundamental change” prior to the maturity of the 4.75% Convertible
Subordinated Notes, each holder thereof has the right to require us to redeem all or any part of such holder’s
4.75% Convertible Subordinated Notes at a price equal to 100% of the principal amount of the notes being
redeemed, together with accrued interest. As defined in the indenture, a “fundamental change” is the occurrence
of certain types of transactions in which our stockholders do not receive publicly-traded securities.
The indenture governing the 4.75% Convertible Subordinated Notes contains certain affirmative covenants
for us, including making principal and interest payments when due, maintaining our corporate existence and
properties, and paying taxes and other claims in a timely manner. We were in compliance with these covenants at
December 31, 2003.
On November 24, 2003, we redeemed an aggregate principal amount of $200 million of our 4.75%
Convertible Subordinated Notes. As provided in the underlying indenture, the redemption price of $206 million
represented a $6 million (2.85%) premium over the face amount of the redeemed 4.75% Convertible
Subordinated Notes. We recorded a charge in the fourth quarter of 2003, classified in “Remeasurement of
6.875% PEACS and other,” of approximately $9 million related to the redemption, consisting of the $6 million
premium and approximately $3 million in unamortized deferred issuance charges. Accrued and unpaid interest of
$3 million, from August 1, 2003 through November 23, 2003, was also paid at redemption.
Based upon quoted market prices, the fair value of our 4.75% Convertible Subordinated Notes as of
December 31, 2003 and 2002 was $1.06 billion (principal balance of $1.05 billion) and $925 million (principal
balance of $1.25 billion).
10% Senior Discount Notes
During the second quarter of 2003, we redeemed all of our remaining 10% Senior Discount Notes for $277
million, consisting of principal repayment of $264 million and a 5% premium of $13 million. Included in our
results for the year ended December 31, 2003 is a charge of $15 million to “Remeasurement of 6.875% PEACS
and other” representing the 5% premium and $2 million of remaining deferred issuance charges. Additionally,
we paid $2 million to holders of our 10% Senior Discount Notes for interest accrued between May 1, 2003 and
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