Amazon.com 2006 Annual Report Download - page 70

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AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
earnings per share as its effect is anti-dilutive. The U.S. Dollar equivalent principal, interest, and conversion
price fluctuate based on the Euro/U.S. Dollar exchange ratio. Interest on the 6.875% PEACS is payable annually
in arrears in February of each year. The 6.875% PEACS are unsecured and are subordinated to any existing and
future senior indebtedness. The 6.875% PEACS rank equally with our outstanding 4.75% Convertible
Subordinated Notes. We have the right to redeem the 6.875% PEACS, in whole or in part, by paying the
principal, plus any accrued and unpaid interest. No premium payment is required for early redemption.
Upon the occurrence of a “fundamental change” prior to the maturity of the 6.875% PEACS, each holder
thereof has the right to require us to redeem all or any part of such holder’s 6.875% PEACS 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 6.875% PEACS 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, 2006.
In 2006, we redeemed an aggregate principal amount of €250 million ($300 million based on the Euro to
U.S. Dollar exchange rate on the date of redemption) of our outstanding 6.875% PEACS. We recorded a charge
classified in “Remeasurements and other,” of approximately $6 million related to the redemption, consisting of
$3 million in unamortized deferred issuance charges and $3 million relating to unrealized losses on our
terminated currency swap that previously hedged a portion of our 6.875% PEACS. In addition, 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
In 2005, we redeemed an aggregate principal amount of €200 million ($265 million based on the Euro to
U.S. Dollar exchange rate on the date of redemption) of our outstanding 6.875% PEACS. We recorded a charge
classified in “Remeasurements and other,” of approximately $4 million related to the redemption, consisting of
$2 million in unamortized deferred issuance charges and $2 million relating to unrealized losses on our
terminated currency swap that previously hedged a portion of our 6.875% PEACS.
Based upon quoted market prices, the fair value of the 6.875% PEACS was $320 million and $586 million
(outstanding principal of €240 million and €490 million) as of December 31, 2006 and 2005.
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. The redemption premium was 1.425% of the principal at December 31, 2006, and decreased
to 0.950% on February 1, 2007 and will decrease by an additional 47.5 basis points annually until maturity.
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