Amazon.com 2005 Annual Report Download - page 76

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
terminate the agreement, we recorded a non-cash loss of $6 million to “Remeasurements and other” representing
the remaining basis in our swap asset. At December 31, 2005, the remaining cumulative unrealized loss
associated with our Euro Currency Swap, recorded to “Accumulated other comprehensive income,” was $4
million, net of tax effects. In accordance with SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, this accumulated loss will be amortized to “Remeasurements and other” over the life of the
6.875% PEACS. If we redeem or otherwise restructure our 6.875% PEACS prior to maturity in 2010, any
remaining cumulative unrealized loss associated with the Euro Currency Swap will be recorded as a charge to
“Remeasurements and other.”
Based upon quoted market prices, the fair value of the 6.875% PEACS was $586 million and $936 million
(outstanding principal of €490 million and €690 million) as of December 31, 2005 and 2004.
In February 2006, we announced plans to redeem €250 million principal of our 6.875% PEACS, which is
expected to close March 7, 2006, for a cash payment of approximately $305 million (at the Euro to U.S. dollar
exchange rate on January 31, 2006), which includes $1 million of interest.
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.
4.75% Convertible Subordinated Notes
On February 3, 1999, we completed an offering of $1.25 billion of 4.75% Convertible Subordinated Notes
due February 2009. The 4.75% Convertible Subordinated Notes are convertible into our common stock at the
holders’ option at a conversion price of $78.0275 per share. Interest on the 4.75% Convertible Subordinated
Notes is payable semi-annually in arrears in February and August of each year. The 4.75% Convertible
Subordinated Notes are unsecured and are subordinated to any existing and future senior indebtedness as defined
in the indenture governing the 4.75% Convertible Subordinated Notes. The 4.75% Convertible Subordinated
Notes rank equally with our outstanding 6.875% PEACS. We have the right to redeem the 4.75% Convertible
Subordinated Notes, in whole or in part, by paying the principal plus a redemption premium, plus any accrued
and unpaid interest. At December 31, 2005, the redemption premium was 1.900% of the principal, and decreased
to 1.425% on February 1, 2006 and will decrease by an additional 47.5 basis points annually until maturity.
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, 2005.
In 2004, we redeemed an aggregate principal amount of $150 million of our outstanding 4.75% Convertible
Subordinated Notes. As provided in the underlying indenture, the redemption price of $154 million represented a
$4 million (2.375%) premium over the face amount of the redeemed notes. We recorded a charge in 2004
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