eBay 2012 Annual Report Download - page 76

From time to time, we engage in certain intercompany transactions and legal entity restructurings. We consider many factors when
evaluating these transactions, including the alignment of our corporate structure with our organizational objectives and the operational and tax
efficiency of our 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 transactions on future periods may be difficult to estimate.
We believe that our existing cash, cash equivalents, short-term and long-term investments, together with cash expected to be generated
from operations, borrowings available under our credit agreement and commercial paper program, and our access to capital markets will be
sufficient to fund our operating activities, anticipated capital expenditures, Bill Me Later portfolio of loan receivables and stock repurchases for
the foreseeable future.
Off-Balance Sheet Arrangements
As of December 31, 2012 , 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.
In Europe, we have two cash pooling arrangements with a financial institution for cash management purposes. These arrangements allow
for cash withdrawals from this financial institution based upon our aggregate operating cash balances held in Europe within the same financial
institution (“Aggregate Cash Deposits”). These arrangements also allow us to withdraw amounts exceeding the Aggregate Cash Deposits up to
an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for
calculating our net interest expense or income. As of December 31, 2012 , we had a total of $5.5 billion in cash withdrawals offsetting our $5.5
billion in Aggregate Cash Deposits held within the same financial institution under these cash pooling arrangements.
Based on differences in regulatory requirements and commercial law in the jurisdictions where PayPal operates, PayPal previously held
customer balances either as direct claims against PayPal or as an agent or custodian on behalf of PayPal's customers. Customer balances held by
PayPal as an agent or custodian on behalf of our customers are not reflected on our consolidated balance sheet, while customer balances held as
direct claims against PayPal are reflected on our consolidated balance sheet. These off-balance sheet funds totaled approximately $2.7 billion as
of December 31, 2011, and included funds held on behalf of U.S. customers that were deposited in bank accounts insured by the Federal Deposit
Insurance Corporation (subject to applicable limits).
In 2012, PayPal's California regulator, the California Department of Financial Institutions, notified PayPal that PayPal's practice of holding
the funds underlying U.S. customer balances as an agent on behalf 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 holding U.S. customer balances as direct claims against PayPal,
rather than as an agent or custodian on behalf of such PayPal customers. As a result, effective November 1, 2012, all U.S. PayPal customer
balances, which were previously not reflected on our consolidated balance sheet, have been reflected as assets in our consolidated balance sheet
under “Funds 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 against PayPal. At December 31,
2012 , U.S. PayPal customer funds represented $3.3 billion of the $8.1 billion balance of funds receivable and customer accounts on our
consolidated balance sheet.
Indemnification Provisions
In the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with
which 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 a third party with respect to our domain names, trademarks, logos and other branding elements to
the extent that such marks are applicable to our performance under the subject agreement. In certain cases we have agreed to provide
indemnification for intellectual property infringement. GSI has provided in many of its major ecommerce agreements an indemnity for other
types of third-party claims, which are indemnities mainly related to various intellectual property rights, and we have provided similar
indemnities in a limited number of agreements for our other businesses. 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
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