eBay 2005 Annual Report Download - page 22

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decrease may not be offset by a corresponding increase in cross-border trade involving purchases by
U.S. buyers of goods denominated in other currencies. While we from time to time enter into transactions to
hedge portions of our foreign currency translation exposure, it is impossible to perfectly predict or completely
eliminate the effects of this exposure.
Skype depends on key technology that is licensed from third parties.
Skype licenses technology underlying certain components of its software from third parties it does not
control, including the technology underlying its peer-to-peer architecture and firewall traversal technology,
and the audio and video compression/decompression used to provide high sound and video quality. Both of
these technologies are key to the software Skype provides. In addition, various other technologies used by
Skype are licensed from third parties. Although Skype has contracts in place with its third party technology
providers, there can be no assurance that the licensed technology or other technology that we may seek to
license in the future will continue to be available on commercially reasonable terms, or at all. The loss of, or
inability to maintain, existing licenses could result in delays, a decrease in service quality, or a complete failure
of Skype's product until equivalent technology or suitable alternatives can be developed, identified, licensed
and integrated. While we believe Skype has the ability to either extend these licenses on commercially
reasonable terms or identify and obtain or develop suitable alternative products, the costs associated with
licensing or developing such products could be high. Any failure to maintain these licenses on commercially
reasonable terms or to license or develop alternative technologies would harm Skype's business.
Acquisitions could result in operating difficulties, dilution, and other harmful consequences.
We have acquired a number of businesses in the past, and completed eight acquisitions in 2005. These
include, most recently, the acquisition of Skype, the acquisition of Shopping.com, and the acquisition through
PayPal of VeriSign, Inc.'s payment gateway business.
We expect to continue to evaluate and consider a wide array of potential strategic transactions, including
business combinations, acquisitions and dispositions of businesses, technologies, services, products and other
assets, including interests in our existing subsidiaries. At any given time we may be engaged in discussions or
negotiations with respect to one or more of these types of transactions. Any of these transactions could be
material to our financial condition and results of operations. The process of integrating any acquired business
may create unforeseen operating difficulties and expenditures and is itself risky. The areas where we may face
difficulties include:
‚ diversion of management time, as well as a shift of focus from operating the businesses to issues related
to integration and administration, particularly given the large number and size and varying scope of our
recent acquisitions, and, in the case of Skype, the complex earn-out structure associated with the
transaction;
‚ declining employee morale and retention issues resulting from changes in, or acceleration of,
compensation, or changes in reporting relationships, future prospects, or the direction of the business;
‚ the need to integrate each company's accounting, management, information, human resource and other
administrative systems to permit effective management, and the lack of control if such integration is
delayed or not implemented;
‚ the need to implement controls, procedures and policies appropriate for a larger public company at
companies that prior to acquisition had lacked such controls, procedures and policies; and
‚ in some cases, including in connection with PayPal's recent acquisition of VeriSign's payment gateway
business, the need to transition operations, users, and/or customers onto our existing platforms.
Foreign acquisitions involve special risks, including those related to integration of operations across
different cultures and languages, currency risks, and the particular economic, political, and regulatory risks
associated with specific countries. Moreover, we may not realize the anticipated benefits of any or all of our
acquisitions. Future acquisitions or mergers may result in a need to issue additional equity securities, spend
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