eBay 2001 Annual Report Download - page 86

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
Minimum annual repayments on these notes and capital leases at December 31, 2001, are as follows
(in thousands):
Year ending
December 31, Total
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $16,111
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,254
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 39
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 44
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,636
$28,119
Note 9 Ì Operating Lease Arrangements:
Leases in which eBay is the lessee
On March 1, 2000, we entered into a Ñve-year lease for general oÇce facilities located in San Jose,
California. This Ñve-year lease is commonly referred to as a synthetic lease because it represents a form of
oÅ-balance sheet Ñnancing under which an unrelated third-party funds 100% of the costs of the acquisition
of the property and leases the asset to us as lessee. Under our lease structure, upon termination or
expiration, at our option, we must either purchase the property from the lessor for a predetermined amount
or sell the real property to a third-party.
Payments under our lease are based on the $126.4 million cost of the property funded by the third-party
and are adjusted as the London Interbank Offering Rate (""LIBOR'') fluctuates. Under the terms of the
lease agreement, the lease terminates on March 1, 2005, unless extended to September 1, 2006. At any time
prior to the final 12 months of the lease term, we may, at our option, purchase the property for
approximately $126.4 million. If we elect not to purchase the property, we will undertake to sell the facility
to one or more third parties and have guaranteed to the Lessor a residual value equal to approximately 88%
of the $126.4 million cost of this property. We may also be liable to the lessor for the entire amount of
$126.4 million if we default on any of certain lease obligations and financial covenants. If this payment is
made, we would then receive title to the property. At December 31, 2001, we had not made a decision with
respect to the option we will pursue at the end of the lease term, although it is likely that we will decide to
continue to occupy the property. Management believes that the contingent liability relating to the residual
value guarantee will not have a material adverse effect on our financial condition or results of operations.
In addition, we are required to place $126.4 million of cash and investment securities as collateral for
the term of the lease and to maintain certain Ñnancial covenants. The cash and investment securities are
restricted as to their withdrawal from a third-party trustee and are classiÑed as long-term restricted cash
and investments in the accompanying balance sheet. In the event of a default under the lease, the
collateral could be used to pay the purchase price of the property and the lease would be terminated. At
December 31, 2001, we were in compliance with our Ñnancial covenants under the lease.
If our lease were terminated, and we became obligated to pay the purchase price of the land and
buildings, we would show the cost as an asset on our balance sheet and our restricted cash and
investments position would be reduced by the amount of the purchase price. Currently, we reÖect rent
payments as an expense on our statement of income. In the event we were required to purchase the land
and buildings, our rent expense would cease and we would subsequently record depreciation expense for
the buildings over their estimated useful lives.
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