eBay 2009 Annual Report Download - page 81

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transaction gains and losses on certain foreign currency receivables, investments and payables recognized in
earnings. Transaction gains and losses on the contracts and the assets and liabilities are recognized each period in
interest and other income, net included in our consolidated statement of income. During the year ended
December 31, 2009, we realized losses related to these hedges of approximately $27.9 million. As of
December 31, 2009, we had outstanding foreign exchange hedge contracts with notional values equivalent to
approximately $114.1 million with maturity dates within 29 days. At December 31, 2009, the fair value of these
contracts resulted in a net liability position of approximately $0.5 million.
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 risks. 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
exchange contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows related
primarily 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. 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, the effective portion of the derivative’s
gain or loss is initially reported as a component of accumulated other comprehensive income (loss) and
subsequently reclassified into the financial statements line item in which the hedged item is recorded in the same
period the forecasted transaction affects earnings.
During the year ended December 31, 2009, we realized net gains on these hedge contracts of approximately
$15.4 million. The notional amount of our economic hedges designated for hedge accounting treatment was
$184.5 million as of December 31, 2009. At December 31, 2009, the fair value of these economic hedge
contracts resulted in net liability of approximately $4.8 million.
Translation Exposure
As our international operations grow, fluctuations in the foreign currencies create volatility in our reported
results of operations because we are required to consolidate the results of operations of our foreign currency
denominated subsidiaries. We may decide to purchase foreign exchange contracts or other instruments to offset
the earnings impact of currency fluctuations. Such contracts will be marked-to-market on a monthly basis and
any unrealized gain or loss will be recorded in interest and other income, net. During the year ended
December 31, 2009, we realized losses related to these hedges of approximately $1.0 million.
Foreign exchange rate fluctuations may adversely impact our financial position as the assets and liabilities
of our foreign operations are translated into U.S. dollars in preparing our consolidated balance sheet. The
cumulative effect of foreign exchange rate fluctuations on our consolidated financial position at the end of
December 31, 2009, was a net translation gain of approximately $570.4 million. This gain is recognized as an
adjustment to stockholders’ equity through accumulated other comprehensive income.
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 on Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
73