Amazon.com 2005 Annual Report Download - page 49

Foreign-currency transaction gains (losses) primarily relate to the interest payable on our 6.875% PEACS.
Since these payments are settled in Euros, the balance of interest payable (which is paid annually in February) is
subject to gains or losses resulting from changes in exchange rates between the U.S. Dollar and Euro between
reporting dates and payment.
Remeasurements and Other
Remeasurements and other consisted of the following:
Year Ended December 31,
2005 2004 2003
(in millions)
Foreign-currency gain (loss) on remeasurement of 6.875%
PEACS(1) ........................................... $90 $(65) $(140)
Gain (loss) on sales of Euro-denominated investments, net ........ (2) 9 6
Loss on redemption of long-term debt (4) ..................... (6) (6) (24)
Foreign-currency effect on intercompany balances (2) ........... (47) 41 36
Other (3) ............................................... 7 20 (8)
Total remeasurements and other ......................... $42 $ (1) $(130)
(1) Each period the remeasurement of our 6.875% PEACS from Euros to U.S. Dollars results in gains or losses
recorded to “Remeasurements and other” on our consolidated statements of operations.
(2) Represents the gains (losses) associated with the remeasurement of intercompany balances due to changes in
foreign exchange rates. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 1—
Description of Business and Accounting Policies.”
(3) Activity in 2005 and 2004 primarily includes gains associated with the sale of certain equity investments.
Activity in 2003 primarily includes a loss from termination of our Euro currency swap.
(4) We expect to record a charge of $6 million related to our announced plans to redeem €250 million principal
of our 6.875% PEACS, which is expected to close March 6, 2006.
Income Taxes
We recorded a tax benefit in 2005 of $90 million, representing $0.22 and $0.21 of basic and diluted earnings
per share, as we determined at year end that certain of our deferred tax assets were more likely than not
realizable. Excluding this $90 million benefit, our effective tax rate would have been significantly higher than the
35% statutory rate, resulting from steps we initiated to establish our European headquarters in Luxembourg,
which we expect will benefit our effective tax rate over time. Associated with the establishment of our European
headquarters, we transferred certain of our operating assets in 2005 from the U.S. to international locations which
resulted in taxable income and an increase in our effective tax rate. We will initiate similar asset transfers in 2006
to finalize our European headquarters transition, and we expect this will result in an effective tax rate for
financial reporting purposes significantly higher than the statutory rate for 2006. There is potential for significant
volatility of our 2006 effective tax rate due to several factors, including from variability in accurately predicting
our taxable income and the taxable jurisdictions to which it relates. Since we have deferred tax assets related to
our NOLs, these asset transfers will not have a significant impact on our cash taxes paid in 2006, which we
expect to be approximately $25 million, compared with $12 million in 2005 and $4 million in 2004. We are not
endeavoring to optimize our global taxes on a financial reporting basis, instead we endeavor to optimize our
global taxes on a cash basis.
We recorded a tax benefit in 2004 of $244 million, representing $0.60 and $0.57 of basic and diluted
earnings per share, and a credit to “Stockholders’ Equity (Deficit)” of $106 million as we determined that certain
of our deferred tax assets were more likely than not realizable.
At December 31, 2005, our deferred tax assets, net of deferred tax liabilities and valuation allowance, are
$291 million, which includes $123 million relating to NOLs that are primarily attributed to stock-based
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