Amazon.com 2004 Annual Report Download - page 39

customers and third-party sellers generally corresponds to our net sales. Because our customers primarily use
credit cards to buy from us, our receivables from customers settle quickly. Cash paid to inventory and
transportation suppliers generally corresponds with cost of sales, adjusted for increases or decreases in inventory
and payable levels. During 2004, payments to product merchandise suppliers, which do not include payments to
transportation suppliers, totaled $4.6 billion, an increase of $1.2 billion over the prior year. The increase in
payments to product merchandise suppliers corresponds with cost of sales, and with our efforts to add product
categories, increase selection of products we offer for sale, improve availability in both existing and new product
categories, and take advantage of additional discounts offered to us by suppliers, and is also affected by foreign
exchange rates.
Cash provided by (used in) investing activities corresponds with purchases, sales, and maturities of
marketable securities and purchases of fixed assets, including internal-use software and website development
costs. Cash used in investing activities was $318 million in 2004 and $122 in 2002, while cash provided by
investing activities was $237 million in 2003 with the variability caused primarily by maturities of marketable
securities. Our capital expenditures, including internal-use software and website development, were $89 million,
$46 million, and $39 million in 2004, 2003, and 2002, with the sequential increases primarily reflecting
additional investment in development of new features and product offerings on our websites over time. We
believe our expenditures for repairs and improvements are sufficient to keep our facilities and equipment in
suitable operating condition.
In September 2004, we acquired all of the outstanding shares of Joyo.com at a purchase price of $75
million, including a cash payment (net of cash acquired) of $71 million, the assumption of employee stock
options, and transaction-related costs. Cash paid in connection with this acquisition is classified as cash provided
by (used in) investing activities on our consolidated statements of cash flows. The operating results of Joyo.com
did not have a significant effect on consolidated results for 2004. See Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 1—Description of Business and Accounting Policies—Business Acquisition.”
Cash used in financing activities was $97 million in 2004 and $332 million in 2003. This compares to cash
provided by financing activities of $107 million in 2002. Cash inflows from financing activities primarily result
from proceeds from exercises of employee stock options, which were $60 million in 2004, $163 million in 2003,
and $122 million for 2002. We expect cash proceeds from exercises of stock options will decline over time as we
continue issuing restricted stock units as our primary vehicle for stock-based awards. Cash outflows from
financing activities result from repayments of long-term debt and payments on capital lease obligations, which
were $157 million in 2004, $495 million in 2003, and $15 million in 2002. During 2004, we paid $154 million,
which includes a redemption premium of $4 million, to redeem a portion of our 4.75% Convertible Subordinated
Notes due 2009 (“4.75% Convertible Subordinated Notes”). See Item 8 of Part II, “Financial Statements and
Supplementary Data—Note 4—Long-Term Debt and Other.”
In 2004 we recorded a primarily non-cash net benefit of $233 million to “Provision (benefit) for income
taxes” relating primarily to our valuation of deferred tax assets. We expect our cash taxes paid in 2005 to be
approximately $25 million, compared with $4 million in 2004.
On March 7, 2005, we redeemed 200 million Euros principal of our 6.875% PEACS for a cash payment of
$266 million, which includes $1 million of interest from and including February 16 through March 6, 2005.
Under the Indenture, no premium was required. As of March 7, 2005, the outstanding principal amount of our
6.875% PEACS was 490 million Euros ($649 million using the Euro to U.S. Dollar exchange rate on that date).
Additionally, in March 2005, our Board of Directors authorized a new debt repurchase program, replacing
our previous debt repurchase authorization in its entirety, pursuant to which we may from time to time
repurchase (through open market repurchases or private transactions), redeem, or otherwise retire up to an
aggregate of $500 million of our outstanding 4.75% Convertible Subordinated Notes and 6.875% PEACS.
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