Amazon.com 2005 Annual Report Download - page 39

Additionally, in February 2006, 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.
Since our 6.875% PEACS, which are due in 2010, are denominated in Euros, our U.S. Dollar equivalent
interest payments and principal obligations fluctuate with the Euro to U.S. Dollar exchange rate. As a result, any
fluctuations in the exchange rate will have an effect on our interest expense and, to the extent we make principal
payments, the amount of U.S. Dollar equivalents necessary for principal settlement. Additionally, since our
interest payable on our 6.875% PEACS is due in Euros, the balance of interest payable is subject to gains or
losses on currency movements until the date of the interest payment. Gains or losses on the remeasurement of our
Euro-denominated interest payable are classified as “Other income, net” on our consolidated statements of
operations.
Our inventory turnover was 14 and 16 for 2005 and 2004. We expect some variability in inventory turnover
over time as it is affected by several factors, including our product mix, our mix of third-party sales, and the
extent we choose to utilize outsource fulfillment providers, among other factors. The decline in inventory
turnover is primarily attributed to our emphasis on maintaining wide merchandise selection of in-stock inventory,
which enables faster delivery of products to our customers.
The following summarizes our principal contractual commitments as of December 31, 2005:
2006 2007 2008 2009 2010 Thereafter Total
(in millions)
Operating and capital commitments:
Debt principal and other (1) ................ $ 14 $1$2$902$587 $17 $1,523
Debt interest (1) ......................... 83 83 83 61 40 — 350
Capital leases ...........................211 11 1 7
Operating leases (2)(3) .................... 129 115 78 65 51 157 595
Purchase obligations (4) ................... 289 12 8 8 8 8 333
Total commitments ................... $517 $212 $172 $1,037 $687 $183 $2,808
(1) At December 31, 2005, the Euro to U.S. Dollar exchange rate was 1.1843. Due to changes in the Euro/U.S.
Dollar exchange ratio, our remaining principal debt obligation under the 6.875% PEACS since issuance in
February 2000 has increased by $97 million as of December 31, 2005. The principal and interest
commitments reflect the partial redemptions of the 6.875% PEACS and 4.75% Convertible Subordinated
Notes. Additionally, on March 7, 2006, we will redeem €250 million of our outstanding 6.875% PEACS,
which is not reflected in the table above.
(2) Pursuant to SFAS No. 13, Accounting for Leases, lease agreements are categorized at their inception as
either operating or capital leases depending on certain defined criteria. Although operating leases represent
obligations for us, pursuant to SFAS No. 13 they are not reflected on the balance sheet. As of December 31,
2005, we have remaining obligations under operating leases for equipment and real estate totaling $595
million. If we had applied to our equipment operating leases the same convention used for capital leases,
which, however, would not be in accordance with GAAP, we would have recorded approximately $90
million of additional obligations on our balance sheet at December 31, 2005.
(3) Includes $9 million related to restructuring-related leases and other commitments, consisting of $4 million
due within 12 months and included in “Accrued expenses and other current liabilities,” and $5 million due
after 12 months and included in “Long-term debt and other” on our balance sheets. These amounts are net of
anticipated sublease income of $4 million.
(4) Consists of legally-binding commitments to purchase inventory and significant non-inventory commitments.
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