EBay (EBAY)

We generated cash from operating activities in amounts greater than net income in the nine months ended September 30, 2007 and 2008 due primarily to non-cash charges to earnings and tax benefits from stock-based compensation. Non-cash charges to earnings included depreciation and amortization on our long-term assets, impairment of goodwill, stock-based compensation, provision for doubtful accounts and authorized credits, the provision for transaction losses and deferred income taxes. We continue to expect net cash provided by operating activities to be lower for the remainder of 2008, compared to the same period of 2007, due primarily to lower net income.

 

Net cash used in investing activities of $682.9 million during the first nine months of 2008 consisted primarily of cash paid for acquisitions, primarily Fraud Sciences, totaling $159.1 million, and the purchase of fixed assets to support our site operations, customer support and international expansion totaling $406.7 million. The purchase of fixed assets consisted primarily of computer equipment, software, and leasehold improvements for our offices and buildings. Net cash used in investing activities during the first nine months of 2007 consisted primarily of cash paid to acquire businesses totaling $320.2 million, and the purchase of fixed assets for $326.0 million, offset by net cash provided by our investment activity of $783.8 million. In the fourth quarter of fiscal 2008, we announced an acquisition for $390 million and the entry into another acquisition agreement for an aggregate transaction value of $945 million. Both transactions involve the use of cash. In addition, we expect to continue to purchase property and equipment for cash and we may acquire other businesses for cash.

 

Net cash flows used in financing activities of $2.3 billion during the first nine months of 2008 were due primarily to the repurchase of approximately 80.6 million shares of common stock for an aggregate purchase price of approximately $2.2 billion and the repayment of our line of credit of $200.2 million, offset in part by net proceeds from the issuance of common stock of $98.7 million. The net cash flows used in financing activities during the first nine months of 2007 were due primarily to the repurchase of approximately 35.3 million shares of common stock for an aggregate purchase price of approximately $1.2 billion, offset in part by net proceeds from the issuance of common stock of $365.2 million. For the remainder of 2008, we may continue to repurchase our common stock for cash. On October 16, 2008, we drew down an aggregate amount of $1.0 billion under our revolving credit facility.

 

The negative effect of exchange rates on cash and cash equivalents of $117.5 million during the first nine months of 2008 was due to the strength of the U.S. dollar during the period against other foreign currencies, primarily the Euro. At September 30, 2008, we held balances in cash and cash equivalents outside the U.S. in certain of our foreign operations totaling approximately $2.9 billion. If these cash and cash equivalents were distributed to the U.S. in the form of dividends or otherwise, we would be subject to additional U.S. income taxes (subject to adjustment for foreign tax credits) and foreign withholding taxes.

 

At September 30, 2008, we had cash and cash equivalents of $3.3 billion. Our available cash and cash equivalents are held in bank deposits, money market funds and commercial paper. We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. We diversify our cash and cash equivalents among counterparties to minimize exposure to any one of these entities. To date, we have experienced no material loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

 

At any point in time we have funds in our operating accounts and customer accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances in our operating accounts and adjusts the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

 

credits and the provision for transaction losses. We expect net cash provided by operating activities to increase in the remainder of 2008 due primarily to higher net income.

 

Net cash used in investing activities of $334.4 million during the first quarter of 2008 consisted primarily of cash paid to acquire Fraud Sciences totaling $149.0 million, the purchase of computer equipment and software to support our site operations, customer support and international expansion totaling $134.6 million. For the remainder of 2008, we expect to continue to purchase property and equipment and we may acquire other businesses for cash which would reduce investing cash flows or increase investing cash usage. Net cash used in investing activities during the first quarter of 2007 totaled $62.7 million and related primarily to the purchases of StubHub for $258.6 million, the purchase of computer equipment and software to support our site operations, customer support and international expansion for $85.4 million, offset by cash generated from investment maturities and the sale of investments of $280.2 million.

 

Net cash flows used in financing activities of $1.2 billion during the first quarter of 2008 were due primarily to the repurchase of approximately 36.7 million shares of common stock for an aggregate purchase price of approximately $1.0 billion and the repayment of our line of credit of $200.2 million, offset in part by net proceeds from the issuance of common stock of $8.9 million and an excess tax benefit from stock-based compensation of $1.0 million. For the remainder of 2008, we may continue to repurchase our common stock, which would reduce financing cash flows or increase financing cash usage. The net cash flows used in financing activities of $225.2 million during the first quarter of 2007 was due primarily to the repurchase of approximately 10.2 million shares of our common stock for an aggregate purchase price of approximately $333.5 million, offset by proceeds from the exercise of stock options of $92.2 million and the excess tax benefits from stock-based compensation of $13.8 million.

 

The positive effect of exchange rates on cash and cash equivalents during the three months ended March 31, 2007 and 2008 was due to the weakness of the U.S. dollar during the respective periods against other foreign currencies, primarily the Euro. In addition, at March 31, 2008, we held balances in cash and cash equivalents outside the U.S. totaling approximately $2.3 billion.

 

credits and the provision for transaction losses. We expect net cash provided by operating activities to increase in the remainder of 2008 due primarily to higher net income.

 

Net cash used in investing activities of $334.4 million during the first quarter of 2008 consisted primarily of cash paid to acquire Fraud Sciences totaling $149.0 million, the purchase of computer equipment and software to support our site operations, customer support and international expansion totaling $134.6 million. For the remainder of 2008, we expect to continue to purchase property and equipment and we may acquire other businesses for cash which would reduce investing cash flows or increase investing cash usage. Net cash used in investing activities during the first quarter of 2007 totaled $62.7 million and related primarily to the purchases of StubHub for $258.6 million, the purchase of computer equipment and software to support our site operations, customer support and international expansion for $85.4 million, offset by cash generated from investment maturities and the sale of investments of $280.2 million.

 

Net cash flows used in financing activities of $1.2 billion during the first quarter of 2008 were due primarily to the repurchase of approximately 36.7 million shares of common stock for an aggregate purchase price of approximately $1.0 billion and the repayment of our line of credit of $200.2 million, offset in part by net proceeds from the issuance of common stock of $8.9 million and an excess tax benefit from stock-based compensation of $1.0 million. For the remainder of 2008, we may continue to repurchase our common stock, which would reduce financing cash flows or increase financing cash usage. The net cash flows used in financing activities of $225.2 million during the first quarter of 2007 was due primarily to the repurchase of approximately 10.2 million shares of our common stock for an aggregate purchase price of approximately $333.5 million, offset by proceeds from the exercise of stock options of $92.2 million and the excess tax benefits from stock-based compensation of $13.8 million.

 

The positive effect of exchange rates on cash and cash equivalents during the three months ended March 31, 2007 and 2008 was due to the weakness of the U.S. dollar during the respective periods against other foreign currencies, primarily the Euro. In addition, at March 31, 2008, we held balances in cash and cash equivalents outside the U.S. totaling approximately $2.3 billion.

 

adopting FAS 123(R), $84.8 million and $92.4 million of excess tax benefits for 2007 and 2006, respectively, have been reported as a cash inflow from financing activities.

 

The net cash used in investing activities in 2007 was due primarily to cash paid for acquisitions and the purchase of property and equipment, partially offset by cash generated by our net investment activity. The net cash provided by investing activities in 2006 reflected the cash generated from our net investment activity offset by the purchase of property and equipment. The net cash used in investing activities in 2005 was due primarily to cash paid for acquisitions and the purchase of property and equipment, offset by cash generated by our net investment activity. Purchases of property and equipment, net totaled $454.0 million in 2007, $515.4 million in 2006, and $338.3 million in 2005 related mainly to purchases of computer equipment and software to support our site operations, customer support and international expansion. Cash expended for acquisitions, net of cash acquired, totaled approximately $863.6 million in 2007, $45.5 million in 2006, and $2.7 billion in 2005. In 2007, acquisition activity primarily consisted of $530.3 million earn out payment related to our 2005 Skype acquisition and our 2007 acquisition of StubHub. In 2006, we acquired Tradera.com. In 2005, acquisition activity primarily consisted of Rent.com, certain international classifieds websites, Shopping.com, Skype and VeriSign’s payment gateway business. In 2008, we expect to continue to purchase property and equipment and expect such purchases to total between 6.5% and 7.0% of revenue. Also, we may acquire businesses with cash, which would impact our investing cash flows.

 

The net cash flows used in financing activities of $693.4 million in 2007 were due primarily to the repurchase of approximately 44.6 million shares of our common stock for an aggregate purchase price of approximately $1.5 billion, offset by the proceeds from stock option exercises totaling $507.0 million and $200.2 million of proceeds from borrowings under our credit agreement. The net cash flows used in financing activities of $1.3 billion in 2006 were due primarily to the repurchase of approximately 54.5 million shares of our common stock for an aggregate purchase price of approximately $1.7 billion, offset by the proceeds from stock option exercises of $313.5 million. The net cash flows provided by financing activities in 2005 were due primarily to proceeds from stock option exercises of $599.8 million. Prior to 2006, we had not repurchased our common stock under a stock repurchase program. Our future cash flows from equity awards are difficult to project as such amounts are a function of our stock price, the number of options outstanding and the decisions by employees to exercise equity awards. In general, we expect proceeds from stock option exercises to increase during periods in which our stock price has increased relative to historical levels.

 

In July 2006, our Board authorized the repurchase of up to $2.0 billion of our common stock within two years from the date of authorization. During 2006, we repurchased approximately 54.5 million shares of our common stock at an average price of $30.56 per share for an aggregate purchase price of $1.7 billion. In January 2007, our Board authorized, and we announced, an expansion of the stock repurchase program to provide for the repurchase of up to an additional $2.0 billion of our common stock over the next two years. During 2007, we repurchased approximately 44.6 million shares of our common stock at an average price of $33.42 per share for an aggregate purchase price of $1.5 billion, under this stock repurchase program. In January 2008, our Board authorized, and we announced, another stock repurchase program of up to $2.0 billion of our common stock, giving us the ability to repurchase up to $2.85 billion of our common stock under our combined stock repurchase programs. Share repurchases under our repurchase programs may take a variety of forms, including structured stock repurchase programs and other derivative transactions. We expect to continue to repurchase our common stock in 2008, which would reduce financing cash flows or increase financing cash usage.

 

The positive effect of exchange rates on cash and cash equivalents during 2007 and 2006 was due to the weakening of the U.S. dollar against other foreign currencies, primarily the Euro. The negative effect of exchange rates on cash and cash equivalents during 2005 was due to the strengthening of the U.S. dollar against other foreign currencies, primarily the Euro.

 

In August 2007, we entered into an amendment to our 2006 credit agreement. The amendment agreement increased the lender commitments and borrowing capacity under the 2006 credit agreement from its prior level of $1.0 billion to $2.0 billion, maintained an option to increase borrowing capacity by an additional $1.0 billion (after giving effect to the $1.0 billion increase described above) and extended the maturity date by an additional year to November 7, 2012. As of December 31, 2007, $1.8 billion was available under the credit agreement.

We believe that existing cash, cash equivalents and investments of approximately $5.0 billion, together with cash generated from operations and cash available through our credit agreement, will be sufficient to fund our operating activities, capital expenditures, stock repurchases and other obligations for the foreseeable future.