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This excerpt taken from the EBAY 10-Q filed Apr 25, 2007. Liquidity
and Capital Resources
Cash
Flows
We generated cash from operating activities in amounts greater
than net income in the three months ended March 31, 2007
and 2006, mainly due to non-cash charges to earnings and tax
benefits on the exercise of employee stock options resulting
from personal gains recognized by our employees. Non-cash
charges to earnings included depreciation and amortization on
our long-term assets, stock-based compensation expense related
to stock options, restricted stock units and employee stock
purchases, provision for doubtful accounts and authorized
credits resulting from increasing revenues and the provision for
transaction losses resulting from increased total payment
volumes processed by our PayPal subsidiary. As a substantial
portion of the company’s net operating losses and tax
credits have now been utilized, cash is now required for tax
payments in the U.S. For the remainder of 2007, total U.S.
and foreign income tax payments will be dependent on our taxable
income and are estimated to be in the range of $550 to
$600 million. For the remainder of 2007, we expect net cash
provided by operating activities to increase primarily from
higher net income.
Net cash used in investing activities during the first three
months of 2007 totaled $62.7 million and related mainly 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 the sale of
investments of $280.2 million. Net cash used in investing
activities during the first three months of 2006 consisted
primarily of the cash payment for computer equipment and
software to support our site operations, customer support and
international expansion. For the remainder of 2007, we expect to
continue to purchase property and equipment and we may acquire
other businesses for cash, thereby impacting investing cash
flows.
The net cash flows used in financing activities of
$225.2 million during the first three months of 2007 was
primarily due to the repurchase of approximately
10.2 million shares of 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. Net cash provided by
financing activities of $104.0 million during the first
three months of 2006 was due to proceeds from the exercise of
stock options of $80.6 million and the excess tax benefits
from stock-based compensation of $23.4 million. For the
remainder of 2007, we may continue to repurchase stock, thereby
impacting financing cash flows.
The positive effect of exchange rates on cash and cash
equivalents during the three months ended March 31, 2007
and 2006 was due to the weakening of the U.S. dollar during
the quarter against other foreign currencies, primarily the Euro.
Stock
Repurchases
As of March 31, 2007, we have repurchased approximately
$2.0 billion of our common stock since the inception of our
stock repurchase program and we have been authorized by the
Board to purchase an additional $2.0 billion of our common
stock under our stock repurchase program through January 2009.
Table of Contents
Off-Balance
Sheet Arrangements
As of March 31, 2007, we had no off-balance sheet
arrangements that have, or are reasonably likely to have, a
current or future material effect on our consolidated financial
condition, results of operations, liquidity, capital
expenditures or capital resources. All customer funds held by
PayPal as an agent or custodian on behalf of our customers are
not reflected in our consolidated balance sheets. These funds
include funds held in the U.S. that are deposited in bank
accounts insured by the Federal Deposit Insurance Corporation
and funds that customers choose to invest in PayPal’s Money
Market Fund totaling approximately $1.7 billion and
$1.5 billion as of March 31, 2007 and
December 31, 2006, respectively.
Indemnification
Provisions
In the ordinary course of business, we have included limited
indemnification provisions in certain of our agreements with
parties with whom we have commercial relations, including our
standard marketing, promotions and
application-programming-interface license agreements. Under
these contracts, we generally indemnify, hold harmless, and
agree to reimburse the indemnified party for losses suffered or
incurred by the indemnified party in connection with claims by
any third party with respect to domain names, trademarks, logos
and other branding elements to the extent that such marks are
applicable to our performance under the subject agreement. In a
limited number of agreements, we have provided an indemnity for
other types of third-party claims, substantially all of which
are indemnities related to copyrights, trademarks, and patents.
In our PayPal business, we have provided an indemnity to our
payment processors in the event of certain third-party claims or
card association fines against the processor arising out of
conduct by PayPal. It is not possible to determine the maximum
potential loss under these indemnification provisions due to our
limited history of prior indemnification claims and the unique
facts and circumstances involved in each particular provision.
To date, no significant costs have been incurred, either
individually or collectively, in connection with our
indemnification provisions.
Liquidity
and Capital Resource Requirements
We believe that existing cash, cash equivalents and investments
of approximately $3.5 billion, together with cash generated
from operations and cash available through our $1.0 billion
credit facility, will be sufficient to fund our operating
activities, capital expenditures, stock repurchases and other
obligations for the foreseeable future.
Recent
Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 159,
“The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement
No. 115” which is effective for fiscal years beginning
after November 15, 2007. This statement permits an entity
to choose to measure many financial instruments and certain
other items at fair value at specified election dates.
Subsequent unrealized gains and losses on items for which the
fair value option has been elected will be reported in earnings.
We are currently evaluating the potential impact of this
statement.
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