eBay 2004 Annual Report Download - page 114

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Ñnancial results include approximately 25% of the net income or loss of craigslist together with amortization
expense relating to acquired intangible assets.
Note 6 Ì Derivative Instruments:
We entered into two interest rate swaps on June 19 and July 20, 2000, with notional amounts totaling
$95 million to reduce the impact of changes in interest rates on a portion of the Öoating rate operating lease for
our primary oÇce facilities. The interest rate swaps allow us to receive Öoating rate receipts based on the
London Interbank OÅered Rate, or LIBOR, in exchange for making Ñxed rate payments of approximately 7%
of the notional amount, which eÅectively changes our interest rate exposure on our operating lease from a
Öoating rate to a Ñxed rate on $95.0 million of the total $126.4 million notional amount of our corporate
headquarters facility lease commitment. The balance of $31.4 million remains at a Öoating rate of interest
based on the spread over 3-month LIBOR. The fair value of the interest rate swaps as of December 31, 2004
was an unrealized loss of $662,000, net of tax beneÑt, and is recorded in accumulated other comprehensive
income on the balance sheet. The interest swap will mature in March 2005, at which time the lease expires
and we will purchase the San Jose headquarters facility.
Transaction Exposure:
As of December 31, 2004, we had outstanding forward foreign exchange hedge contracts with notional
values equivalent to approximately $316 million with maturity dates within 11 days. The hedge contracts are
used to oÅset changes in non-US dollar denominated functional currency value of assets and liabilities as a
result of foreign exchange rate Öuctuations. Transaction gains and losses on the contracts and the assets and
liabilities are recognized each period in interest and other income, net.
Translation Exposure:
Foreign exchange rate Öuctuations may adversely impact our Ñnancial position and our results of
operations. Foreign exchange rate Öuctuations may adversely impact our Ñnancial position as the assets and
liabilities of our foreign operations are translated into U.S. dollars in preparing our consolidated balance sheet.
The eÅect of foreign exchange rate Öuctuations on our consolidated Ñnancial position for the year ended
December 31, 2004, was a net translation gain of approximately $140 million. This gain is recognized as an
adjustment to stockholders' equity through accumulated other comprehensive income. Additionally, foreign
exchange rate Öuctuations may adversely impact our results of operations as exchange rate Öuctuations on
transactions denominated in currencies other than our functional currencies result in gains and losses that are
reÖected in our consolidated statement of income. In addition, at December 31, 2004, we held balances in
cash, cash equivalents and investments outside the U.S. totaling approximately $467 million.
We consolidate the earnings of our foreign subsidiaries by converting them into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52 ""Foreign Currency Translation''
(FAS 52). Such earnings will Öuctuate when there is a change in foreign currency exchange rates. From time
to time we enter into transactions to hedge portions of our foreign currency denominated earnings translation
exposure using both foreign currency options and forward contracts. The aggregate notional amount of these
hedges entered into in 2004 was 109 million Euros and 43 million British pounds. The loss on these hedges for
2004 totaled approximately $2.0 million, which were recorded in interest and other income, net. All contracts
that hedge translation exposure mature ratably over the quarter in which they are executed.
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