eBay 2004 Annual Report Download - page 67

Some anti-takeover provisions may aÅect the price of our common stock.
Our Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock and to
determine the preferences, rights and privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of common stock may be harmed by rights granted to the holders of
any preferred stock that may be issued in the future. Some provisions of our certiÑcate of incorporation and
bylaws could have the eÅect of making it more diÇcult for a potential acquirer to acquire a majority of our
outstanding voting stock. These include provisions that provide for a classiÑed board of directors, prohibit
stockholders from taking action by written consent and restrict the ability of stockholders to call special
meetings. We are also subject to provisions of Delaware law that prohibit us from engaging in any business
combination with any interested stockholder for a period of three years from the date the person became an
interested stockholder, unless certain conditions are met. This restriction could have the eÅect of delaying or
preventing a change of control.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The primary objective of our investment activities is to preserve principal while at the same time
maximizing yields without signiÑcantly increasing risk. To achieve this objective, we maintain our portfolio of
cash equivalents and short-term and long-term investments in a variety of securities, including government
and corporate securities and money market funds. These securities are generally classiÑed as available for sale
and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a
separate component of accumulated other comprehensive income (loss), net of estimated tax.
Investments in both Ñxed-rate and Öoating-rate interest-earning instruments carry varying degrees of
interest rate risk. The fair market value of our Ñxed-rate securities may be adversely impacted due to a rise in
interest rates. In general, securities with longer maturities are subject to greater interest-rate risk than those
with shorter maturities. While Öoating rate securities generally are subject to less interest-rate risk than Ñxed-
rate securities, Öoating-rate securities may produce less income than expected if interest rates decrease. Due in
part to these factors, our investment income may fall short of expectations or we may suÅer losses in principal
if securities are sold that have declined in market value due to changes in interest rates. As of December 31,
2004, our Ñxed-income investments earned a pretax yield of approximately 1.7%, with a weighted average
maturity of six months. If interest rates were to instantaneously increase (decrease) by 100 basis points, the
fair market value of the total investment portfolio could decrease (increase) by approximately $16.8 million.
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 San Jose headquarters 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 which
eÅectively changes our interest rate exposure on our operating lease from a Öoating rate to a Ñxed rate on
$95 million of the total $126.4 million notional amount of our San Jose 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. If the 3-month LIBOR rates were to increase (decrease) by 100 basis points, then our
payments would increase (decrease) by $78,000 per quarter. The fair value of the interest rate swaps as of
December 31, 2004 was an unrealized loss of approximately $662,000, net of tax beneÑt, and is recorded in
accumulated other comprehensive loss on the balance sheet. The interest rate swap will mature in March
2005, at which time the lease will expire and we will purchase our San Jose headquarters facility.
Equity Price Risk
We are exposed to equity price risk on the marketable portion of equity investments we hold, typically as
the result of strategic investments in third parties that are subject to considerable market risk due to their
volatility. We typically do not attempt to reduce or eliminate our market exposure in these equity investments.
In accordance with our policy to assess whether an impairment loss on our investments has occurred due to
declines in fair value and other market conditions, we determined that declines in fair value of certain of our
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