eBay 2007 Annual Report Download - page 78

have declined in market value due to changes in interest rates. As of December 31, 2007, our fixed income
investments earned a pretax yield of approximately 5.3%, with a weighted average maturity of one month. If interest
rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our total fixed-income
investment portfolio could decrease (increase) by approximately $0.1 million.
As of December 31, 2007, the carrying value of our cash and cash equivalents approximated fair value and
represented approximately 84% of our total cash and investment portfolio, the majority of which were held in bank
deposits. We held no direct investments in auction rate securities, collateralized debt obligations, structured
investment vehicles or mortgaged-backed securities.
Equity Price Risk
We are exposed to equity price risk on the marketable portion of equity instruments and equity method
investments we hold, typically as the result of strategic investments in third parties that are subject to considerable
market risk due to their volatility. We typically do not attempt to reduce or eliminate our market exposure in these
equity investments. We did not record an impairment charge during the years ended December 31, 2007, 2006 or
2005 relating to the other-than-temporary impairment in the fair value of equity investments. At December 31,
2007, the total fair value of our equity instruments and equity method investments was $711.2 million, which
represented approximately 14% of our total cash and investment portfolio. As of January 31, 2008, the value of an
equity instrument had diminished by approximately $297.3 million due to fluctuations in market value.
Foreign Currency Exposures
We are a growing company, with an increasing proportion of our operations conducted outside the U.S. Our
foreign currency exposure continues to evolve as we grow internationally. The objective of our foreign exchange
exposure management program is to identify material foreign currency exposures and to manage these exposures to
minimize the potential effects of currency fluctuations on our reported consolidated cash flow and results of
operations.
International net revenues result from transactions by our foreign operations and are typically denominated in
the local currency of each country. These operations also incur most of their expenses in the local currency.
Accordingly, certain foreign operations use the local currency, which is primarily the Euro, and to a lesser extent,
the British pound and Korean won, as their functional currency. Our international operations are subject to risks
typical of international operations, including, but not limited to, differing economic conditions, changes in political
climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accord-
ingly, our future results could be materially adversely impacted by changes in these or other factors. In addition, at
December 31, 2007, we held balances in cash and cash equivalents outside the U.S. totaling approximately
$4.0 billion.
Our primary foreign currency exposures are transaction, economic and translation:
Transaction Exposure
Around the world, we have certain assets and liabilities, primarily receivables, investments and accounts
payable (including inter-company transactions) that are denominated in currencies other than the relevant entity’s
functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities
create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may
enter into foreign exchange contracts or other instruments to minimize the short-term foreign currency fluctuations
on such assets and liabilities. The gains and losses on the foreign exchange contracts offset the transaction gains and
losses on certain foreign currency receivables, investments and payables recognized in earnings. As of
December 31, 2007, we had outstanding foreign exchange hedge contracts with notional values equivalent to
approximately $171.8 million with maturity dates within 31 days. The hedge contracts are used to offset changes in
the functional currency value of assets and liabilities denominated in foreign currencies as a result of currency
fluctuations. Transaction gains and losses on the contracts and the assets and liabilities are recognized each period in
our consolidated statement of income.
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