Amazon.com 2005 Annual Report Download - page 77

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
classified in “Remeasurements and other,” of $6 million related to this redemption, consisting of a premium of
$4 million and unamortized deferred issuance costs of $2 million.
Based upon quoted market prices, the fair value of our 4.75% Convertible Subordinated Notes as of
December 31, 2005 and 2004 was $868 million and $907 million.
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 $84 million, $55 million, and $52 million for 2005,
2004, and 2003.
The following summarizes our principal contractual commitments, excluding open orders for inventory
purchases that support normal operations, 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
Total commitments ................. $228 $200 $164 $1,029 $679 $175 $2,475
(1) Under our 6.875% PEACS, the principal payment due in 2010 and the annual interest payments fluctuate
based on the Euro/U.S. Dollar exchange ratio. 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 this instrument since issuance in February 2000 has increased by $97 million as of December 31,
2005. The principal and interest commitments at December 31, 2005 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.
See “Note 8—Other Operating Expense (Income)” for additional information about our restructuring-related
lease obligations.
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