Amazon.com 2006 Annual Report Download - page 46

€240 million ($317 million based on the exchange rate at December 31, 2006) principal balance of our 6.875%
PEACS at December 31, 2006. Interest expense was $78 million, $92 million, and $107 million in 2006, 2005,
and 2004, with declines primarily relating to principal repayments of $300 million, $265 million, and $150
million in 2006, 2005, and 2004.
At December 31, 2006, our total long-term indebtedness was $1.25 billion compared to $1.48 billion at
December 31, 2005. See Item 8 of Part II, “Financial Statements and Supplementary Data—Note 4—Long-Term
Debt.”
Our interest income was $59 million, $44 million, and $28 million during 2006, 2005, and 2004. We
generally invest our excess cash in investment grade short- to intermediate-term fixed income securities and
AAA-rated money market mutual funds. Our interest income corresponds with the average balance of invested
funds and the prevailing rates we are earning on them, which vary depending on the geographies and currencies
in which they are invested.
Other Income (Expense), Net
Other income (expense), net, was $(4) million, $2 million, and $(5) million, in 2006, 2005 and 2004, and
consisted primarily of gains and losses on sales of marketable securities, foreign-currency transaction gains and
losses, and other miscellaneous losses.
Foreign-currency transaction gains and losses primarily relate to the interest payable on our 6.875%
PEACS, as well as foreign-currency gains and losses on cross-currency investments. Since interest payments on
our 6.875% PEACS are settled in Euros, the balance of interest payable 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,
2006 2005 2004
(in millions)
Foreign-currency gain (loss) on remeasurement of 6.875% PEACS (1) . . . $(37) $ 90 $(65)
Loss on redemption of long-term debt ............................. (6) (6) (6)
Foreign-currency gain (loss) on intercompany balances (2) ............ 50 (47) 41
Other ....................................................... 4 5 29
Total remeasurements and other .............................. $11 $42 $ (1)
(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—Foreign Currency.”
Income Taxes
We recorded a provision (benefit) for income taxes of $187 million, $95 million, and $(233) million, in
2006, 2005 and 2004. The effective tax rate in 2006 was higher than the 35% statutory rate resulting from
establishing 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 and 2006 from the U.S. to international locations. These transfers resulted in taxable income and
exposure to additional taxable income assertions by taxing jurisdictions.
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