Amazon.com (AMZN)

Note 5—LONG-TERM DEBT

Our long-term debt is summarized as follows:

In February 2008 our Board of Directors authorized a debt repurchase program, replacing our previous debt repurchase authorization in its entirety, and pursuant to which we redeemed for cash the remaining €240 million ($319 million based on the Euro to U.S. Dollar exchange rate on the date of redemption) in principal of our 6.875% PEACS in 2009, and we redeemed the remaining principal amount of $899 million of our outstanding 4.75% Convertible Subordinated Notes in 2008.

Other long-term debt relates to amounts borrowed to fund certain international operations.

Note 3 — Long-Term Debt

In February 2008, our Board of Directors authorized a debt repurchase program, pursuant to which in Q1 2009 we redeemed the remaining €240 million ($319 million based on the Euro to U.S. Dollar exchange rate on the date of redemption) in principal of our 6.875% PEACS.

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Note 5—LONG-TERM DEBT

Our long-term debt is summarized as follows:

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Debt Repurchase Authorization

In February 2008 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 all of our outstanding 6.875% PEACS and 4.75% Convertible Subordinated Notes. In 2008, we called for redemption the remaining principal of our 4.75% Convertible Subordinated Notes. See “4.75% Convertible Subordinated Notes.”

6.875% PEACS

In February 2000, we completed an offering of €690 million of our 6.875% PEACS. The 6.875% PEACS are convertible, at the holder’s option, into our common stock at a conversion price of €84.883 per share ($118.62, based on the exchange rates as of December 31, 2008). 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 $99 million as of December 31, 2008. Total common stock issuable, as of December 31, 2008, upon conversion of our outstanding 6.875% PEACS was 2.8 million shares, which is excluded from our calculation of earnings per share as its effect is currently 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. 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, 2008.

In 2006, we redeemed principal amounts 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. As a result of these redemptions, in 2006 we recorded a charge classified in “Other expense (income), net,” 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.

Based upon quoted market prices, the fair value of the 6.875% PEACS was $332 million and $358 million (outstanding principal of €240 million) as of December 31, 2008 and 2007. Such amounts are determined based on quoted prices in active markets for similar instruments (Level 2 as defined under SFAS No. 157). See “Note 1—Description of Business and Accounting Policies” for further discussion.

4.75% Convertible Subordinated Notes

In February 1999, we completed an offering of $1.25 billion of 4.75% Convertible Subordinated Notes. The 4.75% Convertible Subordinated Notes were convertible into our common stock at the holders’ option at a conversion price of $78.0275 per share.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2008, we called for redemption of the remaining principal amount of $899 million of our outstanding 4.75% Convertible Subordinated Notes. Holders elected to convert $605 million in principal amount of the 4.75% Convertible Subordinated Notes, and we issued 7.8 million shares of our common stock as a result; we redeemed the remaining $294 million of the called principal amount for cash.

Note 5—LONG-TERM DEBT

SIZE="2">Our long-term debt is summarized as follows:

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Debt Repurchase Authorization

Note 3 — Long-Term Debt

Our long-term debt is summarized as follows:

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In February 2008 our Board of Directors authorized a debt repurchase program, replacing our previous debt repurchase authorization in its entirety, pursuant to which we could from time to time repurchase (through open market repurchases or private transactions), redeem, or otherwise retire up to an aggregate of all of our outstanding 4.75% Convertible Subordinated Notes and 6.875% PEACS.

In Q3 2008 and Q2 2008, we called for redemption principal amounts of $399 million and $500 million of our outstanding 4.75% Convertible Subordinated Notes. For our Q3 2008 redemption, holders elected to convert $132 million in principal amount of the 4.75% Convertible Subordinated Notes, and we issued 1.7 million shares of our common stock as a result; we redeemed the remaining $266 million of the called principal amount for cash. For our Q2 2008 redemption, holders elected to convert $473 million in principal amount of the 4.75% Convertible Subordinated Notes, and we issued 6.1 million shares of our common stock as a result; we redeemed the remaining $27 million of the called principal amount for cash.

Note 3 — Long-Term Debt

Our long-term debt is summarized as follows:

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In February 2008 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 all of our outstanding 4.75% Convertible Subordinated Notes and 6.875% PEACS.

In Q2 2008, we called for redemption a principal amount of $500 million of our outstanding 4.75% Convertible Subordinated Notes. Under this redemption call, holders elected to convert $473 million in principal amount and we issued 6.1 million shares of our common stock as a result of such elections. We redeemed for cash the remaining $27 million of the called principal amount.

Note 3 — Long-Term Debt

Our long-term debt is summarized as follows:

In February 2008 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 all of our outstanding 4.75% Convertible Subordinated Notes and 6.875% PEACS.

Note 4—LONG-TERM DEBT

Our long-term debt is summarized as follows:

4.75% Convertible Subordinated Notes

In February 1999, we completed an offering of $1.25 billion of 4.75% Convertible Subordinated Notes. The 4.75% Convertible Subordinated Notes are convertible into our common stock at the holders’ option at a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

conversion price of $78.0275 per share. Total common stock issuable, as of December 31, 2007, upon conversion of our outstanding 4.75% Convertible Subordinated Notes was 11.5 million shares, which is excluded from our calculation of earnings per share as its effect is currently anti-dilutive. 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. 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 0.950% of the principal at December 31, 2007, and decreased to 0.475% on February 1, 2008 and will decrease to zero at maturity in February 2009.

Upon the occurrence of a “fundamental change” prior to the maturity of the 4.75% Convertible Subordinated Notes, each holder thereof has the right to require us to redeem all or any part of such holder’s 4.75% Convertible Subordinated Notes 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 4.75% Convertible Subordinated Notes 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, 2007.

Based upon quoted market prices, the fair value of our 4.75% Convertible Subordinated Notes as of December 31, 2007 and 2006 was $1.1 billion and $883 million.

6.875% PEACS

In February 2000, we completed an offering of €690 million of our 6.875% PEACS. The 6.875% PEACS are convertible, at the holder’s option, into our common stock at a conversion price of €84.883 per share ($123.84, based on the exchange rates as of December 31, 2007). Total common stock issuable, as of December 31, 2007, upon conversion of our outstanding 6.875% PEACS was 2.8 million shares, which is excluded from our calculation of earnings per share as its effect is currently 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, 2007.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2006 and 2005, we redeemed principal amounts of €250 million and €200 million ($300 million and $265 million based on the Euro to U.S. Dollar exchange rate on the date of redemption) of our outstanding 6.875% PEACS. As a result of these redemptions, in 2006 and 2005 we recorded a charge classified in “Remeasurements and other,” of approximately $6 million and $4 million related to the redemption, consisting of $3 million and $2 million in unamortized deferred issuance charges and $3 million 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 $358 million and $320 million (outstanding principal of €240 million) as of December 31, 2007 and 2006.

Debt Repurchase Authorization

In February 2008 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 all of our outstanding 4.75% Convertible Subordinated Notes and 6.875% PEACS. The outstanding principal of our 4.75% Convertible Subordinated Notes as of this authorization was $899 million, and the outstanding principal amount of our 6.875% PEACS was €240 million.

Note 4—LONG-TERM DEBT