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EBAY INC
FORM 10-K
(Annual Report)
Filed 02/01/13 for the Period Ending 12/31/12
Address 2145 HAMILTON AVENUE
SAN JOSE, CA 95125
Telephone 408-376-7400
CIK 0001065088
Symbol EBAY
SIC Code 7389 - Business Services, Not Elsewhere Classified
Industry Retail (Catalog & Mail Order)
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2013, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    ...408-376-7400 0001065088 EBAY 7389 - Business Services, Not Elsewhere Classified Retail (Catalog & Mail Order) Services 12/31 http://www.edgar-online.com © Copyright 2013, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

  • Page 2
    ... 1934 For the fiscal year ended December 31, 2012 . OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to . Commission file number 000-24821 eBay Inc. (Exact name of registrant as specified in its charter) Delaware (State...

  • Page 3
    ... was required to submit and post such files). Yes [x] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements...

  • Page 4
    ... company (as defined in Rule 12b-2 of the Exchange Act). As of June 30, 2012 , the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $48,526,400,895 based on the closing sale price as reported on The Nasdaq Global Select Market. Indicate the number...

  • Page 5
    ... Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accounting Fees and Services Part IV Exhibits and Financial Statement Schedules 4 12 52 52 52 54 55...

  • Page 6
    ... we mean the ecommerce and interactive marketing services provided by GSI Commerce, which we purchased in June 2011. We are a global technology company that enables commerce through three reportable segments: Marketplaces, Payments, and GSI. By providing online platforms, tools and services to help...

  • Page 7
    ...users on our eBay Marketplaces trading platforms (excluding eBay's classifieds websites, brands4friends and Shopping.com) during the applicable period, regardless of whether the buyer and seller actually consummated the transaction. Merchants and individuals can also list their products and services...

  • Page 8
    ... for fee discounts. We believe sellers who fulfill these selling standards will help promote our goal of maintaining an online marketplace that is safe and hassle-free. eBay Buyer Protection covers items purchased on our sites in the U.S., the U.K. and Germany through a qualifying payment method and...

  • Page 9
    ... ways, including by credit card, debit card, electronic funds transfers from their bank account and through a PayPal balance if the buyer has previously received payments through PayPal or chosen to pre-fund a balance. We also provide a credit offering through our Bill Me Later service, which allows...

  • Page 10
    ...for the service to use their PayPal accounts to make purchases at offline retail locations. We expect that users will be able to access their PayPal accounts through a PayPal Access Card, their mobile phone number and personal identification number (PIN), or a Near Field Communication-enabled device...

  • Page 11
    ... response, email, workforce management, voice recording/monitoring and customer relationship management systems in the customer care platform. The U.K. call center offers customer care in multiple languages. GMS provides retailers with extensive online marketing services The GMS business unit is...

  • Page 12
    ... Our Marketplaces, Payments and GSI platforms utilize a combination of proprietary technologies and services as well as technologies and services provided by others. We have developed intuitive user interfaces, customer tools and transaction processing, database and network applications that help...

  • Page 13
    ... our employees were located in the U.S. Available Information Our Internet address is www.ebay.com. Our investor relations website is located at http://investor.ebayinc.com. We make available free of charge on our investor relations website under the heading "SEC Filings" our Annual Reports on Form...

  • Page 14
    ... transactions; changes to our dispute resolution process; upgrades to eBay checkout services, including the introduction of an eBay shopping cart/basket that enables buyers to add items from multiple sellers and pay in a single checkout; changes to our fee structure, including new requirements...

  • Page 15
    ... users of our Marketplaces business, especially with respect to our top buyers and sellers, and increase activity of PayPal account holders, particularly in our merchant services business; our ability to develop product enhancements, programs, and features on different platforms and mobile devices...

  • Page 16
    and sellers) and PayPal account holders (especially in our merchant services business) active and increasing their activity level on our websites and mobile platforms and their use of our payment services, respectively, in order to continue to grow those businesses. The growth of Internet users is ...

  • Page 17
    ... Bill Me Later credit products and extend credit to customers to offer the Bill Me Later service. Currently, when a consumer makes a purchase using a Bill Me Later credit product, the chartered financial institution extends credit to the consumer, funds the extension of credit at the point of sale...

  • Page 18
    ...implementing a new payment process in Germany and Austria in which eBay intermediated payments, receiving funds directly from buyers for items purchased from newly registered sellers on the localized eBay websites in those countries and subsequently paying the sellers upon shipment of the items. The...

  • Page 19
    ... as owner of those funds, meant that PayPal could not treat those funds as liquid assets for purposes of the liquidity rules applicable to California money transmitter licensees. Based on change to our U.S. PayPal user agreement effective November 1, 2012, PayPal began holding U.S. customer balances...

  • Page 20
    ... in 2013, to provide additional disclosures, error resolution rights and cancellation rights to U.S. consumers who make international remittance payments. These new requirements could increase our costs of processing international payments and adversely affect our business. Our Bill Me Later service...

  • Page 21
    ...new Staged Digital Wallet Operator Annual Network Access Fee which would apply to many of PayPal's transactions if the buyer uses a MasterCard to fund their payment, and will be collected starting in June 2013. PayPal's payment card processors have the right to pass any increases in interchange fees...

  • Page 22
    ...our service by our users infringe third-party copyrights, trademarks and trade names, or other intellectual property rights. See "Item 3: Legal Proceedings" below. Although we have sought to work actively with the owners of intellectual property rights to eliminate listings offering infringing items...

  • Page 23
    owners bring legal action against PayPal based upon the use of PayPal's payment services in a transaction involving the sale of infringing items, including on our websites or mobile platforms, our business could be harmed. Several jurisdictions have adopted new laws in these areas, and others are ...

  • Page 24
    ... we have received significant media attention relating to the listing or sale of illegal goods and stolen goods using our services. This negative publicity could damage our reputation, diminish the value of our brand names and make users reluctant to use our services. PayPal's payment system is also...

  • Page 25
    ... fee for accepting PayPal or other payment methods. Other regulators have from time to time requested information concerning PayPal's limitations of customer accounts. Similarly, Bill Me Later has from time to time received customer complaints that could result in investigations into Bill Me Later...

  • Page 26
    ..., cruise or concert tickets, custom-made goods and subscriptions), eBay and/or PayPal could be liable to the buyers of such goods or services, either through its buyer protection program or through chargebacks on payment cards used by customers to fund their payment through PayPal. While we have...

  • Page 27
    ... that they purchased, or have received an item different than what was described. However, users who pay through PayPal may have reimbursement rights from their payment card company or bank, which in turn will seek recovery from PayPal. eBay also periodically receives complaints from buyers as to...

  • Page 28
    ... its network and reduce the ease of use of its products, which could harm PayPal's business. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, or that is stored by PayPal's direct payment card processing customers, we...

  • Page 29
    ...names, passwords, payment card numbers, or other personal information or to introduce viruses or other malware through "trojan horse" programs to our users' computers. These emails appear to be legitimate emails sent by eBay, PayPal, a GSI client, StubHub or one of our other businesses, or by a user...

  • Page 30
    ...traffic to retailers from our Shopping.com website and associated fee revenue. In addition, legislators and regulators in various jurisdictions, including the U.S. and the European Union, are reviewing Internet advertising models and the use of user-related data, including location-based information...

  • Page 31
    ...ability of users to use our products and services. In particular, these established businesses have raised concerns relating to pricing, parallel imports, professional seller obligations, selective distribution networks, stolen goods, copyrights, trademarks and other intellectual property rights and...

  • Page 32
    ... required for PayPal to process transactions (e.g., service fees for automated clearing house transactions) would increase our costs and could adversely affect our business. Our business and users may be subject to sales tax and other taxes. The application of indirect taxes (such as sales and use...

  • Page 33
    ... this new law. In June 2011, California enacted legislation that required certain out-of-state retailers to collect and remit California use tax on taxable sales to California purchasers when the retailer has a relationship with a person in California that refers customers to the retailer. In...

  • Page 34
    ... 2008, the Housing and Economic Recovery Act of 2008 (H.R. 3221) was signed into law. This law contains provisions that require companies that provide payments over electronic means to users to report to the Internal Revenue Service (IRS) information on payments received by certain customers. The...

  • Page 35
    ... issuing the Bill Me Later credit products) has increased as we have continued to enable qualified buyers with a PayPal account to use Bill Me Later as a payment funding option for transactions on eBay.com and on certain merchant websites that accept PayPal. We purchase the receivables relating...

  • Page 36
    ...transfer of funds from bank accounts, and no fees when customers fund payment transactions from an existing PayPal account balance or through the Bill Me Later service, or use buyer credit issued by GE Money Bank. Customers fund a significant portion of PayPal's payment volume using credit and debit...

  • Page 37
    ... times, degradation in levels of customer support, impaired quality of users' experiences of our services, impaired quality of services for third-party application developers using our externally accessible application programming interfaces and delays in reporting accurate financial information...

  • Page 38
    ...certain businesses; difficulties in integrating with local payment providers, including banks, credit and debit card networks and electronic fund transfer systems; differing levels of retail distribution, shipping and Internet and mobile infrastructures; different employee/employer relationships and...

  • Page 39
    ... • the need to integrate the operations, systems (including accounting, management, information, human resource and other administrative systems), technologies, products and personnel of each acquired company, which is itself an inherently risky process; the inefficiencies and lack of control that...

  • Page 40
    ... in the number of client retail stores or otherwise, could negatively affect consumer traffic and sales through GSI's clients' websites, which would result in lower revenues generated by our GSI business. Our GSI business also relies on its clients' ability to accurately forecast product demand and...

  • Page 41
    ... marketing services business also utilizes mobile messaging as a means of communicating with consumers, which carries risks similar to those described above for email marketing. Our GSI business has relationships with search engines, comparison shopping sites, affiliate marketers, online advertising...

  • Page 42
    ... charging higher prices, these ticketing service companies have also imposed additional restrictions on transferability for these types of tickets, such as requiring customers to pick up these tickets at will-call with the purchasing credit card. To the extent that event tickets issued in this...

  • Page 43
    ...the number of listings on our sites, make it more difficult for users to complete transactions on our websites and mobile platforms, or adversely affect GSI's ability to timely fulfill and ship products sold on the websites operated by GSI's clients, which would harm our business. Price increases by...

  • Page 44
    .... The Internet and mobile networks provide new, rapidly evolving and intensely competitive channels for the sale of all types of goods and services. Our Marketplaces businesses compete in two-sided markets, and must attract both buyers and sellers to use our platforms. Consumers who purchase or sell...

  • Page 45
    ... sellers are increasingly utilizing multiple sales channels, including the acquisition of new customers by paying for search-related advertisements on horizontal search engine sites such as Bing, Google, Yahoo!, Naver and Baidu. We use product search engines and paid search advertising to help users...

  • Page 46
    ... of transactions these sellers conduct through our sites. PayPal The markets for PayPal's products and services are intensely competitive and are subject to rapid technological change, including but not limited to: mobile payments, electronic funds transfer networks allowing Internet access, cross...

  • Page 47
    ... PayPal's dispute resolution and buyer and seller protection programs; • customer service; and • brand recognition. With respect to our online competition, additional competitive factors include: • website and mobile application onboarding, ease-of-use and accessibility; • system reliability...

  • Page 48
    ... compete with in-house solutions promoted and supported by internal marketing departments as well as with service providers that supply one or more interactive marketing services. This group of providers may include the prospective client itself and companies that offer: email management and data...

  • Page 49
    ...the U.K. to offer PayPal as a payment alternative on most transactions on our localized U.K. site, and since October 2008, we have required sellers on eBay.com to accept one or more accepted payment methods (currently PayPal, credit or debit cards processed through Internet merchant accounts, ProPay...

  • Page 50
    ... customer support in a cost-effective manner, users of our products and services may have negative experiences, current and future revenues could suffer, our costs may increase and our operating margins may decrease. Technology Platforms . We continue to focus on upgrading and developing our systems...

  • Page 51
    ... Developer Platform to enable third-party developers to access a wide variety of PayPal product and programming code specifications and to connect to select PayPal payment application programming interfaces (APIs). We also began providing a software tool kit for building mobile payments applications...

  • Page 52
    ... mobile application stores. Internet service providers or mobile network operators could attempt to charge us each time our customers use our offerings. Worldwide, a number of companies have announced plans to take such actions or are selling products designed to facilitate such actions. The United...

  • Page 53
    ... commercial property markets, or other factors; • the possible need for structural improvements in order to comply with zoning, seismic, disability law, or other requirements; and • possible disputes with tenants, neighboring owners, or others. Some anti-takeover provisions may affect the price...

  • Page 54
    ... COMMENTS Not applicable. ITEM 2: PROPERTIES We own and lease various properties in the U.S. and 33 other countries around the world. We use the properties for executive and administrative offices, data centers, product development offices, fulfillment centers and customer service offices. As of...

  • Page 55

  • Page 56
    ... to post listings offering genuine perfumes and cosmetics for sale on our websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the sale of counterfeit items on its websites that traded on plaintiffs' brand names and for...

  • Page 57
    ... in conformity with such prices, rules, policies or agreements. The number and significance of these disputes and inquiries are increasing as our company has grown larger, our businesses have expanded in scope (both in terms of the range of products and services that we offer and our geographical...

  • Page 58
    ... 21, 2013 , there were approximately 4,800 holders of record of our common stock, although we believe that there are a significantly larger number of beneficial owners of our common stock. Dividend Policy We have never paid cash dividends on our stock and do not anticipate paying cash dividends in...

  • Page 59
    ... and related information are incorporated by reference into such filing. Stock repurchase activity during the three months ended December 31, 2012 was as follows: Total Number of Maximum Dollar Value Shares Purchased as of Shares that May Yet Part of Publicly Average Price be Purchased Under Paid...

  • Page 60
    ... data should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. The consolidated statement of income data and the...

  • Page 61
    ... the consolidated financial statements and the related notes included in this report. Overview We have three reportable business segments: Marketplaces, Payments and GSI. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online trading platforms...

  • Page 62
    ... closed items between users on our eBay Marketplaces trading platforms (excluding eBay's classifieds websites, brands4friends and Shopping.com) during the applicable period, regardless of whether the buyer and seller actually consummated the transaction. We define net TPV as the total dollar...

  • Page 63
    ... country in which the seller, payment recipient, customer, website that displays advertising, or other service provider, as the case may be, is located. Because we generated a majority of our net revenues internationally in recent periods, including the years ended December 31, 2012 , 2011 and 2010...

  • Page 64
    ... items between users on eBay Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction. Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts...

  • Page 65
    ... 2012 , 2011 and 2010 , respectively, representing 56% of total Marketplaces net transaction revenues in all three periods. The increase in the dollar amount of international net transaction revenues was due primarily to growth in our existing international markets. Payments Net Transaction Revenues...

  • Page 66
    ... revenues consists primarily of costs associated with payment processing, interest expense on borrowings incurred to finance Bill Me Later's portfolio of loan receivables, customer support, site operations and fulfillment. Significant components of these costs include bank transaction fees, credit...

  • Page 67
    63

  • Page 68
    ...in our transaction expense rate was driven primarily by the impact of certain regulatory changes, new payment processing arrangements, a favorable mix shift to lower cost international markets and a small improvement in funding mix. GSI GSI cost of net revenues were $696 million during 2012 and $374...

  • Page 69
    ... public relations expenses. A significant portion of our sales and marketing expense is attributable to our online marketing programs, primarily paid search, which include keyword advertising and third party lead generation costs, in order to drive traffic to our Marketplaces and Payments websites...

  • Page 70
    ...offset by improvements in loan loss and bad debt rates. Transaction loss rates increased due primarily to strategic risk management decisions designed to improve the user experience and drive growth as well as the expansion of our protection programs. Our loan loss and bad debt rates declined due to...

  • Page 71
    ... expense on borrowings incurred to finance Bill Me Later's portfolio of loan receivables, which is included in cost of net revenues (see "Note 19 - Interest and Other, Net" to the consolidated financial statements included in this report for more information). Interest and other, net, decreased...

  • Page 72
    ...corporate structure, as well as the long-term cash flows and cash needs of our different businesses. These transactions may impact our overall tax rate and/or result in additional cash tax payments. The impact in any period may be significant. These transactions may be complex and the impact of such...

  • Page 73
    ... corporate and regulatory requirements, price and other market conditions and management's determination as to the appropriate use of our cash. The programs are intended to comply with the volume, timing and other limitations set forth in Rule 10b-18 under the Securities Exchange Act of 1934...

  • Page 74
    ...of Bill Me Later credit products based on, among other things, account usage and customer creditworthiness. When a consumer makes a purchase using a Bill Me Later credit product the chartered financial institution extends credit to the consumer, funds the extension of credit at the point of sale and...

  • Page 75
    ... purchase commitments for advertising, capital expenditures (computer equipment, software applications, engineering development services, construction contracts) and other goods and services entered into in the ordinary course of business. • • As we are unable to reasonably predict the timing...

  • Page 76
    ... of its customers, rather than as owner of those funds, meant that PayPal could not treat those funds as liquid assets for purposes of the liquidity rules applicable to California money transmitter licensees. Based on changes to our U.S. PayPal user agreement effective November 1, 2012, PayPal began...

  • Page 77
    ... be read in conjunction with our consolidated financial statements and other disclosures included in this report. Provision for Transaction and Loan Losses Provision for transaction and loan losses consists primarily of transaction loss expense associated with our customer protection programs, fraud...

  • Page 78
    ... or all of our business segments. Accounting for Income Taxes Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer...

  • Page 79
    ... revenue transactions, primarily related to arrangements in our GSI segment and certain advertising contracts, that are considered multiple element arrangements (arrangements with more than one deliverable). We also may enter into arrangements to purchase goods and/or services from certain customers...

  • Page 80
    ... our financial results. We transact business in various foreign currencies and have significant international revenues as well as costs. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services provided by eBay and...

  • Page 81
    ... 31, 2012 , our cost and equity method investments totaled $327 million , which represented approximately 3% of our total cash and investment portfolio and were primarily related to equity method investments in privately held companies. We review our investments for impairment when events and...

  • Page 82
    ... our website at http://investor.ebayinc.com/governance.cfm. ITEM 11: EXECUTIVE COMPENSATION Incorporated by reference from our Proxy Statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2012 . Annual stock option...

  • Page 83
    ... OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference from our Proxy Statement for our 2013 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2012 . ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...

  • Page 84
    3. Exhibits.

  • Page 85
    ...with this 10-K Incorporated by Reference Form File No. Date Filed 2.01*++ Share Purchase Agreement, dated as of September 1, 2009, as amended on September 14, 2009, by and among Registrant, eBay International AG, Sonorit Holding, A.S. and Springboard Group S.Ã .r.l. (formerly SLP III Cayman DS IV...

  • Page 86

  • Page 87
    ... 1998 Employee Stock Purchase Plan. Registrant's 1998 Directors Stock Option Plan, as amended. Registrant's 1999 Global Equity Incentive Plan, as amended. Form of Stock Option Agreement under Registrant's 1999 Global Equity Incentive Plan. Form of Restricted Stock Unit Agreement under Registrant...

  • Page 88
    ...2008 Equity Incentive Award Plan. Form of Stock Option Agreement (with Modified Vesting) under Registrant's 2008 Equity Incentive Award Plan. Form of Performance Share Unit Award Agreement under Registrant's 2008 Equity Incentive Award Plan. 10-Q 000-24821 7/19/2012 10.23+ 10-Q 000-24821 7/19...

  • Page 89
    ... Incentive Plan, effective April 2, 2012. Form of Restricted Stock Unit Agreement (and PerformanceBased Restricted Stock Unit Agreement) under GSI Commerce, Inc. 2010 Equity Incentive Plan, as amended. eBay Inc. Employee Stock Purchase Plan. Letter Agreement dated July 7, 2011 between Christopher...

  • Page 90
    10.44+ Offer letter dated March 29, 2012 and executed on March 30, 2012 between Registrant and David Marcus Credit Agreement, dated as of November 22, 2011, by and among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto. 8-K 000-24821 4/2/2012 10.45 ...

  • Page 91
    ...** Indicates a management contract or compensatory plan or arrangement Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. The annexes and schedules to the Share Purchase Agreement have...

  • Page 92
    ... opinion, the financial statement schedule listed in the index appearing under item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all...

  • Page 93
    ... INFORMATION Item 1: Financial Statements eBay Inc. CONSOLIDATED BALANCE SHEET December 31, December 31, 2011 2012 (In millions, except par value amounts) ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Loans and interest receivable, net Funds...

  • Page 94
    eBay Inc. CONSOLIDATED STATEMENT OF INCOME Year Ended December 31, 2011 2010 2012 (In millions, except per share amounts) Net revenues Cost of net revenues Gross profit Operating expenses: Sales and marketing Product development General and administrative Provision for transaction and loan losses ...

  • Page 95
    eBay Inc. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2012 2011 (In millions) 2010 Net income Other comprehensive income (loss), net of reclassification adjustments: Foreign currency translation Tax (expense) benefit on foreign currency translation Unrealized gains (...

  • Page 96
    eBay Inc. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Year Ended December 31, 2012 2011 (In millions) 2010 Common stock: Balance, beginning of year Common stock issued Common stock repurchased/forfeited Balance, end of year Additional paid-in-capital: Balance, beginning of year Common stock and ...

  • Page 97
    ...settlements of restricted stock awards and units Proceeds from issuance of long-term debt, net Net (repayments) and borrowings under commercial paper program Repayment of acquired debt Funds receivable and customer accounts Funds payable and amounts due to customers Other Net cash (used in) provided...

  • Page 98
    Cash and cash equivalents at end of period $ 6,817 $ 4,691 $ 5,577 F-6

  • Page 99
    ... Cash paid for income taxes Non-cash investing and financing activities: Common stock options assumed pursuant to acquisition Note receivable from divested business 32 288 $ $ 3 - $ $ 15 789 $ $ 29 373 $ $ - 646 The accompanying notes are an integral part of these consolidated financial statements...

  • Page 100
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - The Company and Summary of Significant Accounting Policies The Company We are a global technology company that enables commerce through three reportable segments: Marketplaces, Payments and GSI. Our Marketplaces segment includes our eBay.com platform...

  • Page 101
    ... our users, interest earned on certain PayPal customer account balances and interest and fees earned on the Bill Me Later portfolio of loan receivables. Revenues from contractual arrangements with third parties are recognized as the contracted services are delivered to end users. Interest income on...

  • Page 102
    .... Provision for transaction losses includes PayPal's transaction loss expense as well as losses resulting from our customer protection programs on and off our platforms. Income taxes We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or...

  • Page 103
    ... of revenue. Funds receivable and funds payable Funds receivable and funds payable relate primarily to our Payments segment and arise due to the time to clear transactions through external payment networks. When customers fund their account using their bank account or credit card, or withdraw money...

  • Page 104
    ... reporting units was required. Intangible assets consist of purchased customer lists and user base, trademarks and trade names, developed technologies and other intangible assets, including patents and contractual agreements. Intangible assets are amortized over the period of estimated benefit using...

  • Page 105
    ... are of high credit quality. In addition, funds receivable are generated with financial institutions or credit card companies that management believes are of high credit quality. Our accounts receivable are derived from revenue earned from customers located in the U.S. and internationally. Our loans...

  • Page 106
    .... We acquired GSI to utilize its comprehensive integrated suite of online commerce and interactive marketing services to strengthen our ability to connect buyers and sellers worldwide. We paid $29.25 per share, and assumed restricted stock-based awards with a fair value of approximately $25 million...

  • Page 107
    ...Fair Value Useful Life (Years) (In millions, except years) Trademarks User base Developed technology Total $ $ 8 668 143 819 2 5 5 We have included the financial results of GSI in our consolidated financial statements from the date of acquisition. Pro forma financial information The unaudited...

  • Page 108
    ... Zong is a provider of payment services through mobile carrier billing. We completed the acquisition of Zong on August 11, 2011 , for total cash consideration of approximately $232 million . The business is included in our Payments segment. Our consolidated financial statements include the operating...

  • Page 109
    ...Carrying Amount Weighted Average Useful Life (Years) Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization (In millions, except years) Intangible assets: Customer lists and user base Trademarks and trade names Developed technologies All other $ 1,644 743...

  • Page 110
    ...: 2013 2014 2015 2016 2017 Thereafter $ $ Note 5 - Segments 408 299 244 121 32 24 1,128 We have three reporting segments: Marketplaces, Payments and GSI. We allocate resources to and assess the performance of each reporting segment using information about its revenue and operating income (loss...

  • Page 111
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Year Ended December 31, 2012 2011 (In millions) 2010 Net Revenue Marketplaces Net transaction revenues Marketing services and other revenues Payments Net transaction revenues Marketing services and other revenues GSI Net transaction...

  • Page 112
    ...$ $ 2,203 128 2,331 Net revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, customer, website that displays advertising, or other service provider, as the case may be, is located. Long-lived assets attributed to the...

  • Page 113
    ... of approximately 18 months. Restricted cash is held primarily in money market funds and interest bearing accounts for letters of credit related primarily to our global sabbatical program and various lease arrangements. The estimated fair values of our short-term and long-term investments classified...

  • Page 114

  • Page 115
    ...basis as of December 31, 2012 and 2011 : Quoted Prices in Active Markets for Identical Assets (Level 1) (In millions) Description Balance as of December 31, 2012 Significant Other Observable Inputs (Level 2) Assets: Cash and cash equivalents Short-term investments: Restricted cash Corporate debt...

  • Page 116
    ...in less active markets, or models using market observable inputs. The majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and...

  • Page 117
    ... in accumulated other comprehensive income will be reclassified into earnings within the next 12 months. Fair Value of Derivative Contracts The fair value of our outstanding derivative instruments was as follows: Derivative Assets Reported in Other Current Assets December 31, 2012 December 31, 2011...

  • Page 118
    ... of Derivative Contracts on 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: Year Ended December 31, 2012 2011 (In millions) 2010 Foreign exchange contracts designated as...

  • Page 119
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2012 (In millions) 2011 Accrued expenses and other current liabilities: Acquisition related accrued expenses Advertising Compensation and related benefits Contractors and consultants Deferred tax liability Professional fees...

  • Page 120
    F-26

  • Page 121
    ... consolidation of certain customer service facilities in North America and Europe to streamline our operations and deliver better and more efficient customer support to our users. We completed these activities during the first quarter of 2011. The consolidation impacted approximately 1,000 employees...

  • Page 122
    ... Total long-term debt Short-Term Debt Senior notes due 2013 Notes payable Capital lease obligations Total short-term debt Total ...term debt Total Debt Senior Notes 0.875% $ 1.625% 3.250% $ 400 598 497 1,495 15 15 1,525 1.078% 1.805% 3.389% $ $ 550 2 13 565 2,090 In July 2012, we issued...

  • Page 123
    F-28

  • Page 124
    ... and swingline borrowings outstanding from time to time. We may also, subject to the agreement of the applicable lenders, increase the commitments under the revolving credit facility by up to $1 billion . Funds borrowed under the credit agreement may be used for working capital, capital expenditures...

  • Page 125
    ..., account usage and customer creditworthiness. When a consumer makes a purchase using a Bill Me Later credit product issued by a chartered financial institution, the chartered financial institution extends credit to the consumer, funds the extension of credit at the point of sale and remits funds to...

  • Page 126
    ... to post listings offering genuine perfumes and cosmetics for sale on our websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the sale of counterfeit items on its websites that traded on plaintiffs' brand names and for...

  • Page 127
    ... of Justice. It held that (a) brand names could be used by marketplaces as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that the goods reached via the key word link were not being offered by the trademark owner or its designees but...

  • Page 128
    ... in conformity with such prices, rules, policies or agreements. The number and significance of these disputes and inquiries are increasing as our company has grown larger, our businesses have expanded in scope (both in terms of the range of products and services that we offer and our geographical...

  • Page 129
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) receivable and customer accounts," with an associated liability under "Funds payable and amounts due to customers." Following this change, PayPal now holds all customer balances (both in the U.S. and internationally) as direct claims ...

  • Page 130
    F-34

  • Page 131
    ... including corporate and regulatory requirements, price, other market conditions and management's determination as to the appropriate use of our cash. The programs are intended to comply with the volume, timing and other limitations set forth in Rule 10b-18 under the Securities Exchange Act of 1934...

  • Page 132
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Deferred Stock Units Since December 31, 2002, we have granted deferred stock units to non-employee directors (other than Pierre Omidyar) elected to our Board of Directors with each new director receiving a one-time grant of deferred ...

  • Page 133
    ... , 2011 and 2010 was as follows: Year Ended December 31, 2012 2011 (In millions) 2010 Cost of net revenues Sales and marketing Product development General and administrative Total stock-based compensation expense Capitalized in product development $ $ $ 55 135 138 160 488 19 $ $ $ 56 132 123...

  • Page 134
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Stock Option Valuation Assumptions We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the years ended ...

  • Page 135
    ..., 2012 2011 (In millions) 2010 Provision at statutory rate Permanent differences: Foreign income taxed at different rates Gain on sale of Skype Legal entity restructuring Change in valuation allowance Stock-based compensation State taxes, net of federal benefit Tax credits Divested business Other...

  • Page 136
    F-39

  • Page 137
    ... of taxation on certain classes of income and require various thresholds of investment and employment in those jurisdictions. These rulings resulted in a tax savings of $439 million and $697 million in 2012 and 2011 , respectively, which increased earnings per share (diluted) by approximately $0.33...

  • Page 138
    ... of our consumer receivables. A FICO score is a type of credit score that lenders use to assess an applicant's credit risk and whether to extend credit. Individual FICO scores generally are obtained each quarter the consumer has an outstanding loan receivable owned by Bill Me Later. The weighted...

  • Page 139
    ... a $257 million loss on the divestiture of a business. See "Note 3 - Business Combinations and Divestitures" to the consolidated financial statements included in this report. (3) The quarterly financial information includes a $1.7 billion gain on the sale of our remaining interest in Skype. F-42

  • Page 140
    eBay Inc. FINANCIAL STATEMENT SCHEDULE The Financial Statement Schedule II - VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual Report on Form 10-K. Balance at Beginning of Period Charges Utilized/Writeoffs Charged/Credited to Net Income Charged to Other Account (In millions) ...

  • Page 141
    ...to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the 31st day of January, 2013. eBay Inc...

  • Page 142
    Additional Directors By: /s/ Pierre M. Omidyar Pierre M. Omidyar Founder, Chairman of the Board and Director By: /s/ Fred D. Anderson Fred D. Anderson Director By: /s/ Marc L. Andreessen Marc L. Andreessen Director By: /s/ Edward W. Barnholt Edward W. Barnholt Director By: /s/ Scott D. Cook ...

  • Page 143
    INDEX TO EXHIBITS

  • Page 144
    ...with this 10-K Incorporated by Reference Form File No. Date Filed 2.01*++ Share Purchase Agreement, dated as of September 1, 2009, as amended on September 14, 2009, by and among Registrant, eBay International AG, Sonorit Holding, A.S. and Springboard Group S.Ã .r.l. (formerly SLP III Cayman DS IV...

  • Page 145

  • Page 146
    ... 1998 Employee Stock Purchase Plan. Registrant's 1998 Directors Stock Option Plan, as amended. Registrant's 1999 Global Equity Incentive Plan, as amended. Form of Stock Option Agreement under Registrant's 1999 Global Equity Incentive Plan. Form of Restricted Stock Unit Agreement under Registrant...

  • Page 147
    10.22+ Form of Restricted Stock Unit Award Agreement (with Modified Vesting) under Registrant's 2008 Equity Incentive Award Plan. Form of Stock Option Agreement under Registrant's 2008 Equity Incentive Award Plan. Form of Stock Option Agreement (with Modified Vesting) under Registrant's 2008 Equity...

  • Page 148
    ... Incentive Plan, effective April 2, 2012. Form of Restricted Stock Unit Agreement (and PerformanceBased Restricted Stock Unit Agreement) under GSI Commerce, Inc. 2010 Equity Incentive Plan, as amended. eBay Inc. Employee Stock Purchase Plan. Letter Agreement dated July 7, 2011 between Christopher...

  • Page 149
    10.45 Credit Agreement, dated as of November 22, 2011, by and among Registrant, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other parties thereto. Statement regarding computation of ratio of earnings to fixed charges. 8-K 000-24821 11/28/2011 12.01 X F-48

  • Page 150
    ...** Indicates a management contract or compensatory plan or arrangement Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the Securities and Exchange Commission. The annexes and schedules to the Share Purchase Agreement have...

  • Page 151
    ... (2) Ratio of Earnings to Fixed Charges (1) (2) (3) For the year ended December 31, 2009, Income Before Income Taxes, Noncontrolling Interest and Income/Loss of Equity Method Investees includes a gain of $1.4 billion related to the sale of our Communications reporting unit. Fixed Charges consist...

  • Page 152
    ...Giving Fund, a Delaware corporation PayPal Data Services, Inc., a Delaware corporation PayPal Gift Card Services, Inc., a Arizona corporation PayPal Global Holdings, Inc., a Delaware corporation PayPal, Inc., a Delaware corporation Promotions Distributor Service Corporation, a California Corporation...

  • Page 153
    ... Services Private Limited eBay Software Technologies (Shanghai) Co., Ltd. eBay Spain International, S.L. eBay Taiwan Company Ltd. eBay Treasury Sarl Sweden Mauritius Denmark Germany Netherlands Denmark Cayman Islands Germany Korea Australia Canada Argentina Denmark Czech Republic United Kingdom...

  • Page 154
    eBay (UK) Limited Entreprises Kijiji Canada Inc. EU Liaison Office BVBA Gitti Gidiyor Bilgi Teknolojileri Sanayi ve Ticaret Anonim Sirketi GSI Commerce Solutions International , S.L. United Kingdom Canada Belgium Turkey Spain 93%

  • Page 155
    Name GSI Commerce Japan K.K. GSI Luxembourg S.a.r.l. Gumtree.com Limited Internet Performance Testing Ltd. eBay Corporate Services GmbH Kijiji International Limited Kijiji Italia s.r.l. Kijiji Norway AS Magento Europe LLC Marktplaats B.V. mobile.international GmbH PayPal Argentina SRL PayPal Asia ...

  • Page 156
    Private Sale GmbH Private Sale International GmbH Shanghai eBay Network Information Services Co., Ltd. Shopping.com France SAS Shopping.com GmbH Shopping.com Ltd. Germany Germany People's Republic of China France Germany Israel 50%

  • Page 157
    ...Services Sarl Shopping Epinions International Ltd. Trade2Trade Ltd. Via-Online GmbH WHERE d.o.o. X.Commerce Development LLC Zendor/GSI Commerce Limited Zong SA Zong SAS Zong GmbH Jurisdiction of Incorporation United Kingdom Luxembourg Luxembourg Ireland United Kingdom Germany Croatia Ukraine United...

  • Page 158
    ... eBay Inc. of our report dated January 31, 2013 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 101K . /s/ PricewaterhouseCoopers LLP San Jose, California January 31, 2013

  • Page 159
    ... registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ John J. Donahoe John J. Donahoe...

  • Page 160
    ...the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Robert H. Swan Robert H. Swan...

  • Page 161
    ...; and (ii) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of eBay Inc. /s/ John J. Donahoe John J. Donahoe President and Chief Executive Officer (Principal Executive Officer) Date: January 31, 2013 The foregoing...

  • Page 162
    ...) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of eBay Inc. /s/ Robert H. Swan Robert H. Swan Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: January 31, 2013 The foregoing...