eBay 2006 Annual Report Download - page 68

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Economic Exposure
We currently charge our international subsidiaries on a monthly basis for their use of intellectual property and
technology and for certain corporate services provided by eBay and PayPal. These charges are denominated in
Euros and these forecasted inter-company transactions represent a foreign currency cash flow exposure. To reduce
foreign exchange risk relating to these forecasted inter-company transactions, we entered into forward exchange
contracts or other instruments during the year ended December 31, 2006. The objective of the forward contracts is to
ensure that the U.S. dollar-equivalent cash flows are not adversely affected by changes in the U.S. dollar/Euro
exchange rate. Pursuant to SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”
(FAS 133), we expect the hedge of certain of these forecasted transactions using the forward contracts to be
highly effective in offsetting potential changes in cash flows attributed to a change in the U.S. dollar/Euro exchange
rate. Accordingly, we record as a component of other comprehensive income all unrealized gains and losses related
to the forward contracts that receive hedge accounting treatment. We record all unrealized gains and losses in
interest and accumulated other income, net, related to the forward contracts that do not receive hedge accounting
treatment pursuant to FAS 133. During the years ended December 31, 2004, 2005 and 2006, the realized gains and
losses related to these hedges were not significant. The notional amount of our economic hedges receiving hedge
accounting treatment and the losses, net of gains, recorded to accumulated other comprehensive income as of
December 31, 2004 was $140.2 million and $3.4 million, respectively. The notional amount of our economic hedges
receiving hedge accounting treatment and the loss, net of gains, recorded to accumulated other comprehensive
income as of December 31, 2005 was $203.0 million and $200,000 respectively. We did not have any economic
hedges in place as of December 31, 2006.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual
Report on Form 10-K are included elsewhere in this Annual Report.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and
procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the
Exchange Act) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our principal executive officer and our
principal financial officer have concluded that as of the end of the period covered by this report, our disclosure
controls and procedures were effective.
Changes in internal controls. There were no changes in our internal controls over financial reporting as
defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for
establishing and maintaining adequate internal control over financial reporting. Our management, including our
principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under
the framework in Internal Control — Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of December 31, 2006. Our management’s assessment of the effectiveness
of our internal control over financial reporting as of December 31, 2006 has been audited by Pricewaterhou-
seCoopers LLP, an independent registered public accounting firm, as stated in their report that is included elsewhere
in this Annual Report on Form 10-K.
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