Amazon.com 2004 Annual Report Download - page 56

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We have foreign exchange risk related to foreign-denominated cash, cash equivalents, and marketable
securities (“foreign funds”). Based on the balance of foreign funds at December 31, 2004 of $970 million, an
assumed 5%, 10%, and 20% negative currency movement would result in fair value declines of $49 million, $97
million, and $194 million. All investments are classified as “available for sale,” as defined by SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
We have foreign exchange risk related to our 6.875% PEACS, which have an outstanding principal balance
at December 31, 2004 of 690 million Euros ($935 million, based on the exchange rate as of December 31, 2004).
Due to fluctuations in the Euro/U.S. Dollar exchange ratio, which we cannot predict, our principal debt
obligation under the 6.875% PEACS since issuance in February 2000 has increased by $255 million as of
December 31, 2004. Based on the outstanding 6.875% PEACS’ principal balance, an assumed 5%, 10%, and
20% weakening of the U.S. Dollar in relation to the Euro would result in additional losses of approximately $47
million, $94 million, and $187 million, recorded to “Remeasurements and other.” Additionally, we have not
hedged our interest payments under our 6.875% PEACS to protect against exchange rate fluctuations. Assuming
the U.S. Dollar weakens against the Euro by 5%, 10%, and 20% in 2004, we would incur $3 million, $6 million,
and $13 million additional annual interest expense due solely to fluctuations in foreign exchange.
See “Effect of Exchange Rates” for additional information on the effect on reported results of changes in
exchange rates. See also Item 8 of Part II, “Financial Statements and Supplementary Data—Note 15—
Subsequent Events (Unaudited).”
Investment Risk
As of December 31, 2004, our recorded basis in equity securities (including both publicly-traded and private
companies) was $27 million, including $12 million classified as “Marketable securities,” and $15 million
classified as “Other assets.” We regularly review the carrying value of our investments and identify and record
losses when events and circumstances indicate that declines in the fair value of such assets below our accounting
basis are other-than-temporary. The fair values of our investments are subject to significant fluctuations due to
volatility of the stock market in general, company-specific circumstances, and changes in general economic
conditions. Based on the fair value of the publicly-traded equity securities we held at December 31, 2004 of $64
million (recorded basis of $20 million), an assumed 15%, 30%, and 50% adverse change to market prices of
these securities would result in a corresponding decline in total fair value of approximately $10 million, $19
million, and $32 million.
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