eBay 2004 Annual Report Download - page 34

Download and view the complete annual report

Please find page 34 of the 2004 eBay annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 134

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134

We expect our international operations will continue to grow in signiÑcance as we develop and deploy our
global marketplace and global payments platform. As a result, the impact of foreign currency Öuctuations in
future periods could become more signiÑcant and may have a negative impact on our consolidated net
revenues and net income. See the information in Item 7A under ""Foreign Currency Risk'' for additional
discussion of the impact of foreign currency translation and related hedging activities.
Foreign Exchange Hedging Policy
We are a rapidly growing company, with an increasing proportion of our operations outside the United
States. Accordingly, our foreign currency exposures have increased substantially and are expected to continue
to grow. The objective of our foreign exchange exposure management program is to identify material foreign
currency exposures and to manage these exposures to minimize the potential eÅects of currency Öuctuations
on our reported consolidated cash Öows, and results of operations.
Our primary foreign currency exposures are transaction, economic and translation:
Transaction Exposure: Around the world, we have certain assets and liabilities, primarily receivables,
investments and accounts payable (including inter-company transactions) that are denominated in currencies
other than the relevant entity's functional currency. In certain circumstances, changes in the functional
currency value of these assets and liabilities create Öuctuations in our reported consolidated Ñnancial position,
results of operations and cash Öows. We may enter into foreign exchange forward contracts or other
instruments to minimize the short-term foreign currency Öuctuations on such assets and liabilities. The gains
and losses on the foreign exchange forward contracts oÅset the transaction gains and losses on certain foreign
currency receivables, investments and payables recognized in earnings.
Economic Exposure: We also have anticipated and unrecognized future cash Öows, including revenues
and expenses, denominated in currencies other than the relevant entity's functional currency. Our primary
economic exposures include future royalty receivables, customer collections, and vendor payments. Changes in
the relevant entity's functional currency value will cause Öuctuations in the cash Öows we expect to receive
when these cash Öows are realized or settled. We may enter into foreign exchange forward contracts or other
derivatives to hedge the value of a portion of these cash Öows. We account for these foreign exchange
contracts as cash Öow hedges. The eÅective portion of the derivative's gain or loss is initially reported as a
component of accumulated other comprehensive income (loss) and subsequently reclassiÑed into earnings
when the transaction is settled.
Earnings Translation Exposure: As our international operations grow, Öuctuations in the foreign
currencies create volatility in our reported results of operations because we are required to consolidate the
results of operations of our foreign denominated subsidiaries. We may decide to purchase forward exchange
contracts or other instruments to oÅset the earnings impact of currency Öuctuations. Such contracts will be
marked-to-market on a monthly basis and any unrealized gain or loss recorded in interest and other income,
net.
Employee Stock Options
We continue to believe that employee stock options represent an appropriate and essential component of
our overall compensation program. We grant options to substantially all employees and believe that this broad-
based program helps us to attract, motivate, and retain high quality employees, to the ultimate beneÑt of our
stockholders. Stock options granted during the year ended December 31, 2004 and 2003, net of cancellations,
represented approximately 3% of our total outstanding common stock at December 31, 2004 and 2003, a
substantial portion of which was granted to new employees. We expect that our stock option grants, net of
cancellations, for 2005 will represent approximately 2% of our total outstanding common stock at December
31, 2005.
32