eBay 2007 Annual Report Download - page 106

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Economic Exposure
We transact business in various foreign currencies and have significant international revenues as well as costs
denominated in foreign currencies, subjecting us to foreign currency risk. In addition, we 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 by PayPal. These charges are denominated in Euros and these forecasted inter-
company transactions represent a foreign currency cash flow exposure. We purchase foreign currency exchange
contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to
forecasted revenue and intercompany transactions denominated in certain foreign currencies. The objective of the
foreign exchange contracts is to better ensure that the U.S. dollar-equivalent cash flows are not adversely affected by
changes in the U.S. dollar/foreign currency exchange rate. Pursuant to FAS 133, we expect the hedge of certain of
these forecasted transactions to be highly effective in offsetting potential changes in cash flows attributed to a
change in the U.S. dollar/foreign currency exchange rate. Accordingly, we record as a component of accumulated
other comprehensive income all unrealized gains and losses related to the foreign exchange contracts that receive
hedge accounting treatment. During the years ended December 31, 2006 and 2007, the realized gains and losses
related to these hedges were not significant. For derivative instruments designated as hedges, hedge ineffectiveness,
determined in accordance with FAS 133, did not have a significant impact on earnings for years ended December 31,
2005, 2006, or 2007. The notional amount of our economic hedges receiving cash flow hedge accounting treatment
was $515.7 million as of December 31, 2007. The losses, net of gains, recorded to accumulated other compre-
hensive income as of December 31, 2007 were not significant. Amounts included in accumulated other compre-
hensive income at December 31, 2007 will be subsequently reclassified into the financial statements line item in
which the hedged item is recorded in the same period the forecasted transaction affects earnings. We did not have
any economic hedges in place as of December 31, 2006.
Note 7 — Balance Sheet Components:
2006 2007
December 31,
(in thousands)
Accounts receivable, net:
Accounts receivable ......................................... $476,060 $576,774
Allowance for doubtful accounts ............................. (68,401) (82,090)
Allowance for authorized credits ............................. (14,464) (14,127)
$393,195 $480,557
2006 2007
December 31,
(in thousands)
Other current assets:
Customer accounts ........................................ $763,757 $1,086,241
Prepaid expenses.......................................... 64,003 70,189
Deferred tax assets, net ..................................... 67,879 —
Prepaid income taxes ...................................... — 70,364
Other .................................................. 64,822 90,362
$960,461 $1,317,156
96
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)