eBay 2003 Annual Report Download - page 45

factors may prevent, delay, or limit PayPal's expansion or reduce its proÑtability. Any limitation on our
ability to expand PayPal internationally could harm our business.
Our investment in EachNet is subject to risks and uncertainties relating to the laws and regulations of the
People's Republic of China.
In July 2003, we completed the acquisition of the remaining outstanding capital stock and options of
EachNet. EachNet is a Delaware corporation and a foreign person under the laws of the People's Republic
of China, or PRC, and is subject to many of the risks of doing business internationally described above
under ""There are many risks associated with our international operations.'' The PRC currently regulates its
Internet sector through regulations restricting the scope of foreign investment and through the enforcement
of content restrictions on the Internet. While many aspects of these regulations remain unclear, they
purport to limit and require licensing of various aspects of the provision of Internet information services.
These regulations have created substantial uncertainties regarding the legality of foreign investments in
PRC Internet companies, including EachNet and the business operations of such companies. In order to
meet local ownership and regulatory licensing requirements, the EachNet website is operated through a
foreign-owned enterprise indirectly owned by EachNet Inc., which acts in cooperation with a local PRC
company owned by certain EachNet employees. We believe EachNet's current ownership structure
complies with all existing PRC laws, rules, and regulations. There are, however, substantial uncertainties
regarding the interpretation of current PRC laws and regulations, and it is possible that the PRC
government will ultimately take a view contrary to ours. There are also uncertainties regarding EachNet's
ability to enforce contractual relationships it has entered into with respect to management and control of
the company's business. If EachNet were found to be in violation of any existing or future PRC laws or
regulations, it could be subject to Ñnes and other Ñnancial penalties, have its business and Internet content
provider licenses revoked, or be forced to discontinue its business entirely.
We are exposed to Öuctuations in currency exchange rates.
Net revenues outside the United States accounted for approximately 35% of our net revenues in 2003.
Because we conduct a signiÑcant and growing portion of our business outside the United States, we face
exposure to adverse movements in non-U.S. currency exchange rates. In connection with its multi-currency
service, PayPal Ñxes exchange rates twice per day, and may face Ñnancial exposure if it incorrectly Ñxes
the exchange rate. PayPal also holds some corporate funds in non-U.S. currencies to facilitate customer
withdrawals, and thus its Ñnancial results are aÅected by the translation of these non-U.S. currencies into
U.S. dollars. In addition, the results of operations of our internationally focused websites are exposed to
foreign exchange rate Öuctuations as the Ñnancial results of the applicable subsidiaries are translated from
the local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign
currencies, as it did during 2003, the translation of these foreign-currency-denominated transactions will
result in increased net revenues, operating expenses, and net income. The change in weighted average
foreign currency exchange rates in 2003 relative to the comparable rates used in preparation of our
consolidated 2002 Ñnancial statements resulted in an increase in net revenue of approximately
$82.0 million and an increase in operating expenses of approximately $37.9 million. Similarly, our net
revenues, operating expenses, and net income will decrease if the U.S. dollar strengthens against foreign
currencies. As exchange rates vary, net sales and other operating results, when translated, may diÅer
materially from expectations. In particular, to the extent the U.S. dollar strengthens against the Euro and
British Pound, our European revenues and proÑts will be reduced as a result of these translation
adjustments.
Our business may be subject to sales and other taxes.
We do not collect sales or other similar taxes on goods or services sold by users through our services.
One or more states or any foreign country may seek to impose sales, use, or value-added tax collection or
record-keeping obligations on companies such as eBay that engage in or facilitate online commerce. Such
taxes could be imposed if, for example, we were ever deemed to be an auctioneer or the agent of our
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