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These excerpts taken from the EBAY 10-K filed Feb 17, 2010. Derivative instruments We have significant international revenues as well as costs denominated in foreign currencies, subjecting us to foreign currency risk. We purchase foreign currency exchange contracts that qualify as cash flow hedges, 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. All outstanding derivatives that qualify for hedge accounting are recognized on the balance sheet at fair value, and changes in their fair value are recorded in accumulated other comprehensive income (loss) until the underlying forecasted transaction occurs. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (loss), and is subsequently reclassified into the financial statement line item in which the hedged item is recorded in the same period the forecasted transaction affects earnings. We also hedge our exposure to foreign currency denominated monetary assets and liabilities with foreign currency contracts. Since these derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting. Accordingly, these outstanding non-designated derivatives are recognized on the balance sheet at fair value and changes in fair value from these contracts are recorded in interest and other income, net, in the consolidated statement of income. Our derivatives program is not designed or operated for trading or speculative purposes. Our derivative instruments expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting our counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. See “Note 9 — Derivative Instruments” for additional information related to our derivative instruments. Note 9 — Derivative Instruments: Fair Value of Derivative Contracts: Derivative instruments are reported at fair value as follows (in thousands):
Effect of Derivative Contracts on Accumulated Other Comprehensive Income (Loss): The following table represents the activity of derivative contracts which qualify for hedge accounting as of December 31, 2008 and December 31, 2009, and the impact of designated derivative contracts on accumulated other comprehensive income for year ended December 31, 2009 (in thousands):
Effect of Derivative Contracts on the Consolidated Statement of Income: The following table provides the location in our financial statements of the recognized gains or losses related to our derivative instruments (in thousands):
106
Table of ContentseBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
This excerpt taken from the EBAY 10-Q filed Apr 28, 2009. Note 6 — Derivative Instruments: 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. We purchase foreign currency exchange contracts that qualify as hedges under SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS 133), 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. All outstanding derivatives that qualify for hedge accounting under SFAS 133 are recognized on the balance sheet at fair value and their changes in fair value are recorded in accumulated other comprehensive income (loss) until the underlying forecasted transaction occurs. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income, and is 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 also hedge our exposure to foreign currency denominated monetary assets and liabilities with foreign currency contracts. Since these derivatives hedge existing exposures that are denominated in foreign currencies, the contracts do not qualify for hedge accounting under SFAS 133. Accordingly, these outstanding non-designated derivatives are recognized on the balance sheet at fair value and changes in fair value from these contracts are recorded in interest and other income, net, in the condensed consolidated statement of income. Our derivatives program is not designed for trading or speculative purposes. Our derivative instruments expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. We seek to mitigate this risk by limiting the counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. Fair Value of Derivative Contracts: Derivative instruments are reported at fair value as follows (in thousands):
Effect of Derivative Contracts on Accumulated Other Comprehensive Income (Loss): The following table represents only the balance of derivative contracts under SFAS 133 as of December 31, 2008 and March 31, 2009, and the impact of designated derivative contracts on accumulated other comprehensive income for the three months ended March 31, 2009 (in thousands):
10
Effect of Derivative Contracts on Condensed Consolidated Statement of Income: The following table provides the effectiveness and location of the realized gains related our derivative instruments (in thousands):
These excerpts taken from the EBAY 10-K filed Feb 20, 2009. Derivative
instruments
We use derivative financial instruments to manage exposures to
foreign currency exchange rates and interest rates. Our primary
use of derivative instruments is through foreign exchange
currency contracts to hedge foreign currency risk. We also may
use other derivative instruments not designated as hedges, such
as forward contracts to hedge foreign currency balance sheet
exposures. We do not use derivative financial instruments for
speculative purposes. The assets or liabilities associated with
our derivative instruments and hedging activities are recorded
at fair value in other current assets or other current
liabilities, respectively, in our consolidated balance sheet.
See “Note 6 — Derivative Instruments”
for a full description of our derivative financial instrument
activities and related accounting policies.
Derivative instruments We use derivative financial instruments to manage exposures to foreign currency exchange rates and interest rates. Our primary use of derivative instruments is through foreign exchange currency contracts to hedge foreign currency risk. We also may use other derivative instruments not designated as hedges, such as forward contracts to hedge foreign currency balance sheet exposures. We do not use derivative financial instruments for speculative purposes. The assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets or other current liabilities, respectively, in our consolidated balance sheet. See “Note 6 — Derivative Instruments” for a full description of our derivative financial instrument activities and related accounting policies. Note 6 —
Derivative Instruments:
We recognize all derivative instruments on the balance sheet at
fair value. Changes in the fair value (i.e., gains or losses) of
the derivatives are recorded each period in the consolidated
statement of income or accumulated other comprehensive income
(loss). For derivative instruments that are designated and
qualify as cash flow hedges, 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.
Transaction
Exposure
As of December 31, 2008, we had outstanding foreign
exchange hedge contracts with notional values equivalent to
approximately $132.4 million with maturity dates within
34 days. The hedge contracts are used to offset changes in
the value of assets and liabilities denominated in foreign
currencies which differ from the functional currency of the
entity. Transaction gains and losses on the contracts and the
assets and liabilities are recognized each period in interest
and other income, net.
Translation
Exposure
We consolidate the earnings of our international subsidiaries by
converting them into U.S. dollars in accordance with
Financial Accounting Standards No. 52 “Foreign
Currency Translation” (“FAS 52”). Such
earnings will fluctuate when there is a change in foreign
currency exchange rates. We enter into transactions to hedge
portions of our foreign currency denominated earnings
translation exposure using foreign exchange contracts. All
contracts that hedge translation exposure mature ratably over
the quarter in which they are executed. Unrealized translation
gains and losses are recorded as a component of accumulated
other comprehensive income. During the year ended
December 31, 2008, the realized gains related to these
hedges was approximately $26.3 million. During the years
ended December 31, 2006 and 2007, the realized gains and
losses related to these hedges were not significant.
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 PayPal in the U.S. 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. 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
Table of Contents
eBay
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
hedge accounting treatment. During the years ended
December 31, 2006 and 2007, the realized gains and losses
related to these hedges were not significant. During the year
ended December 31, 2008 the realized gains on these hedges
were $17.1 million. The notional amount of our economic
hedges receiving cash flow hedge accounting treatment was
$428.9 million as of December 31, 2008. The gains, net
of losses, recorded to accumulated other comprehensive income as
of December 31, 2008 were $40.5 million. Amounts
included in accumulated other comprehensive income at
December 31, 2008 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.
Note 6 — Derivative Instruments: We recognize all derivative instruments on the balance sheet at fair value. Changes in the fair value (i.e., gains or losses) of the derivatives are recorded each period in the consolidated statement of income or accumulated other comprehensive income (loss). For derivative instruments that are designated and qualify as cash flow hedges, 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. Transaction Exposure As of December 31, 2008, we had outstanding foreign exchange hedge contracts with notional values equivalent to approximately $132.4 million with maturity dates within 34 days. The hedge contracts are used to offset changes in the value of assets and liabilities denominated in foreign currencies which differ from the functional currency of the entity. Transaction gains and losses on the contracts and the assets and liabilities are recognized each period in interest and other income, net. Translation Exposure We consolidate the earnings of our international subsidiaries by converting them into U.S. dollars in accordance with Financial Accounting Standards No. 52 “Foreign Currency Translation” (“FAS 52”). Such earnings will fluctuate when there is a change in foreign currency exchange rates. We enter into transactions to hedge portions of our foreign currency denominated earnings translation exposure using foreign exchange contracts. All contracts that hedge translation exposure mature ratably over the quarter in which they are executed. Unrealized translation gains and losses are recorded as a component of accumulated other comprehensive income. During the year ended December 31, 2008, the realized gains related to these hedges was approximately $26.3 million. During the years ended December 31, 2006 and 2007, the realized gains and losses related to these hedges were not significant. 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 PayPal in the U.S. 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. 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
Table of ContentseBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) hedge accounting treatment. During the years ended December 31, 2006 and 2007, the realized gains and losses related to these hedges were not significant. During the year ended December 31, 2008 the realized gains on these hedges were $17.1 million. The notional amount of our economic hedges receiving cash flow hedge accounting treatment was $428.9 million as of December 31, 2008. The gains, net of losses, recorded to accumulated other comprehensive income as of December 31, 2008 were $40.5 million. Amounts included in accumulated other comprehensive income at December 31, 2008 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. These excerpts taken from the EBAY 10-K filed Feb 29, 2008. Derivative
instruments
We use derivative financial instruments primarily foreign
exchange currency contracts to hedge foreign currency risk. We
also may use other derivative instruments not designated as
hedges such as forwards to hedge foreign currency balance sheet
exposures. We do not use derivative financial instruments for
speculative purposes. We account for our derivative and hedging
activities pursuant to Financial Accounting Standards
No. 133 “Accounting for Derivative Instruments and
Hedging Activities” (“FAS 133”). The assets
or liabilities associated with our derivative instruments and
hedging activities are recorded at fair value in other current
assets or other current liabilities, respectively, in our
consolidated balance sheet. See “Note 6 —
Derivative Instruments” for a full description of our
derivative financial instrument activities and related
accounting policies
Derivative instruments We use derivative financial instruments primarily foreign exchange currency contracts to hedge foreign currency risk. We also may use other derivative instruments not designated as hedges such as forwards to hedge foreign currency balance sheet exposures. We do not use derivative financial instruments for speculative purposes. We account for our derivative and hedging activities pursuant to Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”). The assets or liabilities associated with our derivative instruments and hedging activities are recorded at fair value in other current assets or other current liabilities, respectively, in our consolidated balance sheet. See “Note 6 — Derivative Instruments” for a full description of our derivative financial instrument activities and related accounting policies This excerpt taken from the EBAY 10-K filed Feb 28, 2007. Note 6 —
Derivative Instruments:
Transaction
Exposure
As of December 31, 2006, we had outstanding forward foreign
exchange hedge contracts with notional values equivalent to
approximately $188.4 million with maturity dates within
31 days. The hedge contracts are used to offset changes in
non-US dollar denominated functional currency value of assets
and liabilities as a result of foreign exchange rate
fluctuations. Transaction gains and losses on the contracts and
the assets and liabilities are recognized each period in
interest and other income, net.
Table of Contents
eBay
Inc.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Translation
Exposure
We consolidate the earnings of our international subsidiaries by
converting them into U.S. dollars in accordance with
Financial Accounting Standards No. 52 “Foreign
Currency Translation” (FAS 52). Such earnings will
fluctuate when there is a change in foreign currency exchange
rates. We enter into transactions to hedge portions of our
foreign currency denominated earnings translation exposure using
either forward exchange contracts or other instruments. All
contracts that hedge translation exposure mature ratably over
the quarter in which they are executed. During the years ended
December 31, 2005 and 2006, the realized gains and losses
related to these hedges were not significant.
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 by 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
foreign exchange contracts during the year ended
December 31, 2006. The objective of the forward contracts
is to better 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 Financial
Accounting Standards No. 133 “Accounting for
Derivative Instruments and Hedging Activities”
(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/Euro exchange rate. Accordingly, we record as a
component of accumulated 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 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, 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,
2005 was $203 million and $200,000, respectively. We did
not have any economic hedges in place as of December 31,
2006.
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