Amazon.com 2004 Annual Report Download - page 78

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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
through December 31, 2004.
In 2004 and 2003, we redeemed aggregate principal amounts of $150 million and $200 million of our
outstanding 4.75% Convertible Subordinated Notes. As provided in the underlying indenture, the redemption
prices of $154 million and $206 million represented $4 million (2.375%) and $6 million (2.85%) premiums over
the face amount of the redeemed notes. We recorded charges in 2004 and 2003, classified in “Remeasurements
and other,” of $6 million and $9 million related to these redemptions, consisting of premiums of $4 million and
$6 million and unamortized deferred issuance costs of $2 million and $3 million.
Based upon quoted market prices, the fair value of our 4.75% Convertible Subordinated Notes as of
December 31, 2004 and 2003 was $907 million (principal balance of $900 million) and $1.06 billion (principal
balance of $1.05 billion).
Note 5—COMMITMENTS AND CONTINGENCIES
Commitments
We lease office and fulfillment center facilities and fixed assets under non-cancelable operating and capital
leases. Rental expense under operating lease agreements was $55 million, $52 million, and $56 million for 2004,
2003, and 2002.
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