Amazon.com 2005 Annual Report Download - page 78

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Pledged Securities
We are required to pledge a portion of our cash equivalents or marketable securities as collateral for standby
letters of credit that guarantee certain of our contractual obligations, a line of credit, and real estate lease
agreements. The amount required to be pledged for real estate lease agreements changes over the life of our
leases; with fluctuations in our market capitalization, which is common shares outstanding multiplied by the
closing price of our common stock; and based on our credit-rating. Information about collateral required to be
pledged under these agreements is as follows:
Standby
Letters of
Credit (1)
Line of
Credit (2)
Real Estate
Leases (3) Total
(in millions)
Balance at December 31, 2004 ................................. $50 $ 2 $22 $74
Net change in collateral pledged ................................ 9 12 (4) 17
Balance at December 31, 2005 (4) .............................. $59 $14 $18 $91
(1) Pursuant to available standby letter-of-credit facilities totaling $139 million.
(2) Pursuant to an available line of credit totaling $13 million, whereby collateral is required to be pledged at
110% of the outstanding balance.
(3) At December 31, 2005, our market capitalization was $19.6 billion. The required amount of collateral to be
pledged will increase by $5 million if our market capitalization is equal to or below $18 billion and by an
additional $6 million if our market capitalization is equal to or below $13 billion.
(4) Includes $19 million of cash equivalents pledged as collateral. See “Note 2—Cash, Cash Equivalents, and
Marketable Securities.”
Legal Proceedings
The Company is involved from time to time in claims, proceedings and litigation, including the following:
A number of purported class action complaints were filed by holders of our equity and debt securities
against us, our directors, and certain of our senior officers during 2001, in the United States District Court for the
Western District of Washington, alleging violations of the Securities Act of 1933 (the “1933 Act”) and/or the
Securities Exchange Act of 1934 (the “1934 Act”). In August 2003, plaintiffs in the 1934 Act cases filed a
second consolidated amended complaint alleging that we, together with certain of our officers and directors,
made false or misleading statements during the period from October 29, 1998 through October 23, 2001
concerning our business, financial condition and results, inventories, future prospects, and strategic alliance
transactions. The 1933 Act complaint alleges that the defendants made false or misleading statements in
connection with our February 2000 offering of the 6.875% PEACS. The complaints seek damages and injunctive
relief against all defendants. We dispute the allegations of wrongdoing in these complaints and have been
vigorously defending ourselves in these matters. In March 2005, we signed a Stipulation of Settlement with
counsel representing the plaintiff class with respect to the 1934 Act claims. In July 2005, we signed a Stipulation
of Settlement with counsel representing the plaintiff class with respect to the 1933 Act claims. These settlements,
which were approved by the Court in the fourth quarter of 2005, dispose of all claims asserted in these lawsuits in
exchange for payments totaling $48 million, substantially all of which we expect to be funded by our insurers.
In October 2002, Gary Gerlinger, individually and on behalf of all other similarly situated consumers in the
United States who, during the period from August 1, 2001 to the present, purchased books online from either
Amazon.com or Borders.com, instituted an action against us and Borders in the United States District Court for
the Northern District of California. The complaint alleges that the agreement pursuant to which an affiliate of
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