eBay 2006 Annual Report Download - page 61

Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures
(computer equipment, software applications, engineering development services, construction contracts) and other
goods and services that were entered into through our ordinary course of business. For those contractual
arrangements in which there are significant performance requirements, we have developed estimates to project
expected payment obligations. These estimates have been developed based upon historical trends, when available,
and our anticipated future obligations. Given the significance of such performance requirements within our
advertising and other arrangements, actual payments could differ significantly from these estimates.
In conjunction with our Skype acquisition, we have certain earn-out payment commitments, not included in
table above, that are contingent upon Skype achieving certain net revenues, gross profit margin-based targets and
active user targets. See “Note 3 — Business Combinations, Goodwill and Intangible Assets” of the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of December 31, 2006, we had no off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future material effect on our consolidated financial condition, results of operations, liquidity,
capital expenditures or capital resources. All customer funds held by PayPal as an agent or custodian on behalf of
our customers are not reflected in our consolidated balance sheets. These funds include funds held in the U.S. that
are deposited in bank accounts insured by the Federal Deposit Insurance Corporation and funds that customers
choose to invest in PayPal’s Money Market Fund totaling approximately $1.5 billion and $1.2 billion as of
December 31, 2006 and 2005, respectively.
Indemnification Provisions
In the ordinary course of business we have included limited indemnification provisions in certain of our
agreements with parties with whom we have commercial relations, including our standard marketing, promotions
and application-programming-interface license agreements. Under these contracts, we generally indemnify, hold
harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in
connection with claims by any third party with respect to domain names, trademarks, logos and other branding
elements to the extent that such marks are applicable to our performance under the subject agreement. In a limited
number of agreements, we have provided an indemnity for other types of third-party claims, substantially all of
which are indemnities related to copyrights, trademarks, and patents. In our PayPal business, we have provided an
indemnity to our payment processors in the event of certain third-party claims or card association fines against the
processor arising out of conduct by PayPal. It is not possible to determine the maximum potential loss under these
indemnification provisions due to our limited history of prior indemnification claims and the unique facts and
circumstances involved in each particular provision. To date, no significant costs have been incurred, either
individually or collectively, in connection with our indemnification provisions.
Critical Accounting Policies, Judgments and Estimates
General
The preparation of our consolidated financial statements and related notes requires us to make judgments,
estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related
disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Our senior management has discussed the development, selection and disclosure of these estimates with the Audit
Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or
conditions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur
periodically, could materially impact the consolidated financial statements. We believe the following critical
57