eBay 2004 Annual Report Download - page 68

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marketable and non-marketable equity investments were other than temporary. Accordingly, we recorded
impairment charges totaling $3.8 million and $1.2 million during the years ended December 31, 2002 and
2003, respectively, relating to the other-than-temporary impairment in the fair value of certain equity
investments. We did not record an impairment charge related to the other-than-temporary impairment in the
fair value of equity investments during the year ended December 31, 2004. At December 31, 2004, the total
carrying value of our equity instruments and equity method investment was $48.3 million, including
$1.1 million in marketable investments. At December 31, 2003, the total carrying value of our equity
investments was $14.3 million, including $1.1 million in marketable investments.
Foreign Currency Risk
International net revenues result from transactions by our foreign operations and are typically denomi-
nated in the local currency of each country. These operations also incur most of their expenses in the local
currency. Accordingly, our foreign operations use the local currency, which is primarily the Euro, and to a
lesser extent, the British Pound, as their functional currency. Our international operations are subject to risks
typical of international operations, including, but not limited to, diÅering economic conditions, changes in
political climate, diÅering tax structures, other regulations and restrictions, and foreign exchange rate
volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other
factors. In addition, at December 31, 2004, we held balances in cash, cash equivalents and investments outside
the U.S. totaling approximately $467 million.
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 the functional currency value of assets and liabilities denominated in foreign
currencies as a result of currency Öuctuations. Transaction gains and losses on the contracts and the assets and
liabilities are recognized each period in our consolidated statement of income.
Translation Exposure:
Foreign exchange rate Öuctuations may adversely impact our consolidated Ñnancial position as well as our
consolidated 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 consolidated 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.
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 Euro 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.
Economic Exposure:
We currently charge our foreign subsidiaries on a monthly basis for their use of eBay's intellectual
property and technology and for corporate services provided by eBay Inc. such as insurance, tax and legal. This
charge is denominated in Euros and these forecasted inter-company transaction at eBay Inc. represent a
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