10-Q 1 ebay10-qq32013.htm QUARTERLY REPORT eBay 10-Q Q3 2013


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

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
77-0430924
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
2065 Hamilton Avenue
San Jose, California
95125
(Address of principal executive offices)
(Zip Code)
(408) 376-7400
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
[x]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
(Do not check if a smaller reporting company)
Smaller reporting company
[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]

As of October 14, 2013, there were 1,294,597,889 shares of the registrant's common stock, $0.001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.

 




PART I: FINANCIAL INFORMATION
Item 1:
Financial Statements
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
 
September 30,
2013
 
December 31,
2012
 
(In millions, except par value amounts)
 
(Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
5,280

 
$
6,817

Short-term investments
4,991

 
2,591

Accounts receivable, net
772

 
822

Loans and interest receivable, net
2,434

 
2,160

Funds receivable and customer accounts
9,073

 
8,094

Other current assets
926

 
914

Total current assets
23,476

 
21,398

Long-term investments
4,138

 
3,044

Property and equipment, net
2,763

 
2,491

Goodwill
8,566

 
8,537

Intangible assets, net
863

 
1,128

Other assets
261

 
476

Total assets
$
40,067

 
$
37,074

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 

 
 

Short-term debt
$
408

 
$
413

Accounts payable
288

 
301

Funds payable and amounts due to customers
9,073

 
8,094

Accrued expenses and other current liabilities
2,008

 
1,916

Deferred revenue
164

 
137

Income taxes payable
87

 
63

Total current liabilities
12,028

 
10,924

Deferred and other tax liabilities, net
914

 
972

Long-term debt
4,123

 
4,106

Other liabilities
235

 
207

Total liabilities
17,300

 
16,209

Commitments and contingencies (Note 10)

 


Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 3,580 shares authorized; 1,294 and 1,294 shares outstanding
2

 
2

Additional paid-in capital
12,697

 
12,062

Treasury stock at cost, 291 and 271 shares
(9,141
)
 
(8,053
)
Retained earnings
18,004

 
15,998

Accumulated other comprehensive income
1,205

 
856

Total stockholders' equity
22,767

 
20,865

Total liabilities and stockholders' equity
$
40,067

 
$
37,074


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions, except per share amounts)
 
(Unaudited)
Net revenues
$
3,892

 
$
3,404

 
$
11,517

 
$
10,079

Cost of net revenues
1,224

 
1,022

 
3,587

 
2,992

Gross profit
2,668

 
2,382

 
7,930

 
7,087

Operating expenses:
 
 
 
 
 

 
 

Sales and marketing
755

 
726

 
2,223

 
2,120

Product development
433

 
389

 
1,318

 
1,157

General and administrative
415

 
369

 
1,242

 
1,131

Provision for transaction and loan losses
185

 
148

 
553

 
413

Amortization of acquired intangible assets
81

 
83

 
245

 
251

Total operating expenses
1,869

 
1,715

 
5,581

 
5,072

Income from operations
799

 
667

 
2,349

 
2,015

Interest and other, net
74

 
5

 
89

 
74

Gain on divested business

 

 

 
118

Income before income taxes
873

 
672

 
2,438

 
2,207

Provision for income taxes
(184
)
 
(75
)
 
(432
)
 
(348
)
Net income
$
689

 
$
597

 
$
2,006

 
$
1,859

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.53

 
$
0.46

 
$
1.55

 
$
1.44

Diluted
$
0.53

 
$
0.45

 
$
1.53

 
$
1.42

Weighted average shares:
 
 
 
 
 
 
 
Basic
1,295

 
1,292

 
1,296

 
1,291

Diluted
1,310

 
1,314

 
1,314

 
1,311


The accompanying notes are an integral part of these condensed consolidated financial statements.


3



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions)
 
(Unaudited)
Net income
$
689

 
$
597

 
$
2,006

 
$
1,859

Other comprehensive income (loss), net of reclassification adjustments:
 
 
 
 
 

 
 

Foreign currency translation
353

 
191

 
88

 
80

Unrealized gains (losses) on investments, net
243

 
89

 
459

 
126

Tax (expense) benefit on unrealized gains (losses) on investments, net
(86
)
 
(24
)
 
(175
)
 
(18
)
Unrealized gains (losses) on hedging activities, net
(135
)
 
(73
)
 
(24
)
 
(90
)
Tax (expense) benefit on unrealized gains (losses) on hedging activities, net
4

 
2

 
1

 
2

Other comprehensive income (loss), net tax
379

 
185

 
349

 
100

Comprehensive income
$
1,068

 
$
782

 
$
2,355

 
$
1,959


The accompanying notes are an integral part of these condensed consolidated financial statements.


4



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In millions)
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
2,006

 
$
1,859

Adjustments:
 
 
 
Provision for transaction and loan losses
553

 
413

Depreciation and amortization
1,033

 
882

Stock-based compensation
412

 
360

Gain on sale of RueLaLa and ShopRunner
(75
)
 

Gain on divested business

 
(118
)
Changes in assets and liabilities, net of acquisition effects
(647
)
 
(943
)
Net cash provided by operating activities
3,282

 
2,453

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(969
)
 
(961
)
Changes in principal loans receivable, net
(395
)
 
(335
)
Purchases of investments
(5,726
)
 
(1,470
)
Maturities and sales of investments
2,710

 
938

Acquisitions, net of cash acquired
(85
)
 
(143
)
Repayment of Kynetic note receivable and sale of RueLaLa and ShopRunner
485

 

Proceeds from divested business, net of cash disposed

 
144

Other
(14
)
 
(77
)
Net cash used in investing activities
(3,994
)
 
(1,904
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
301

 
359

Repurchases of common stock
(1,088
)
 
(642
)
Excess tax benefits from stock-based compensation
180

 
95

Tax withholdings related to net share settlements of restricted stock awards and units
(247
)
 
(152
)
Net (repayments) and borrowings under commercial paper program

 
(550
)
Proceeds from the issuance of debt, net of issuance costs

 
2,976

Funds receivable and customer accounts, net
(979
)
 
(839
)
Funds payable and amounts due to customers, net
979

 
839

Other

 
(4
)
Net cash provided by (used in) financing activities
(854
)
 
2,082

Effect of exchange rate changes on cash and cash equivalents
29

 
9

Net increase (decrease) in cash and cash equivalents
(1,537
)
 
2,640

Cash and cash equivalents at beginning of period
6,817

 
4,691

Cash and cash equivalents at end of period
$
5,280

 
$
7,331

Supplemental cash flow disclosures:
 

 
 

Cash paid for interest
$
85

 
$
15

Cash paid for income taxes
$
348

 
$
757


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — The Company and Summary of Significant Accounting Policies

The Company

We are a global technology company that enables commerce through three reportable business segments: Marketplaces, Payments and Enterprise. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online trading platforms, such as our online classifieds sites and StubHub. Our Payments segment is comprised of PayPal, Bill Me Later and Zong. Our Enterprise segment, which we previously referred to as our GSI segment, consists of GSI Commerce, Inc., which we acquired in the second quarter of 2011.

We are required to comply with various regulations worldwide in order to operate our businesses, particularly our Payments business. We also partner with banks and other financial institutions in order to offer our Payments services globally. Changes in regulations or how regulations are interpreted or enforced by governmental authorities and courts, non-compliance with laws or regulations, or loss of key bank or financial institution partners could have a significant adverse impact on our ability to operate our Payments business; therefore, we monitor these areas closely to mitigate potential adverse impacts.

When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and loan losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill and the recoverability of intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Principles of consolidation and basis of presentation

The accompanying condensed financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities ("VIE") if we were the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Minority interests are recorded as a noncontrolling interest. A qualitative approach is applied to assess the consolidation requirement for VIEs. Investments in entities where we hold at least a 20% ownership interest and have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investees' results of operations is included in interest and other, net and our investment balance is included in long-term investments. Investments in entities where we hold less than a 20% ownership interest are generally accounted for using the cost method of accounting, and our share of the investees' results of operations is included in our consolidated statement of income to the extent dividends are received.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2012. We have evaluated all subsequent events through the date these condensed consolidated financial statements were issued. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the condensed consolidated financial statements, for the interim period.

6

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Recent Accounting Pronouncements

In 2013, the Financial Accounting Standards Board ("FASB") issued new accounting guidance clarifying the accounting for the release of a cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity.  The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. We do not anticipate that this adoption will have a significant impact on our financial position, results of operations, or cash flows.

In 2013, FASB issued new accounting guidance clarifying the accounting for obligations resulting from joint and several liability arrangements for which the total amount under the arrangement is fixed at the reporting date. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2013. We do not anticipate that this adoption will have a significant impact on our financial position, results of operations, or cash flows.
 
Note 2 — Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and restricted stock is reflected in diluted net income per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive shares of common stock. The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
689

 
$
597

 
$
2,006

 
$
1,859

Denominator:
 
 
 
 
 
 
 
Weighted average shares of common stock - basic
1,295

 
1,292

 
1,296

 
1,291

Dilutive effect of equity incentive plans
15

 
22

 
18

 
20

Weighted average shares of common stock - diluted
1,310

 
1,314

 
1,314

 
1,311

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.53

 
$
0.46

 
$
1.55

 
$
1.44

Diluted
$
0.53

 
$
0.45

 
$
1.53

 
$
1.42

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
2

 
3

 
2

 
6



7

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 3 — Business Combinations

During the nine months ended September 30, 2013, we completed four acquisitions, three of which are included in our Marketplaces segment and one in our Payments segment, for aggregate purchase consideration of approximately $83 million, consisting primarily of cash. The allocation of the purchase consideration resulted in net liabilities of approximately $7 million, purchased intangible assets of approximately $41 million and goodwill of approximately $49 million. The allocations of the purchase price for these acquisitions have been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available. The consolidated financial statements include the operating results of the acquired businesses since the respective dates of the acquisitions. Pro forma results of operations have not been presented because the effect of the acquisitions was not material to our financial results.
Additionally, on September 26, 2013 we announced an agreement to acquire Braintree, a global payment platform, for total consideration of approximately $800 million. This acquisition is expected to close late in the fourth quarter of 2013.


Note 4 — Goodwill and Intangible Assets

Goodwill

The following table presents goodwill balances and adjustments to those balances for each of our reportable segments during the nine months ended September 30, 2013:
 
 
December 31,
2012
 
Goodwill
Acquired
 
Adjustments
 
September 30,
2013
 
(In millions)
Reportable segments:
 
 
 
 
 
 
 
Marketplaces
$
4,732

 
$
45

 
$
(19
)
 
$
4,758

Payments
2,519

 
4

 
(1
)
 
2,522

Enterprise
1,239

 

 

 
1,239

Corporate and other
47

 

 

 
47

 
$
8,537

 
$
49

 
$
(20
)
 
$
8,566


The adjustments to goodwill and goodwill acquired during the nine months ended September 30, 2013 were due primarily to foreign currency translation.

Intangible Assets

The components of identifiable intangible assets are as follows: 
 
September 30, 2013
 
December 31, 2012
 
Gross Carrying Amount  
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
Gross Carrying Amount 
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
(In millions, except years)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
1,648

 
$
(1,159
)
 
$
489

 
5
 
$
1,644

 
$
(991
)
 
$
653

 
5
Trademarks and trade names
771

 
(645
)
 
126

 
5
 
743

 
(569
)
 
174

 
5
Developed technologies
538

 
(378
)
 
160

 
4
 
525

 
(322
)
 
203

 
4
All other
263

 
(175
)
 
88

 
4
 
252

 
(154
)
 
98

 
4
 
$
3,220

 
$
(2,357
)
 
$
863

 
 
 
$
3,164

 
$
(2,036
)
 
$
1,128

 
 


8

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Amortization expense for intangible assets was $107 million and $110 million for the three months ended September 30, 2013 and 2012, respectively. Amortization expense for intangible assets was $323 million and $329 million for the nine months ended September 30, 2013 and 2012, respectively.

Expected future intangible asset amortization as of September 30, 2013 is as follows (in millions):
Fiscal years:
 
 
Remaining 2013
 
$
100

2014
 
315

2015
 
252

2016
 
128

2017
 
38

Thereafter
 
30

 
 
$
863





9

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 5 — Segments

We have three reportable segments: Marketplaces, Payments and Enterprise. We allocate resources to and assess the performance of each reportable segment using information about its revenue and operating income (loss). We do not evaluate operating segments using discrete asset information. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments.

The corporate and other category includes income, expenses and charges such as:

results of operations of various initiatives which support all of our reportable segments;
corporate management costs, such as human resources, finance and legal, not allocated to our segments;
amortization of intangible assets;
restructuring charges; and
stock-based compensation expense.
 
The following tables summarize the financial performance of our reportable segments and reconciliation to our consolidated operating results for the periods reflected below (1):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions)
Net Revenue
 
 
 
 
 
 
 
Marketplaces
 
 
 
 
 
 
 
Net transaction revenues
$
1,668

 
$
1,490

 
$
4,913

 
$
4,406

Marketing services and other revenues
359

 
316

 
1,072

 
942

 
2,027

 
1,806

 
5,985

 
5,348

Payments
 
 
 
 
 
 
 
Net transaction revenues
1,493

 
1,264

 
4,403

 
3,715

Marketing services and other revenues
127

 
102

 
389

 
318

 
1,620

 
1,367

 
4,792

 
4,033

Enterprise
 
 
 
 
 
 
 
Net transaction revenues
185

 
170

 
565

 
516

Marketing services and other revenues
53

 
57

 
155

 
168

 
238

 
226

 
720

 
684

Corporate and other
 
 
 
 
 
 
 
Marketing services and other revenues
14

 
11

 
40

 
27

 
 
 
 
 
 
 
 
Elimination of inter-segment net revenue (2)
(7
)
 
(6
)
 
(20
)
 
(13
)
Total consolidated net revenue
$
3,892

 
$
3,404

 
$
11,517

 
$
10,079

 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
Marketplaces
$
789

 
$
705

 
$
2,406

 
$
2,093

Payments
368

 
309

 
1,116

 
1,004

Enterprise
12

 
14

 
29

 
47

Corporate and other
(370
)
 
(361
)
 
(1,202
)
 
(1,129
)
Total operating income (loss)
$
799

 
$
667

 
$
2,349

 
$
2,015


(1) Certain amounts may not add due to rounding.
(2) Represents revenue generated between our reportable segments.


10

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 6 — Kynetic Note and Related Investments

In conjunction with our acquisition of GSI Commerce, Inc. ("GSI") in June 2011, we immediately divested 100% of GSI's licensed sports merchandise business and 70% of GSI's ShopRunner and RueLaLa businesses, and sold them to NRG Commerce, LLC (now known as Kynetic, LLC), a newly formed holding company led by GSI's former Chairman, President and CEO, Michael Rubin, in exchange for a note receivable. In September 2013, this note receivable was repaid and our investments in RueLaLa and ShopRunner were sold for total cash proceeds of $485 million. This transaction resulted in a net gain of approximately $75 million, which has been recognized in interest and other, net in our condensed consolidated statement of income.

Note 7 — Fair Value Measurement of Assets and Liabilities

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012:

 Description
 
Balance as of
September 30, 2013
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
 
(In millions)
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
5,280

 
$
4,791

 
$
489

Short-term investments:
 
 
 
 
 
 
Restricted cash
 
14

 
14

 

Corporate debt securities
 
3,697

 

 
3,697

Government and agency securities
 
48

 

 
48

Time deposits
 
120

 

 
120

Equity instruments
 
1,112

 
1,112

 

Total short-term investments
 
4,991

 
1,126

 
3,865

Funds receivable and customer accounts
 
1,864

 

 
1,864

Derivatives
 
46

 

 
46

Long-term investments:
 
 
 
 
 
 
Corporate debt securities
 
3,582

 

 
3,582

Government and agency securities
 
281

 

 
281

Total long-term investments
 
3,863

 

 
3,863

Total financial assets
 
$
16,044

 
$
5,917

 
$
10,127

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives
 
$
139

 
$

 
$
139




11

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Description
 
Balance as of
December 31, 2012
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
 
(In millions)
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,817

 
$
5,685

 
$
1,132

Short-term investments:
 
 
 
 
 
 
Restricted cash
 
15

 
15

 

Corporate debt securities
 
1,153

 

 
1,153

Government and agency securities
 
20

 

 
20

Time deposits
 
765

 

 
765

Equity instruments
 
638

 
638

 

Total short-term investments
 
2,591

 
653

 
1,938

Derivatives
 
55

 

 
55

Long-term investments:
 
 
 
 
 
 
Corporate debt securities
 
2,669

 

 
2,669

Government and agency securities
 
42

 

 
42

Total long-term investments
 
2,711

 

 
2,711

Total financial assets
 
$
12,174

 
$
6,338

 
$
5,836

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives
 
$
86

 
$

 
$
86

 
Our financial assets and liabilities are valued using market prices on both active markets (level 1) and less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments 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 currency rates. Our derivative instruments are primarily short-term in nature, generally one month to one year in duration. Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months. We did not have any transfers of financial instruments between valuation levels during the first nine months of 2013.

Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased and are comprised primarily of bank deposits, money market funds and commercial paper. We had total funds receivable and customer accounts of $9.1 billion as of September 30, 2013, of which $1.9 billion is invested in short-term government securities.

In addition, we had cost and equity method investments of approximately $269 million and $327 million included in long-term investments on our condensed consolidated balance sheet at September 30, 2013 and our consolidated balance sheet at December 31, 2012, respectively. As of September 30, 2013 and December 31, 2012, we also held $6 million of time deposits classified as held to maturity, which are recorded at amortized cost.

Other financial instruments, including accounts receivable, loans and interest receivable, accounts payable, funds receivable, certain customer accounts, funds payable and amounts due to customers, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.


12

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Note 8 — Derivative Instruments

The notional amounts associated with our foreign currency contracts at September 30, 2013 and 2012 were $6.3 billion and $5.6 billion, respectively, of which $2.9 billion and $2.2 billion, respectively, were designated as cash flow hedges. Derivative transactions are measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the basis on which the value of foreign exchange payments under these contracts are determined.
For our derivative instruments designated as cash flow hedges, the amounts recognized in earnings related to the ineffective portion were not material in each of the periods presented, and we did not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness. As of September 30, 2013, we estimate that approximately $55 million of net derivative losses related to our cash flow hedges included 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 as of September 30, 2013 and December 31, 2012 was as follows:
 
 
Derivative Assets Reported in Other Current Assets 
 
Derivative Liabilities Reported in Other Current Liabilities
 
September 30,
2013
 
December 31,
2012
 
September 30,
2013
 
December 31,
2012
 
(In millions)
Foreign exchange contracts designated as cash flow hedges
$
16

 
$
1

 
$
95

 
$
56

Foreign exchange contracts not designated as hedging instruments
30

 
43

 
44

 
30

Other contracts not designated as hedging instruments

 
11

 

 

Total fair value of derivative instruments
$
46

 
$
55

 
$
139

 
$
86


Under the master netting agreements with the respective counterparties to our foreign exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same currency with a single net amount payable by one party to the other.  However, we have elected to present the derivative assets and derivative liabilities on a gross basis in our balance sheet.  As of September 30, 2013, the potential effect of rights of set-off associated with the above foreign exchange contracts would be an offset to both assets and liabilities by $46 million, resulting in a net derivative liability of $93 million. We are not required to pledge, nor are we entitled to receive, cash collateral related to these derivative transactions.

Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following table summarizes the activity of derivative contracts that qualify for hedge accounting as of September 30, 2013 and December 31, 2012, and the impact of these derivative contracts on accumulated other comprehensive income for the nine months ended September 30, 2013:
 
 
December 31, 2012
 
Amount of gain (loss)
recognized in other
comprehensive income
(effective portion) 
 
Amount of gain (loss)
reclassified from
accumulated other
comprehensive income
to net revenue and operating expense
(effective portion)
 
September 30, 2013
 
(In millions)
Foreign exchange contracts designated as cash flow hedges
$
(55
)
 
$
(23
)
 
$
1

 
$
(79
)

13

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


The following table summarizes the activity of derivative contracts that qualify for hedge accounting as of September 30, 2012 and December 31, 2011, and the impact of these derivative contracts on accumulated other comprehensive income for the nine months ended September 30, 2012:

 
December 31, 2011
 
Amount of gain (loss)
recognized in other
comprehensive income
(effective portion) 
 
Amount of gain (loss)
reclassified from
accumulated other
comprehensive income
to net revenue and operating expense
(effective portion)
 
September 30, 2012
 
(In millions)
Foreign exchange contracts designated as cash flow hedges
$
72

 
$
(30
)
 
$
60

 
$
(18
)


Effect of Derivative Contracts on Condensed 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: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions)
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
6

 
$
16

 
$
9

 
$
42

Foreign exchange contracts designated as cash flow hedges recognized in operating expenses
(2
)
 
6

 
(8
)
 
15

Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
(4
)
 
(2
)
 
13

 
(10
)
Other contracts not designated as hedging instruments recognized in interest and other, net

 

 

 
4

Total gain (loss) recognized from derivative contracts in the condensed consolidated statement of income
$

 
$
20

 
$
14

 
$
51



14



Note 9 — Debt
The following table summarizes the carrying value of our outstanding debt:
 
Coupon
 
Carrying Value as of
Effective
 
Carrying Value as of
Effective
 
 Rate
 
September 30, 2013
 Interest Rate
 
December 31, 2012
 Interest Rate
 
(In millions, except percentages)
Long-Term Debt
 
 
 
 
 
 
 
Senior notes due 2015
1.625
%
 
$
599

1.805
%
 
$
599

1.805
%
Senior notes due 2015
0.700
%
 
250

0.820
%
 
250

0.820
%
Senior notes due 2017
1.350
%
 
999

1.456
%
 
999

1.456
%
Senior notes due 2020
3.250
%
 
498

3.389
%
 
498

3.389
%
Senior notes due 2022
2.600
%
 
999

2.678
%
 
999

2.678
%
Senior notes due 2042
4.000
%
 
743

4.114
%
 
742

4.114
%
Total senior notes
 
 
4,088

 
 
4,087

 
Other indebtedness
 
 
35

 
 
19

 
Total long-term debt
 
 
$
4,123

 
 
$
4,106

 
 
 
 
 
 
 
 
 
Short-Term Debt
 
 
 
 
 
 
 
Senior notes due 2013
0.875
%
 
$
400

1.078
%
 
$
400

1.078
%
Other indebtedness
 
 
8

 
 
13

 
Total short-term debt
 
 
408

 
 
413

 
Total Debt
 
 
$
4,531

 
 
$
4,519

 
Senior Notes
The effective interest rates for our fixed-rate senior notes include the interest payable, the amortization of debt issuance costs and the amortization of any original issue discount on these senior notes. Interest on these senior notes is payable semiannually. Interest expense associated with these senior notes, including amortization of debt issuance costs, during the three months ended September 30, 2013 and 2012 was approximately $26 million and $21 million, respectively. Interest expense associated with these senior notes, including amortization of debt issuance costs, during the nine months ended September 30, 2013 and 2012 was approximately $79 million and $37 million, respectively. At September 30, 2013, the estimated fair value of all these senior notes included in long-term debt was approximately $4.0 billion.

The indenture pursuant to which the senior notes were issued includes customary covenants that, among other things and subject to exceptions, limit our ability to incur, assume or guarantee debt secured by liens on specified assets or enter into sale and lease-back transactions with respect to specified properties, and also includes customary events of default.
Other Indebtedness
Our other indebtedness is comprised of overdraft facilities, notes payable, and capital lease obligations. We have formal overdraft facilities in Brazil and India. Drawn balances bear interest at rates ranging from 8% to 11% per annum and are expected to be repaid in more than one year. Notes payable is comprised primarily of a note that bears interest at 6.3% per annum and has a maturity date of July 2034. Our capital leases have maturity dates ranging from December 2013 to September 2014 and bear interest at rates ranging from 3% to 7% per annum. The present value of future minimum capital lease payments as of September 30, 2013 was $7 million with imputed interest of less than $1 million.
Commercial Paper
We have a $2 billion commercial paper program pursuant to which we may issue commercial paper notes with maturities of up to 397 days from the date of issue. As of September 30, 2013, there were no commercial paper notes outstanding.
Credit Agreement
As of September 30, 2013, no borrowings or letters of credit were outstanding under our $3 billion credit agreement. As described above, we have a $2 billion commercial paper program and maintain $2 billion of available borrowing capacity under our credit agreement in order to repay commercial paper borrowings in the event we are unable to repay those borrowings from other sources when they become due.  As a result, at September 30, 2013, $1 billion of borrowing capacity was available for other purposes permitted by the credit agreement.  The credit agreement includes customary representations, warranties,

15



affirmative and negative covenants, including a financial covenant, events of default and indemnification provisions in favor of the banks. The negative covenants include restrictions regarding the incurrence of liens, subject to exceptions. The financial covenant requires us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio.
As of September 30, 2013, we were in compliance with all covenants in our outstanding debt instruments.

Note 10 — Commitments and Contingencies

Commitments

 As of September 30, 2013, approximately $14.6 billion of unused credit was available to Bill Me Later accountholders. While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all of our Bill Me Later accountholders will access their entire available credit at any given point in time. In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination by the chartered financial institution that is the issuer 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 advances funds to the merchant. We subsequently purchase the consumer receivables related to the consumer loans and sell a participation interest back to the chartered financial institution. Although the chartered financial institution continues to own each customer account, we own and bear the risk of loss on the related consumer receivables, less the participation interest held by the chartered financial institution, and Bill Me Later is responsible for all servicing functions related to the customer account balances.

Litigation and Other Legal Matters
 
Overview
We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. Amounts accrued for legal proceedings for which we believe a loss is probable were not material for the nine months ended September 30, 2013. Except as otherwise noted, we have concluded that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our accruals are also not material. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact.
 In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 10, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

16

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


Specific Matters

In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc. and eBay International AG. Among other things, the complaint alleged that we violated French tort law by negligently broadcasting listings posted by third parties offering counterfeit items bearing plaintiffs' trademarks and by purchasing certain advertising keywords. Around September 2006, Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris Court of Commerce against eBay Inc. and eBay International AG. The complaint alleged that we had interfered with the selective distribution network the plaintiffs established in France and the European Union by allowing third parties 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 interfering with the plaintiffs' selective distribution network. The court awarded plaintiffs approximately EUR 38.6 million in damages and issued an injunction (enforceable by daily fines of up to EUR 100,000) prohibiting all sales of perfumes and cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all worldwide eBay sites to the extent that they are accessible from France. We appealed this decision, and in September 2010, the Paris Court of Appeal reduced the damages award to EUR 5.7 million and modified the injunction. We further appealed this decision to the French Supreme Court, and in May 2012, the French Supreme Court ruled that the appeal court should not have assumed jurisdiction upon activity that took place on the eBay.com site and that the injunction was too broad insofar as it did not exclude private sales. The court also noted that the appeal court had not sufficiently dealt with assertions that the plaintiffs' distribution contracts were not valid. Those matters will now be remanded to the Paris Court of Appeal. In 2009, plaintiffs filed an action regarding our compliance with the original injunction, and in November 2009, the court awarded the plaintiffs EUR 1.7 million (the equivalent of EUR 2,500 per day) and indicated that as a large Internet company we should do a better job of enforcing the injunction. Parfums Christian Dior has filed another motion relating to our compliance with the injunction. We have taken measures to comply with the injunction and have appealed these rulings, noting, among other things, the modification of the initial injunction. In light of the French Supreme Court ruling mentioned above, we asked the court to stay proceedings with respect to enforcement of the injunction pending the retrial of the matters on appeal, and this request has been granted. However, these and similar suits may force us to modify our business practices, which could lower our revenue, increase our costs, or make our websites less convenient to our customers. Any such results could materially harm our business. Other brand owners have also filed suit against us or have threatened to do so in numerous different jurisdictions, seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties, “tester” and other not for resale consumer products listed on our websites by third parties, alleged misuse of trademarks in listings, alleged violations of selective distribution channel laws, alleged violations of parallel import laws, alleged non-compliance with consumer protection laws and in connection with paid search advertisements. We have prevailed in some of these suits, lost in others, and many are in various stages of appeal. We continue to believe that we have meritorious defenses to these suits and intend to defend ourselves vigorously.

In May 2009, the U.K. High Court of Justice ruled in the case filed by L'Oréal SA, Lancôme Parfums et Beauté & Cie, Laboratoire Garnier & Cie and L'Oréal (UK) Ltd against eBay International AG, other eBay companies, and several eBay sellers (No. HC07CO1978) that eBay was not jointly liable with the seller co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of Justice (ECJ) questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against intermediaries. In July 2011, the ECJ ruled on the questions certified by the U.K. High Court 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 instead by third parties, (b) that marketplaces could invoke the limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active role with respect to the listings in question that the limitation would not be available, but that even where the limitation was available, the marketplace could be liable if it had awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace would be liable in a specific jurisdiction only if the offers on the site at issue were targeting that jurisdiction, a question of fact, (d) that injunctions may be issued to a marketplace in connection with infringing third party content, but that such injunctions must be proportionate and not block legitimate trade and (e) that trademark rights can only be evoked by a rights owner as a result of a seller's commercial activity as opposed to private activity. The matter will now return to the U.K. High Court of Justice for further action in light of the ECJ opinion. The case was originally filed in July 2007. L'Oréal's complaint alleged that we were jointly liable for trademark infringement for the actions of the sellers who allegedly sold counterfeit goods, parallel imports and testers (not for resale products). Additionally, L'Oréal claimed that eBay's use of L'Oréal brands on its website, in its search engine and in sponsored links, and purchase of L'Oréal trademarks as keywords, constitute trademark infringement. The suit sought an injunction preventing future infringement, full disclosure of the identity of all past and present sellers of infringing L'Oréal goods, and a declaration that our Verified Rights Owner (VeRO) program as then

17

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

operated was insufficient to prevent such infringement. The scope of a possible injunction claimed is to be specified after the trial upon remand from the ECJ.

eBay's Korean subsidiary, IAC (which has merged into Gmarket and is now named eBay Korea), has notified its approximately 20 million users of a January 2008 data breach involving personally identifiable information including name, address, resident registration number and some transaction and refund data (but not including credit card information or real time banking information). Approximately 149,000 users sued IAC over this breach in several lawsuits in Korean courts and more may do so in the future (including after final determination of liability). Trial for a group of representative suits began in August 2009 in the Seoul Central District Court, and trial for other suits began later in the Seoul Central District Court. There is some precedent in Korea for a court to grant “consolation money” for data breaches without a specific finding of harm from the breach. Such precedents have involved payments of up to approximately $200 per user. In January 2010, one bench of the Seoul Central District Court ruled that IAC had met its obligations with respect to defending the site from intrusion and, accordingly, had no liability for the breach. This January 2010 ruling was appealed by approximately 34,000 plaintiffs to the Seoul High Court. In September 2012, a bench of the Seoul High Court announced its decision upholding the Seoul Central District Court's January 2010 decision for three cases involving 55 plaintiffs (who did not appeal to the Korea Supreme Court). So far during 2013, the Seoul High Court has upheld the Seoul Central District Court's January 2010 ruling in another 18 cases involving 33,795 plaintiffs. The Seoul High Court's decision in 11 of these 18 cases has been appealed by 33,522 plaintiffs to the Korea Supreme Court, and there was no appeal in the seven other cases. Currently, the Korea Supreme Court is reviewing a total of 12 cases with 33,525 plaintiffs, including one case appealed from the Daegu High Court. In January 2013, the Seoul Western District Court ruled in favor of IAC with respect to two cases filed by 2,291 plaintiffs by following the Seoul Central District Court's January 2010 ruling, and 2,284 plaintiffs proceeded to appeal the January 2013 decision of the Seoul Western District Court to the Seoul High Court.

General Matters

Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to patent disputes, and expect that we will increasingly be subject to additional patent infringement claims involving various aspects of our Marketplaces, Payments and Enterprise (formerly known as GSI) businesses as our services continue to expand in scope and complexity. Such claims may be brought directly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts with us), and we are subject to increased exposure to such claims as a result of our acquisitions of other businesses or assets, particularly in cases where we are entering into new businesses in connection with such acquisitions. We have in the past been forced to litigate such claims. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act, the Lanham Act and the Communications Decency Act are interpreted by the courts, and as we expand the range and geographical scope of our services and become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries like ourselves are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms.

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business. These disputes and inquiries include suits by our users (individually or as class actions) alleging, among other things, improper credit and/or collection activities; improper disclosure of our prices, rules or policies; that our prices, rules, policies or customer/user agreements violate applicable law; that we have not acted in conformity with such prices, rules, policies or agreements; or violations of privacy laws and policies. The number and significance of these disputes and inquiries continue to increase 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 operations) and our products and services have increased in complexity. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards (including statutory damages for certain causes of action in certain jurisdictions), injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.

18

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


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. Our Enterprise business 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, including our Magento business. 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 conduct by PayPal or PayPal customers. PayPal has also provided a limited indemnity to merchants using its retail point of sale payment services. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in our statement of income in connection with our indemnification provisions have not been significant, either individually or collectively. 

Off-Balance Sheet Arrangements

As of September 30, 2013, 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”) for more efficient cash management and investment purposes. 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 under these arrangements. As of September 30, 2013, we had a total of $3.1 billion in cash withdrawals offsetting our $3.1 billion in Aggregate Cash Deposits held within the same financial institution under these cash pooling arrangements.
 

Note 11 — Stock Repurchase Programs

In June 2012, our Board of Directors authorized a stock repurchase program that provides for the repurchase of up to $2 billion of our common stock, with no expiration from the date of authorization. The stock repurchase program is intended to offset the impact of dilution from our equity compensation programs. The stock repurchase activity under our stock repurchase program during the nine months ended September 30, 2013 is summarized as follows:

 
Shares Repurchased
 
Average Price per Share
 
Value of Shares Repurchased
 
Remaining Amount Authorized
 
(In millions, except per share amounts)
Balance as of January 1, 2013

 
$
51.89

 
$
17

 
$
1,983

Repurchase of shares of common stock
20

 
54.95

 
1,088

 
(1,088
)
Balance as of September 30, 2013
20

 
$
54.90

 
$
1,105

 
$
895


These repurchased shares of common stock were recorded as treasury stock and were accounted for under the cost method. No repurchased shares of common stock have been retired.


19

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 12 — Stock-Based Plans

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2013:  
 
Options
 
(In millions)
Outstanding as of January 1, 2013
24

Granted and assumed
1

Exercised
(8
)
Forfeited/expired/canceled
(1
)
Outstanding as of September 30, 2013
16


The weighted average exercise price of stock options granted during the period was $55.68 per share and the related weighted average grant date fair value was $15.47 per share.

Restricted Stock Unit Activity

The following table summarizes restricted stock unit ("RSU") activity for the nine months ended September 30, 2013:  
 
Units 
 
(In millions)
Outstanding as of January 1, 2013
39

Awarded and assumed
13

Vested
(14
)
Forfeited
(3
)
Outstanding as of September 30, 2013
35


The weighted average grant date fair value for RSUs awarded during the period was $55.50 per share.

 Stock-Based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2013 and 2012 was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions)
Cost of net revenues
$
9

 
$
13

 
$
45

 
$
41

Sales and marketing
38

 
35

 
112

 
99

Product development
42

 
34

 
120

 
101

General and administrative
51

 
40

 
135

 
119

Total stock-based compensation expense
$
140

 
$
122

 
$
412

 
$
360

Capitalized in product development
$
4

 
$
5

 
$
11

 
$
15



20

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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 three and nine months ended September 30, 2013 and 2012:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Risk-free interest rate
0.77
%
 
0.48
%
 
0.62
%
 
0.71
%
Expected life (in years)
3.9

 
3.8

 
4.1

 
4.0

Dividend yield
%
 
%
 
%
 
%
Expected volatility
32
%
 
40
%
 
34
%
 
38
%

Our computation of expected volatility is based on a combination of historical and market-based implied volatility from traded options on our common stock. Our computation of expected life is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.


Note 13 — Income Taxes

The following table reflects changes in unrecognized tax benefits for the nine months ended September 30, 2013:
 
 
(In millions)
Gross amounts of unrecognized tax benefits as of January 1, 2013
$
340

Increases related to prior period tax positions
52

Decreases related to prior period tax positions
(52
)
Increases related to current period tax positions
24

Settlements
(4
)
Gross amounts of unrecognized tax benefits as of September 30, 2013
$
360


As of September 30, 2013, our liabilities for unrecognized tax benefits were included in accrued expenses and other current liabilities and deferred and other tax liabilities, net. The increase in liabilities for unrecognized tax benefits for the nine months ended September 30, 2013 relates primarily to the point in time at which certain foreign earnings became subject to U.S. taxation and the enactment of the federal research and development credit retroactive to 2012.
 
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of September 30, 2013 and December 31, 2012 was approximately $67 million and $117 million, respectively. The decrease in the amount of interest and penalties accrued is due primarily to the settlement of multiple uncertain tax positions during the nine months ended September 30, 2013.
 
We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by certain tax authorities for the 2003 to 2009 tax years. We are in the process of settlement discussions with various tax authorities that could reasonably be expected to result in a significant change to the existing tax reserve balance within the next 12 months. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations or changes. The material jurisdictions where we are subject to potential examination by tax authorities for certain tax years after 2002 include, among others, the U.S. (Federal and California), France, Germany, Italy, Korea, Israel, Switzerland, Singapore and Canada.
 
Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months as a result of various tax audit settlements. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

21

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)


 Our effective tax rate differs from the U.S. federal statutory rate due primarily to lower tax rates associated with certain earnings from our operations outside the U.S. We have not provided for U.S. income and foreign withholding tax on certain foreign earnings as we intend to indefinitely reinvest these earnings outside the U.S. We consider projected cash needs for, among other things, investments in our existing businesses, potential acquisitions and capital transactions, including repurchases of our common stock and debt repayments. We estimate the amount of cash available or needed in the jurisdictions where these investments are expected, as well as our ability to generate cash in those jurisdictions and our access to capital markets. This analysis enables us to conclude whether or not we will indefinitely reinvest the current period's foreign earnings.

Note 14 — Loans and Interest Receivable, Net
Loans and interest receivable represent purchased consumer receivables arising from loans made by partner chartered financial institutions to individual consumers in the U.S. to purchase goods and services through our Bill Me Later merchant network. Although a chartered financial institution continues to own each respective customer account, we own the related consumer receivable and Bill Me Later is responsible for all servicing functions related to the customer accounts. Effective August 29, 2013, ownership of most of the existing customer accounts was transitioned to a new chartered financial institution. As part of the arrangement with the new chartered financial institution, we sell the chartered financial institution a participation interest in the entire pool of consumer receivables outstanding under the customer accounts. During the three months ended September 30, 2013 and 2012, we purchased approximately $1.0 billion and $775 million, respectively, in consumer receivables. During the nine months ended September 30, 2013 and 2012, we purchased approximately $2.8 billion and $2.1 billion, respectively, in consumer receivables. As of September 30, 2013, the total outstanding balance of this pool of consumer receivables is $2.6 billion, of which we sold a participation interest to the new chartered financial institution of $17 million, or 0.66%.  The chartered financial institution has no recourse related to its participation interest for failure of debtors to pay when due. The participation interest held by the chartered financial institution has the same priority to the interests held by us and is subject to the same credit, prepayment, and interest rate risk associated with this pool of consumer receivables.
Loans and interest receivable are reported at their outstanding principal balances, net of participation interest sold and pro-rata allowances, including unamortized deferred origination costs and estimated collectible interest and fees. We use a consumer's FICO score, among other measures, in evaluating the credit quality 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 consumer receivable owned by Bill Me Later. The weighted average consumer FICO score related to the pool of consumer receivables and interest receivable balance outstanding as of September 30, 2013 was 685, compared to 689 as of December 31, 2012. As of September 30, 2013 and December 31, 2012, approximately 53.7% and 55.8%, respectively, of the pool of consumer receivables and interest receivable balance was due from consumers with FICO scores greater than 680, which is generally considered "prime" by the consumer credit industry. As of September 30, 2013 and December 31, 2012, approximately 89% and 90%, respectively, of the pool of consumer receivables and interest receivable portfolio was current.
The following table summarizes the activity in the allowance for loans and interest receivable, net of participating interest sold, for the periods indicated:
 
Nine Months Ended September 30,
 
2013
 
2012
 
(In millions)
Balance as of January 1
$
101

 
$
59

Charge-offs
(161
)
 
(94
)
Recoveries
9

 
7

Provision
181

 
115

Balance as of September 30
$
130

 
$
87



 

22



Note 15 — Restructuring

In the fourth quarter of 2012, we implemented a global restructuring plan designed to simplify and streamline our organization and strengthen the overall competitiveness of our existing businesses.  The plan included a strategic reduction of our existing global workforce by approximately 600 employees and 300 contractors and related activities, including the closure of certain facilities and asset impairments. The majority of the costs impacted our Payments and Enterprise segments.  In connection with the plan, we have incurred aggregate charges of approximately $26 million as of September 30, 2013, related primarily to severance and benefits, including net credits of $4 million incurred in the nine months ended September 30, 2013. The restructuring charges are included in general and administrative expenses on the consolidated statement of income. As of September 30, 2013, all restructuring actions under the plan are substantially complete.  The associated liability was $20 million as of December 31, 2012 and decreased to $3 million as of September 30, 2013 due to payments of $10 million and other adjustments (including foreign currency translation) of $7 million.

Note 16 — Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated balances of other comprehensive income for the three months ended September 30, 2013:
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Unrealized
Gains on
Investments
 
Foreign
Currency
Translation
 
Estimated tax (expense) benefit
 
Total
 
(In millions)
Beginning balance
$
56

 
$
903

 
$
184

 
$
(317
)
 
$
826

Other comprehensive income before reclassifications
(131
)
 
243

 
353

 
(82
)
 
383

Amount of gain (loss) reclassified from accumulated other comprehensive income
4

 

 

 

 
4

Net current period other comprehensive income
(135
)
 
243

 
353

 
(82
)
 
379

Ending balance
$
(79
)
 
$
1,146

 
$
537

 
$
(399
)
 
$
1,205


The following table summarizes the changes in accumulated balances of other comprehensive income for the nine months ended September 30, 2013:
 
Unrealized Gains (Losses) on Cash Flow Hedges
 
Unrealized
Gains on
Investments
 
Foreign
Currency
Translation
 
Estimated tax (expense) benefit
 
Total
 
(In millions)
Beginning balance
$
(55
)
 
$
687

 
$
449

 
$
(225
)
 
$
856

Other comprehensive income before reclassifications
(23
)
 
463

 
88

 
(174
)
 
354

Amount of gain (loss) reclassified from accumulated other comprehensive income
1

 
4

 

 

 
5

Net current period other comprehensive income
(24
)
 
459

 
88

 
(174
)
 
349

Ending balance
$
(79
)
 
$
1,146

 
$
537

 
$
(399
)
 
$
1,205




23



The following table provides details about reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2013:
Details about Accumulated Other Comprehensive
Income Components
 
Amount of Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income
 
Affected Line Item in the Statement of Income
 
 
Three Months Ended
September 30, 2013
 
Nine Months Ended
September 30, 2013
 
 
 
 
(In millions)
 
 
Gains (losses) on cash flow hedges - foreign exchange contracts
 
$
6

 
$
9

 
Net Revenues
 
 
(1
)
 
(2
)
 
Cost of net revenues
 
 

 
(1
)
 
Sales and marketing
 
 
(1
)
 
(4
)
 
Product development
 
 

 
(1
)
 
General and administrative
 
 
4

 
1

 
Total, before income taxes
 
 

 

 
Provision for income taxes
 
 
4

 
1

 
Total, net of income taxes
 
 
 
 
 
 
 
Unrealized gains on investments
 

 
4

 
Interest and other, net
 
 

 
4

 
Total, before income taxes
 
 

 

 
Provision for income taxes
 
 

 
4

 
Total, net of income taxes
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
4

 
$
5

 
Total, net of income taxes


24





Item 2:
Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, or management strategies). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Part II Item 1A: Risk Factors” of this Quarterly Report on Form 10-Q as well as in our condensed consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report.

When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.


Overview

We are a global technology company that enables commerce through three reportable business segments: Marketplaces, Payments and Enterprise. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online trading platforms, such as our online classifieds sites and StubHub. Our Payments segment is comprised of PayPal, Bill Me Later and Zong. Our Enterprise segment, which we previously referred to as our GSI segment, consists of GSI Commerce, Inc. ("GSI Commerce"), which we acquired in the second quarter of 2011.
 
Net revenues for the three months ended September 30, 2013 increased 14% to $3.9 billion compared to the same period of the prior year, driven primarily by increases in net revenues from each of our segments. For the three months ended September 30, 2013, our operating margin increased to 21% from 20% in the same period of the prior year due primarily to solid top line growth and operating efficiencies. For the three months ended September 30, 2013, our diluted earnings per share increased to $0.53, a $0.07 increase compared to the same period of the prior year, driven primarily by growth in net revenues and a gain on the sale of our investments in RueLaLa and ShopRunner, partially offset by a higher effective tax rate. For the three months ended September 30, 2013, we generated cash flow from operations of $1.3 billion, compared to $1.2 billion for the same period of the prior year.

Our Marketplaces segment total net revenues increased $221 million, or 12%, for the three months ended September 30, 2013 compared to the same period of the prior year. The increase in total net revenues was driven primarily by an increase in gross merchandise volume (GMV) (as defined below) excluding vehicles of 13% for the three months ended September 30, 2013 compared to the same period of the prior year, which was due primarily to continued growth in the U.S. and internationally. Our Marketplaces segment operating margin decreased slightly by 0.1 percentage points for the three months ended September 30, 2013 compared to the same period of the prior year due primarily to continued investments in our site operations infrastructure and business initiatives, partially offset by marketing program efficiencies.

25



Our Payments segment total net revenues increased $253 million, or 19%, for the three months ended September 30, 2013 compared to the same period of the prior year. The increase in total net revenues was driven primarily by an increase in net total payment volume (TPV) (as defined below) of 25% for the three months ended September 30, 2013 compared to the same period of the prior year and strong growth in Bill Me Later. Our Payments segment operating margin increased slightly by 0.1 percentage points for the three months ended September 30, 2013 compared to the same period of the prior year due primarily to an increase in operating efficiencies that was partially offset by a lower take rate.
Our Enterprise segment total net revenues increased $12 million, or 5%, for the three months ended September 30, 2013 compared to the same period of the prior year. The increase in total net revenues was driven primarily by an increase in Merchandise Sales (as defined below) of 13% for the three months ended September 30, 2013 compared to the same period of the prior year. Our Enterprise segment operating margin decreased 1.1 percentage points for the three months ended September 30, 2013 compared to the same period of the prior year due primarily to a lower take rate on Merchandise Sales as well as continued investment in our Enterprise Commerce Technologies.
We define GMV as the total value of all successfully closed items between users on our 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 volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the applicable period, excluding PayPal's payment gateway business. We define Merchant Services net TPV as the total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the applicable period, excluding PayPal's payment gateway business and payments for transactions on our Marketplaces and Enterprise platforms. We define on eBay net TPV as the total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks and Bill Me Later accounts during the applicable period for transactions on our Marketplaces and Enterprise platforms. We define Merchandise Sales as the retail value of all sales transactions, inclusive of freight charges and net of allowance for returns and discounts, which flow through our Enterprise Commerce Technologies during the applicable period, whether we record the full amount of such transaction as a product sale or a percentage of such transaction as a service fee. We define ECV as the total commerce and payment volume across all three segments consisting of GMV, Merchant Services net TPV and Merchandise Sales.

Results of Operations

Summary of Net Revenues

We generate two types of net revenues: net transaction revenues and marketing services and other revenues. Our net transaction revenues are derived principally from listing fees, final value fees (which are fees payable on transactions completed on our Marketplaces trading platforms), fees paid by merchants for payment processing services and ecommerce service fees. Our marketing services revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, marketing service fees and lead referral fees. Other revenues are derived principally from interest and fees earned on the Bill Me Later portfolio of receivables from loans, interest earned on certain PayPal customer account balances and fees from contractual arrangements with third parties that provide services to our users.

26



The following table sets forth the breakdown of net revenues by type and geography for the periods presented (1).
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(In millions, except percentage changes)
Net Revenues by Type:
 
 
 
 
 
 
 
Net transaction revenues
 
 
 
 
 
 
 
Marketplaces
$
1,668

 
$
1,490

 
$
4,913

 
$
4,406

Payments
1,493

 
1,264

 
4,403

 
3,715

Enterprise
185

 
170

 
565

 
516

Total net transaction revenues
3,346

 
2,925

 
9,881

 
8,637

Marketing services and other revenues
 
 
 
 
 
 
 
Marketplaces
359

 
316

 
1,072

 
942

Payments
127

 
102

 
389

 
318

Enterprise
53

 
57

 
155

 
168

Corporate and other
14

 
11

 
40

 
27

Total marketing services and other revenues
553

 
485

 
1,656

 
1,455

Elimination of inter-segment net revenue (2)
(7
)
 
(6
)
 
(20
)
 
(13
)
Total net revenues
$
3,892

 
$
3,404

 
$
11,517

 
$
10,079

Net Revenues by Geography:
 
 
 
 
 
 
 
U.S.
$
1,873

 
$
1,637

 
$
5,532

 
$
4,829

International
2,019

 
1,767

 
5,985

 
5,250

Total net revenues
$
3,892

 
$
3,404

 
$
11,517

 
$
10,079

 
(1)
Certain amounts may not add due to rounding.
(2)
Represents revenue generated between our reportable segments.

Revenues are attributed to U.S. and international geographies based primarily 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.

Because we generated a majority of our net revenues internationally in recent periods, including the three months ended September 30, 2013 and 2012, we are subject to the risks of doing business in foreign countries as discussed under "Part II - Item 1A - Risk Factors." In that regard, fluctuations in foreign currency exchange rates impact our results of operations. We have a foreign exchange risk management program that is designed to reduce our exposure to fluctuations in foreign currencies; however, the effectiveness of this program in mitigating the impact of foreign currency fluctuations on our results of operations varies from period to period, and in any given period, our operating results are usually affected, sometimes significantly, by changes in currency exchange rates. Fluctuations in exchange rates also directly affect our cross-border revenue. We calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency rates applied to current year transactional currency amounts.

For the three months ended September 30, 2013, foreign currency movements relative to the U.S. dollar positively impacted net revenues by $15 million (inclusive of a positive impact of approximately $6 million from hedging activities included in Payments net revenue) compared to the same period of the prior year. On a business segment basis, for the three months ended September 30, 2013, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces and Payments net revenues by approximately $11 million and $5 million, respectively, and negatively impacted Enterprise net revenues by less than $1 million, in each case compared to the same period of the prior year (net of the positive impact of hedging activities noted above, in the case of Payments net revenues).

For the nine months ended September 30, 2013, foreign currency movements relative to the U.S. dollar positively impacted net revenues by approximately $15 million (inclusive of a positive impact of approximately $9 million from hedging activities included in Payments net revenue) compared to the same period of the prior year. On a business segment basis, for the nine months ended September 30, 2013, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces and Payments net revenues by approximately $15 million and less than $1 million, respectively, and negatively impacted Enterprise net revenues by less than $1 million, in each case compared to the same period of the prior year (net of the positive impact of hedging activities noted above, in the case of Payments net revenues).

27




The following table sets forth, for the periods presented, certain key operating metrics that we believe are significant factors affecting our net revenues (1).
 
Three Months Ended September 30,
 
Percent
 
Nine Months Ended September 30,
 
Percent
 
2013
 
2012
 
Change
 
2013
 
2012
 
Change
 
(In millions, except percentage changes)
Supplemental Operating Data:
 
 
 
 
 
 
 
 
 
 
 
Marketplaces Segment:  (2)
 
 
 
 
 
 
 
 
 
 
 
GMV excluding vehicles  (3)
$
18,360

 
$
16,281

 
13
 %
 
$
54,978

 
$
48,658

 
13
 %
GMV vehicles only  (4)
$
1,765

 
$
1,994

 
(11
)%
 
$
5,256

 
$
5,885

 
(11
)%
Total GMV  (5)
$
20,125

 
$
18,274

 
10
 %
 
$
60,234

 
$
54,543

 
10
 %
Payments Segment:
 
 
 
 
 
 
 
 
 
 
 
Merchant services net TPV (6)
$
30,725

 
$
23,704

 
30
 %
 
$
88,619

 
$
69,251

 
28
 %
On eBay net TPV (7)
$
13,112

 
$
11,455

 
14
 %
 
$
39,071

 
$
34,216

 
14
 %
Total net TPV  (8)
$
43,837

 
$
35,159

 
25
 %
 
$
127,690

 
$
103,467

 
23
 %
Enterprise Segment:
 
 
 
 
 
 
 
 
 
 
 
Merchandise Sales (9)
$
787

 
$
698

 
13
 %
 
$
2,409

 
$
2,087

 
15
 %
 

(1)
Certain amounts may not add due to rounding.
(2)
eBay's classifieds websites, brands4friends and Shopping.com are not included in these metrics.
(3)
Total value of all successfully closed items between users on our Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction, excluding vehicles GMV.
(4)
Total value of all successfully closed vehicle transactions between users on our Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction.
(5)
Total value of all successfully closed items between users on our Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction.
(6)
Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the period, excluding PayPal's payment gateway business and payments for transactions on our Marketplaces and Enterprise platforms.
(7)
Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks and Bill Me Later accounts during the period for transactions on our Marketplaces and Enterprise platforms.
(8)
Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the period, excluding PayPal's payment gateway business.
(9)
Represents the retail value of all sales transactions, inclusive of freight charges and net of allowance for returns and discounts, which flow through our Enterprise Commerce Technologies during the period, whether we record the full amount of such transaction as a product sale or a percentage of such transaction as a service fee.


28



Seasonality

The following table sets forth, for the periods presented, our total net revenues and the sequential quarterly movements of these net revenues:
 
Three Months Ended
 
March 31
 
June 30
 
September 30
 
December 31
 
(In millions, except percentage changes)
2011(1)
 
 
 
 
 
 
 
Net revenues
$
2,546

 
$
2,760

 
$
2,966

 
$
3,380

Percent change from prior quarter
2
 %
 
8
%
 
7
%
 
14
%
2012
 
 
 
 
 
 
 
Net revenues
$
3,277

 
$
3,398