Amazon.com 2006 Annual Report Download - page 37

development costs. Cash used in investing activities was $333 million, $778 million, and $317 million in 2006,
2005, and 2004, with the variability caused primarily by purchases, maturities, and sales of marketable securities.
Capital expenditures were $216 million, $204 million and $89 million in 2006, 2005 and 2004, with the
sequential increases primarily reflecting additional investment in development of new features and product
offerings on our websites, as well as investments in fulfillment-related assets and technology infrastructure.
Capital expenditures included $108 million, $79 million and $44 million for internal-use software and website
development during 2006, 2005 and 2004. Stock-based compensation capitalized for internal-use software and
website development costs does not affect cash flows. We also made payments, net of acquired cash, of $32
million, $24 million, and $71 million in 2006, 2005 and 2004 to purchase certain comapnies.
Cash used in financing activities was $400 million, $193 million, and $97 million in 2006, 2005, and 2004.
Cash outflows from financing activities result from repurchases of common stock, repayments of long-term debt,
and payments on capital lease obligations. We repurchased $252 million of our common stock under a $500
million repurchase program authorized by our Board of Directors in 2006. Repayments on long-term debt and
payments on capital lease obligations were $383 million, $270 million, and $157 million in 2006, 2005, and
2004. Repayments on long-term debt include €250 million and €200 million of our 6.875% PEACS for $300
million and $265 million in 2006 and 2005. Additionally, we repaid $154 million to redeem a portion of our
4.75% Convertible Subordinated Notes in 2004. See Item 8 of Part II, “Financial Statements and Supplementary
Data—Note 4—Long-Term Debt.” If all of our capital leases were classified as operating leases, the detriment to
cash flows from operating activities would have been $21 million, $2 million, and $4 million in 2006, 2005, and
2004. Cash inflows from financing activities primarily result from proceeds from exercises of employee stock
options and tax benefits relating to excess stock-based compensation deductions. Cash inflows from proceeds
from exercise of employee stock options were $35 million, $59 million, and $60 million in 2006, 2005, and 2004.
Cash inflows from tax benefits related to stock-based compensation deductions were $102 million and $7 million
in 2006 and 2005, in accordance with adoption of SFAS No. 123(R). We expect cash proceeds from exercises of
stock options will continue to decline over time as we continue issuing restricted stock units as our primary
vehicle for stock-based awards.
In 2006 and 2005 we recorded net tax provisions of $187 million and $95 million, and in 2004 we recorded
a net tax benefit of $233 million. A majority of this provision and benefit is non-cash. We have net operating
losses that are classified as deferred tax assets and are being utilized to reduce our taxable income to nominal
levels. As such, cash taxes paid were $15 million, $12 million, and $4 million for 2006, 2005, and 2004. We
endeavor to optimize our global taxes on a cash basis, rather than on a financial reporting basis.
In 2006, our Board of Directors authorized a 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. Additionally, in August 2006 our Board
of Directors authorized a 24-month program to repurchase up to an aggregate of $500 million of our common
stock, of which $248 million remains authorized for repurchase at December 31, 2006.
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 (expense), net” on our consolidated
statements of operations.
On average, our high inventory velocity means we collect from our customers before our payments to
suppliers come due. Inventory turnover was 13, 14, and 16 for 2006, 2005, and 2004. We expect some variability
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