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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
 
 
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018.
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 001-37713
 
 
EBAYNOTMA03.JPG
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 No.)
 
 
2025 Hamilton Avenue
San Jose, California
95125
(Address of principal
executive offices)
(Zip Code)
Registrant’s telephone number, including area code:
(408) 376-7008
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common stock
The Nasdaq Global Select Market
6.00% Notes due 2056
The Nasdaq Global Select Market
 
 
Securities registered pursuant to Section 12(g) of the Act:
None
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes [x]  No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes [ ]  No [x]
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 every Interactive Data File required to be submitted 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 such files).  Yes [x]  No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes  [x]   No  [ ]




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[x]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
 
 
 
Emerging growth company
[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes  [ ]  No  [x]
As of June 30, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $33,679,134,490 based on the closing sale price as reported on The Nasdaq Global Select Market.
914,880,451 shares of common stock issued and outstanding as of January 25, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy statement for the registrant’s Annual Meeting of Stockholders expected to be held on May 30, 2019.




eBay Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2018
TABLE OF CONTENTS
 
 
Page
Part I
Item 1.
Business
4
Item 1A.
Risk Factors
10
Item 1B.
Unresolved Staff Comments
28
Item 2.
Properties
29
Item 3.
Legal Proceedings
30
Item 4.
Mine Safety Disclosures
31
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
32
Item 6.
Selected Financial Data
34
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
36
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
55
Item 8.
Financial Statements and Supplementary Data
57
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
57
Item 9A.
Controls and Procedures
57
Item 9B.
Other Information
57
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
58
Item 11.
Executive Compensation
58
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
58
Item 13.
Certain Relationships and Related Transactions and Director Independence
58
Item 14.
Principal Accountant Fees and Services
58
Part IV
Item 15.
Exhibits and Financial Statement Schedule
59
Item 16.
Form 10-K Summary
 



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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 “Item 1A: Risk Factors” of this Annual Report on Form 10-K, as well as in our 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.

ITEM 1: BUSINESS

Overview

eBay Inc. was formed as a sole proprietorship in September 1995 and was incorporated in California in May 1996. In April 1998, we reincorporated in Delaware, and in September 1998, we completed the initial public offering of our common stock. Our principal executive offices are located at 2025 Hamilton Avenue, San Jose, California 95125, and our telephone number is (408) 376-7400. Unless otherwise expressly stated or the context otherwise requires, when we refer to “we,” “our,” “us” or “eBay” in this Annual Report on Form 10-K, we mean eBay Inc. and its consolidated subsidiaries. When we refer to “eBay Inc.” we mean our Marketplace, StubHub and Classifieds platforms.

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity for all. Our technologies and services are designed to give buyers choice and a breadth of relevant inventory and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. We believe that these are among the world’s largest and most vibrant marketplaces for discovering great value and unique selection. Our StubHub platforms include our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. These platforms connect fans with their favorite sporting events, shows and artists and enable them to buy and sell millions of tickets annually, whenever and wherever they want. Our Classifieds platforms include a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. Offering online classifieds around the world, these platforms help people find what they are looking for in their local communities.

Our platforms are accessible through a traditional online experience (e.g., desktop and laptop computers), mobile devices (e.g., smartphones and tablets) and our application programming interfaces or APIs (platform access for third party software developers). Our multi-screen approach offers downloadable, easy-to-use applications for iOS and Android mobile devices that allow access to ebay.com and some of our other websites and vertical shopping experiences. In addition, our platform is increasingly based on open source technologies that provide industry-standard ways for software developers and merchants to access our APIs and develop software and solutions for commerce.


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Our Strategy

Delivering the best choice, the most relevance and the most powerful selling platform

Our strategy is to drive the best choice, the most relevance and the most powerful selling platform for our buyers and sellers. We focus on connecting buyers and sellers through simplified experiences to make it easier for users to list, buy and sell items.

On our Marketplace platform, our strategy is to drive the best choice by attracting and retaining sellers and brands that bring differentiated inventory to eBay and provide our consumers with great selection and value. This includes new, everyday items as well as rare and unique goods, many of which are available with free shipping and delivery in three business days or less. We are in the midst of a multi-year transformation of our platform to deliver a shopping experience that is designed to attract new buyers and that is highly personalized, modern and engaging for users. To help deliver the most relevance to buyers, we are innovating shopping experiences tailored to each user’s interests, passions and shopping history. Leveraging a foundation of structured data — our initiative to better understand, organize and leverage inventory on eBay — we are progressing toward a more personalized, discovery-based user experience and making it easier for customers to find inventory both on and off eBay. We focus on offering a powerful selling platform for our business and consumer sellers by continuing to expand adoption of our Seller Hub product, a tool that helps sellers run their eBay business, while adding new capabilities to enable sellers to build their businesses and drive profitable sales on eBay.
 
As one of the world’s largest ticket marketplaces, StubHub brings the joy of live events to fans around the world. In 2018, more than 240 million unique visitors came from 64 countries to StubHub to buy or sell tickets to live sports, music, theater and other events. StubHub business partners include more than 150 leagues, teams, venues, events or other major third party companies in the U.S. and internationally across major sports leagues such as the NFL, MLB, NBA, NHL, and the NCAA. We aim to continue extending StubHub’s reach by focusing on supply expansion, which includes increasing consumer selling on our site, and broadening StubHub’s international footprint.

A world leader in online classifieds, eBay Classifieds is designed to help people list their products and services, generally for free, find what they are looking for in their local communities and trade at a local level. eBay Classifieds Group’s brands offer both horizontal and vertical experiences, such as motors, real estate and jobs. We offer a personalized classifieds experience and focus on expanding our value proposition by leveraging data and analytics to improve customer relevance and grow the classifieds opportunity on mobile.

Business model and pricing

On our eBay and StubHub platforms, our business model and pricing are designed so that our business is successful primarily when our sellers are successful. We make money primarily through fees collected on successfully closed sales. On our Classifieds platform, we monetize our business primarily through advertising.

The size and scale of our platforms are designed to enable our buyers and sellers to leverage our economies of scale and capital investments, such as in sales and marketing, mobile, customer acquisition and customer service.

Our offerings for buyers and sellers

We provide a number of features for our buyers and sellers that are designed to build trust, help users feel more comfortable buying and selling on our platforms and reward our top sellers for their loyalty.

For our buyers we offer:
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Breadth of inventory and spectrum of value
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Multiple delivery options through eBay Guaranteed Delivery
•
eBay’s 110% Best Price Guarantee across select products in the United States
•
Under $10 offerings
•
Confidence in purchasing products through Money Back Guarantee and eBay Authenticate


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We believe that, through our sellers, eBay offers some of the best value and deals available for a number of consumer products. The majority of our transactions on the eBay Marketplace in the U.S., the U.K. and Germany include free shipping, and we encourage sellers to offer free returns. Through eBay Guaranteed Delivery, we provide faster and more precise delivery dates on more than 100 million eligible items. In 2018, we introduced Best Price Guarantee, which offers shoppers in the United States 110 percent of the price difference if they find an item for less on a competitor’s website, replacing our former Price Match Guarantee offering. In 2018, we also launched a new shopping destination called Under $10, which features millions of new items in more than a hundred categories, all priced for $10 or under with free shipping, no bidding required.

In order to further strengthen our buyers’ confidence and trust in our services, in late 2017, we unveiled eBay Authenticate, in which sellers can have their high-end handbags authenticated by eBay. In 2018, we expanded the service to apply to luxury watches and jewelry. Through the service, thousands of watches and handbags from sought-after brands are marked with an “Authenticity Verified” label. The program has also expanded beyond the United States into several European markets, including the United Kingdom and Germany. Another feature intended to secure our customers’ confidence is eBay Money Back Guarantee, which allows buyers to get their money back if the item they ordered does not arrive, is faulty or damaged, or if it does not match the listing. eBay Money Back Guarantee covers most items purchased on the eBay platform in a number of countries, including the U.S., the U.K., Germany and Australia, through a qualifying payment method. Some purchases, including some vehicles, are not covered.

We continue to explore new tools and features that are intended to create a better buying experience on eBay. We launched Interests in 2018, allowing users to personalize their shopping experience. To assist consumers looking to buy automotive parts on eBay, we launched our Shop by Diagram feature, which lets shoppers use interactive schematics to determine which parts are necessary for their vehicles and then makes the items they need available for purchase. We also enhanced our My Garage experience last year, allowing buyers to shop a personalized “virtual garage” of parts and accessories tailored specifically to their vehicles.

For our sellers we offer:
•
Choice to list products and services through fixed price listings or an auction-style format on our platforms.
•
Ability to list items that are new, refurbished and used, and common and rare on our Marketplace platforms.
•
Offerings that improve the visibility of item listings so that items have a better chance of standing out and selling faster, such as Promoted Listings.
•
Fee discounts and improved search standing for qualifying listings through eBay’s Top Rated Seller program.
•
Insights about optimal listing and pricing approaches through our Seller Hub portal.

At eBay, we only win when our sellers succeed. We partner with them but do not compete, investing in the tools and technologies they can leverage to grow and thrive. For example, eBay’s Top Rated Seller program rewards qualifying sellers with fee discounts and improved search standing for qualifying listings if they are able to maintain excellent customer service ratings and meet specified criteria for shipping and returns. We believe that sellers who fulfill these standards help promote our goal of maintaining an online marketplace that is safe and hassle-free. In 2018, we also added analytics tools and merchandising tools to our Seller Hub portal for sellers that are designed to make selling on eBay even easier so that sellers know what to sell, when to sell it and at what price. eBay regularly evaluates pricing relative to alternatives in the market in order to remain competitive, and we continue to invest in more tools and new programs intended to help grow the overall seller ecosystem.

Our Impact and Responsibility

eBay is committed to creating economic opportunity for all. We work to generate this opportunity through a variety of means, both on our platform and in our communities around the world.

For more than two decades, we have worked to create a dynamic online marketplace that is inclusive and fair, fosters global trade and empowers entrepreneurship. By connecting buyers and sellers around the world, we are creating tools designed to enable them to extend the reach of their businesses far beyond their local markets, enriching their lives, livelihoods and communities in the process.

We embrace the potential of eCommerce to level the playing field and fuel sustainable growth for all businesses, regardless of their size or location. We also embrace our responsibility to help businesses access the technology and tools they need to sell online and effectively compete in this ever-changing economy. This is the driving motivation behind Retail Revival, which launched in early 2018, where we partner with select cities to bring their local brick-and-mortar businesses online, providing access to new customers around the world. Participating businesses receive in-

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depth training, dedicated coaching and promotional support designed to enable their successful expansion into the digital marketplace. To date we have partnered with Akron, Ohio, and Lansing, Michigan, in the United States and Wolverhampton in the United Kingdom. We plan to launch 2to 3 new cities during 2019 to further scale this initiative.

We also enable eBay users to support over 60,000 nonprofit organizations in the U.S. and internationally through our eBay for Charity platform. Since its inception approximately 17 years ago, eBay for Charity has helped raise nearly $912 million for nonprofits. Our goal is to increase this number to $1.0 billion by 2020.

Finally, we strive to operate in an environmentally and socially sustainable way. For example, eBay is working to protect the world’s most endangered and threatened species from illegal trade. We are proud to be a founding member of the Global Coalition to End Wildlife Trafficking Online, which aims to reduce illegal trafficking online by 80 percent by 2020. To reduce our company’s environmental impact, we are focused on moving to 100 percent renewable energy in our electricity supply at eBay data centers and offices by 2025. This initiative is designed to not only substantially cut the energy consumption at our data centers, but also reduce the environmental impact of transactions on eBay.

Financial Information

We measure our footprint in our addressable market according to Gross Merchandise Volume (“GMV”). GMV consists of the total value of all successfully closed transactions between users on our Marketplace or StubHub platforms during the applicable period, regardless of whether the buyer and seller actually consummated the transaction. In 2018, we generated $95 billion in GMV, of which approximately 60 percent was generated outside the U.S.

At the end of 2018, our Marketplace and StubHub platforms had more than 179 million active buyers and over one billion live listings globally. The term “active buyer” means, as of any date, all buyers who successfully closed a transaction on our Marketplace or StubHub platforms within the previous 12-month period. Buyers may register more than once and, as a result, may have more than one account.

We generate revenue primarily from the transactions we successfully enable and through marketing services, including classifieds and advertising. The majority of our revenue comes from a take rate on the GMV of transactions closed on our Marketplace and StubHub platforms. We define “take rate” as net transaction revenues divided by GMV.

Notable Business Transactions in 2018

We regularly review and manage our investments to ensure that they support eBay’s strategic direction and complement our disciplined approach to value creation, profitability and capital allocation. In the second quarter of 2018, we completed the acquisition of Giosis Pte. Ltd.’s (“Giosis”) Japan business, including the Qoo10.jp platform, in exchange for $306 million in cash and the relinquishment of our existing equity method investment in Giosis, which allows us to offer Japanese consumers access to more inventory and grows our international presence. In the third quarter of 2018, we sold our equity investment in Flipkart, for cash proceeds of approximately $1.0 billion. In the fourth quarter of 2018, we announced our intention to acquire the U.K.-based classifieds site, Motors.co.uk. We believe the acquisition will increase our international presence and give buyers access to more listings. We expect to close this transaction in the first half of 2019, subject to customary closing conditions and regulatory approvals.

Competition

We encounter vigorous competition in our business from numerous sources. Our users can list, buy, sell and pay for similar items through a variety of competing online, mobile and offline channels. These include, but are not limited to, retailers, distributors, liquidators, import and export companies, auctioneers, catalog and mail-order companies, classifieds, directories, search engines, commerce participants (consumer-to-consumer, business-to-consumer and business-to-business), shopping channels and networks. As our product offerings continue to broaden into new categories of items and new commerce formats, we expect to face additional competition from other online, mobile and offline channels for those new offerings. We compete on the basis of price, product selection and services.

For more information regarding risks of competition, see the information in “Item 1A: Risk Factors” under the captions “Substantial and increasingly intense competition worldwide in ecommerce may harm our business” and “We are subject to regulatory activity and antitrust litigation under competition laws.”


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To compete effectively, we will need to continue to expend significant resources in technology and marketing. These efforts require substantial expenditures, which could reduce our margins and have a material adverse effect on our business, financial position, operating results and cash flows and reduce the market price of our common stock and outstanding debt securities. Despite our efforts to preserve and expand the size, diversity and transaction activity of our buyers and sellers and to enhance the user experience, we may not be able to effectively manage our operating expenses, to increase or maintain our revenue or to avoid a decline in our consolidated net income or a net loss.

Government Regulation

Government regulation impacts key aspects of our business. In particular, we are subject to laws and regulations that affect the ecommerce industry in many countries where we operate. For more information regarding regulatory risks, see the information in “Item 1A: Risk Factors” under the caption “Our business is subject to extensive government regulation and oversight.”

Seasonality

We expect transaction activity patterns on our platforms to mirror general consumer buying patterns. Please see the additional information in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Seasonality.”

Technology

eBay Inc.’s platforms use a combination of proprietary technologies and services as well as technologies and services provided by others. We have developed intuitive user interfaces, buyer and seller tools and transaction processing, database and network applications that help enable our users to reliably and securely complete transactions on our sites. Our technology infrastructure simplifies the storage and processing of large amounts of data, eases the deployment and operation of large-scale global products and services and automates much of the administration of large-scale clusters of computers. Our infrastructure has been designed around industry-standard architectures to reduce downtime in the event of outages or catastrophic occurrences.

For information regarding technology-related risks, see the information in “Item 1A: Risk Factors” under the caption “Systems failures or cyberattacks and resulting interruptions in the availability of or degradation in the performance of our websites, applications, products or services could harm our business.”

In support of our ongoing commitment to innovation and a better customer experience, we have been on a multi-year evolution to modernize our marketplace. Our aim is to create a fully relevant and personalized shopping experience, built on a foundation of structured data and leveraging advanced technologies like artificial intelligence and computer vision. Our goal is to make every product image on the Internet shoppable, with features such as Image Search, Find It On eBay, and our drag-and-drop search capabilities.

To ensure that the technology supporting these features and capabilities is as efficient, scalable, and secure as possible, we are also undergoing an ambitious three-year effort to re-platform our backend infrastructure. As part of that effort, in 2018, we announced that we are developing our own custom-designed servers, built by eBay, for eBay.

Intellectual Property

We regard the protection of our intellectual property, including our trademarks (particularly those covering the eBay name), patents, copyrights, domain names, trade dress and trade secrets as critical to our success. We aggressively protect our intellectual property rights by relying on federal, state and common law rights in the U.S. and internationally, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights in products and services. We routinely enter into confidentiality and invention assignment agreements with our employees and contractors and nondisclosure agreements with parties with whom we conduct business to limit access to and disclosure of our proprietary information.

We pursue the registration of our domain names, trademarks and service marks in the U.S. and internationally. Additionally, we have filed U.S. and international patent applications covering certain aspects of our proprietary technology. Effective trademark, copyright, patent, domain name, trade dress and trade secret protection is typically expensive to maintain and may require litigation. We must protect our intellectual property rights and other proprietary

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rights in an increasing number of jurisdictions, a process that is expensive and time consuming and may not be successful.

We have registered our core brands as trademarks and domain names in the U.S. and a large number of other jurisdictions and have in place an active program to continue to secure trademarks and domain names that correspond to our brands in markets of interest. If we are unable to register or protect our trademarks or domain names, we could be adversely affected in any jurisdiction in which our trademarks or domain names are not registered or protected. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to others.

From time to time, third parties have claimed - and others will likely claim in the future - that we have infringed their intellectual property rights. We are typically involved in a number of such legal proceedings at any time. Please see the information in “Item 3: Legal Proceedings” and in “Item 1A: Risk Factors” under the captions “We are subject to patent litigation,” “The listing or sale by our users of items that allegedly infringe the intellectual property rights of rights owners, including pirated or counterfeit items, may harm our business,” and “We may be unable to adequately protect or enforce our intellectual property rights, or third parties may allege that we are infringing their intellectual property rights.”

Employees

As of December 31, 2018, we employed approximately 14,000 people globally. Approximately 7,100 of our employees were located in the U.S.

Available Information

Our Internet address is www.ebay.com. Our investor relations website is located at investors.ebayinc.com. We make available free of charge on our investor relations website under the heading “Financial Information - SEC Filings” our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with (or furnished to) the SEC.

We webcast our earnings calls and certain events we participate in or host with members of the investment community on our investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings, investor events, press and earnings releases, and blogs on our investor relations website. Further corporate governance information, including our governance guidelines for our Board of Directors (“Board”), board committee charters and code of conduct, is also available on our investor relations website under the heading “Corporate Governance.”

The contents of our websites and webcasts and information hat can be accessed through our websites and webcasts are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with (or furnish to) the SEC, and any references to our websites and webcasts are intended to be inactive textual references only.

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Item 1A: RISK FACTORS

You should carefully review the following discussion of the risks that may affect our business, results of operations and financial condition, as well as our consolidated financial statements and notes thereto and the other information appearing in this report, for important information regarding risks that affect us.

Risk Factors That May Affect our Business, Results of Operations and Financial Condition

Our operating and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations and cash flows, as well as the trading price of our common stock and debt securities.

Our operating and financial results have varied on a quarterly basis during our operating history and may continue to fluctuate significantly as a result of a variety of factors, including as a result of the risks set forth in this “Risk Factors” section. It is difficult for us to forecast the level or source of our revenues or earnings (loss) accurately. In view of the rapidly evolving nature of our business, period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of future performance. We do not have backlog, and substantially all of our net revenues each quarter come from transactions involving sales during that quarter. Due to the inherent difficulty in forecasting revenues, it is also difficult to forecast expenses as a percentage of net revenues. Quarterly and annual expenses as a percentage of net revenues reflected in our consolidated financial statements may be significantly different from historical or projected rates. Our operating results in one or more future quarters may fall below the expectations of securities analysts and investors. The trading price of our common stock and debt securities could decline, perhaps substantially, as a result of the factors described in this paragraph.

Substantial and increasingly intense competition worldwide in ecommerce may harm our business.

The businesses and markets in which we operate are intensely competitive. We currently and potentially compete with a wide variety of online and offline companies providing goods and services to consumers and merchants. The Internet and mobile networks provide new, rapidly evolving and intensely competitive channels for the sale of all types of goods and services. We compete in two-sided markets, and must attract both buyers and sellers to use our platforms. Consumers who purchase or sell goods and services through us have more and more alternatives, and merchants have more channels to reach consumers. We expect competition to continue to intensify. Online and offline businesses increasingly are competing with each other and our competitors include a number of online and offline retailers with significant resources, large user communities and well-established brands. Moreover, the barriers to entry into these channels can be low, and businesses easily can launch online sites or mobile platforms and applications at nominal cost by using commercially available software or partnering with any of a number of successful ecommerce companies. As we respond to changes in the competitive environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that may be controversial with and lead to dissatisfaction among sellers, which could reduce activity on our platform and harm our profitability.

We face increased competitive pressure online and offline. In particular, the competitive norm for, and the expected level of service from, ecommerce and mobile commerce has significantly increased, due to, among other factors, improved user experience, greater ease of buying goods, lower (or no) shipping costs, faster shipping times and more favorable return policies. In addition, certain platform businesses, such as Alibaba, Amazon, Apple, Facebook and Google, many of whom are larger than us or have greater capitalization, have a dominant and secure position in other industries or certain significant markets, and offer other goods and services to consumers and merchants that we do not offer. If we are unable to change our products, offerings and services in ways that reflect the changing demands of ecommerce and mobile commerce marketplaces, particularly the higher growth of sales of fixed-price items and higher expected service levels (some of which depend on services provided by sellers on our platforms), or compete effectively with and adapt to changes in larger platform businesses, our business will suffer.

Competitors with other revenue sources may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote more resources to website, mobile platforms and applications and systems development than we can. Other competitors may offer or continue to offer faster and/or free shipping, delivery on Sunday, same-day delivery, favorable return policies or other transaction-related services which improve the user experience on their sites and which could be impractical or inefficient for our sellers to match. Competitors may be able to innovate faster and more efficiently, and new technologies may increase the competitive pressures by enabling competitors to offer more efficient or lower-cost services.

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Some of our competitors control other products and services that are important to our success, including credit card interchange, Internet search, and mobile operating systems. Such competitors could manipulate pricing, availability, terms or operation of service related to their products and services in a manner that impacts our competitive offerings. For example, Google, which operates a shopping platform service, has from time to time made changes to its search algorithms that reduced the amount of search traffic directed to us from searches on Google. If we are unable to use or adapt to operational changes in such services, we may face higher costs for such services, face integration or technological barriers or lose customers, which could cause our business to suffer.

Consumers who might use our sites to buy goods have a wide variety of alternatives, including traditional department, warehouse, boutique, discount and general merchandise stores (as well as the online and mobile operations of these traditional retailers), online retailers and their related mobile offerings, online and offline classified services and other shopping channels, such as offline and online home shopping networks. In the United States, these include Amazon.com, Facebook, Google, Wal-Mart, Target, Macy’s, JC Penney, Costco, Office Depot, Staples, OfficeMax, Sam’s Club, Rakuten, MSN, QVC and Home Shopping Network, among others. In addition, consumers have a large number of online and offline channels focused on one or more of the categories of products offered on our site.

Consumers also can turn to many companies that offer a variety of services that provide other channels for buyers to find and buy items from sellers of all sizes, including social media, online aggregation and classifieds platforms, such as craigslist, Oodle.com and a number of international websites operated by Schibsted ASA or Naspers Limited. Consumers also can turn to shopping-comparison sites, such as Google Shopping. In certain markets, our fixed-price listing and traditional auction-style listing formats increasingly are being challenged by other formats, such as classifieds.

Our Classifieds platforms offer classifieds listings in a variety of international markets. In many markets in which they operate, our Classifieds platforms compete for customers and for advertisers against more established online and offline classifieds platforms or other competing websites.

We use product search engines and paid search advertising to help users find our sites, but these services also have the potential to divert users to other online shopping destinations. Consumers may choose to search for products and services with a horizontal search engine or shopping comparison website, and such sites may also send users to other shopping destinations. In addition, 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 Google, Naver and Baidu.

Consumers and merchants who might use our sites to sell goods also have many alternatives, including general ecommerce sites, such as Amazon, Alibaba and 11Street, and more specialized sites, such as Etsy. Our international sites also compete for sellers with general and specialized ecommerce sites. Sellers may also choose to sell their goods through other channels, such as classifieds platforms. Consumers and merchants also can create and sell through their own sites, and may choose to purchase online advertising instead of using our services. In some countries, there are online sites that have larger customer bases and greater brand recognition, as well as competitors that may have a better understanding of local culture and commerce. We increasingly may compete with local competitors in developing countries that have unique advantages, such as a greater ability to operate under local regulatory authorities.

In addition, certain manufacturers may limit or cease distribution of their products through online channels, such as our sites. Manufacturers may attempt to use contractual obligations or existing or future government regulation to prohibit or limit ecommerce in certain categories of goods or services. Manufacturers may also attempt to enforce minimum resale price maintenance or minimum advertised price arrangements to prevent distributors from selling on our platforms or on the Internet generally, or at prices that would make us less attractive relative to other alternatives. The adoption by manufacturers of policies, or their use of laws or regulations, in each case discouraging or restricting the sales of goods or services over the Internet, could force our users to stop selling certain products on our platforms, which could result in reduced operating margins, loss of market share and diminished value of our brands.


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The principal competitive factors for us include the following:
    
•
ability to attract, retain and engage buyers and sellers;
•
volume of transactions and price and selection of goods;
•
trust in the seller and the transaction;
•
customer service;
•
brand recognition;    
•
community cohesion, interaction and size;
•
website, mobile platform and application ease-of-use and accessibility;
•
system reliability and security;
•
reliability of delivery and payment, including customer preference for fast delivery and free shipping and returns;
•
level of service fees; and
•
quality of search tools.

We may be unable to compete successfully against current and future competitors. Some current and potential competitors have longer operating histories, larger customer bases and greater brand recognition in other business and Internet sectors than we do.

Global and regional economic conditions could harm our business.

Our operations and performance depend significantly on global and regional economic conditions. Adverse economic conditions and events (including volatility or distress in the equity and/or debt or credit markets) have in the past negatively impacted regional and global financial markets and will likely continue to do so from time to time in the future. These events and conditions, including uncertainties and instability in economic and market conditions caused by the United Kingdom’s vote to exit the European Union and any outcomes resulting from that vote, could have a negative and adverse impact on companies and customers with which we do business or cause us to write down our assets or investments. In addition, financial turmoil affecting the banking system or financial markets could cause additional consolidation of the financial services industry, or significant financial service institution failures, new or incremental tightening in the credit markets, low liquidity, and extreme volatility in fixed income, credit, currency, and equity markets. Adverse impacts to the companies and customers with which we do business, the banking system, or financial markets could have a material adverse effect on our business, including a reduction in the volume and prices of transactions on our commerce platforms.

We are exposed to fluctuations in foreign currency exchange rates.

Because we generate the majority of our revenues outside the United States but report our financial results in U.S. dollars, our financial results are impacted by fluctuations in foreign currency exchange rates, or foreign exchange rates. The results of operations of many of our internationally focused platforms are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiaries are translated from the local currency into U.S. dollars for financial reporting purposes. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated revenues or expenses will result in increased U.S. dollar denominated revenues and expenses. Similarly, if the U.S. dollar strengthens against foreign currencies, particularly the euro, British pound, Korean won or Australian dollar, our translation of foreign currency denominated revenues or expenses will result in lower U.S. dollar denominated net revenues and expenses. In addition to this translation effect, a strengthening U.S. dollar will typically adversely affect the volume of goods being sold by U.S. sellers to Europe and Australia more than it positively affects the volume of goods being sold by sellers in those geographies to buyers in the United States, thereby further negatively impacting our financial results.

While from time to time we enter into transactions to hedge portions of our foreign currency translation exposure, it is impossible to predict or eliminate the effects of this exposure. Fluctuations in foreign exchange rates could significantly impact our financial results, which may have a significant impact on the trading price of our common stock and debt securities.


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Our international operations are subject to increased risks, which could harm our business.

Our international businesses, especially in the United Kingdom, Germany, Australia and Korea, and cross-border business from greater China, have generated a majority of our net revenues in recent years. In addition to uncertainty about our ability to generate revenues from our foreign operations and expand into international markets, there are risks inherent in doing business internationally, including:

•
uncertainties and instability in economic and market conditions caused by the United Kingdom’s vote to exit the European Union and any outcomes resulting from that vote;
•
uncertainty regarding how the United Kingdom’s access to the European Union Single Market and the wider trading, legal, regulatory and labor environments, especially in the United Kingdom and European Union, will be impacted by the United Kingdom’s vote to exit the European Union and any outcomes resulting from that vote, including the resulting impact on our business and that of our clients;
•
expenses associated with localizing our products and services and customer data, including offering customers the ability to transact business in the local currency and adapting our products and services to local preferences (e.g., payment methods) with which we may have limited or no experience;
•
trade barriers and changes in trade regulations;
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difficulties in developing, staffing, and simultaneously managing a large number of varying foreign operations as a result of distance, language, and cultural differences;
•
stringent local labor laws and regulations;
•
credit risk and higher levels of payment fraud;
•
profit repatriation restrictions, foreign currency exchange restrictions or extreme fluctuations in foreign currency exchange rates for a particular currency;
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political or social unrest, economic instability, repression, or human rights issues;
•
geopolitical events, including natural disasters, public health issues, acts of war, and terrorism;
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import or export regulations;
•
compliance with U.S. laws such as the Foreign Corrupt Practices Act, and foreign laws prohibiting corrupt payments to government officials, as well as U.S. and foreign laws designed to combat money laundering and the financing of terrorist activities;
•
antitrust and competition regulations;
•
potentially adverse tax developments and consequences;
•
economic uncertainties relating to sovereign and other debt;
•
different, uncertain, or more stringent user protection, data protection, privacy, and other laws;
•
risks related to other government regulation or required compliance with local laws;
•
national or regional differences in macroeconomic growth rates;
•
local licensing and reporting obligations; and
•
increased difficulties in collecting accounts receivable.
 
Violations of the complex foreign and U.S. laws and regulations that apply to our international operations may result in fines, criminal actions, or sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have implemented policies and procedures designed to promote compliance with these laws, there can be no assurance that our employees, contractors, or agents will not violate our policies. These risks inherent in our international operations and expansion increase our costs of doing business internationally and could harm our business.

Any factors that reduce cross-border trade or make such trade more difficult could harm our business.

Cross-border trade is an important source of both revenue and profits for us. Cross-border trade also represents our primary (or in some cases, only) presence in certain important markets, such as Brazil/Latin America, China, and various other countries. In addition, our cross-border trade is also subject to, and may be impacted by, foreign exchange rate fluctuations.

The interpretation and application of specific national or regional laws, such as those related to intellectual property rights of authentic products, selective distribution networks, and sellers in other countries listing items on the Internet, and the potential interpretation and application of laws of multiple jurisdictions (e.g., the jurisdiction of the buyer, the seller, and/or the location of the item being sold) are often extremely complicated in the context of cross-border trade. The interpretation and/or application of such laws could impose restrictions on, or increase the costs of, purchasing, selling, shipping, or returning goods across national borders.

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The shipping of goods across national borders is often more expensive and complicated than domestic shipping. Customs and duty procedures and reviews, including duty-free thresholds in various key markets, the interaction of national postal systems, and security related governmental processes at international borders, may increase costs, discourage cross-border purchases, delay transit and create shipping uncertainties. Any factors that increase the costs of cross-border trade or restrict, delay, or make cross-border trade more difficult or impractical would lower our revenues and profits and could harm our business.

Our business may be adversely affected by geopolitical events, natural disasters, seasonal factors and other factors that cause our users to spend less time on our websites or mobile platforms and applications, including increased usage of other websites.

Our users may spend less time on our websites and our applications for mobile devices as a result of a variety of diversions, including: geopolitical events, such as war, the threat of war, or terrorist activity; natural disasters; power shortages or outages, major public health issues, including pandemics; social networking or other entertainment websites or mobile applications; significant local, national or global events capturing the attention of a large part of the population; and seasonal fluctuations due to a variety of factors. If any of these, or any other factors, divert our users from using of our websites or mobile applications, our business could be materially adversely affected.

Our success depends to a large degree on our ability to successfully address the rapidly evolving market for transactions on mobile devices.

Mobile devices are increasingly used for ecommerce transactions. A significant and growing portion of our users access our platforms through mobile devices. We may lose users if we are not able to continue to meet our users’ mobile and multi-screen experience expectations. The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment. In addition, a number of other companies with significant resources and a number of innovative startups have introduced products and services focusing on mobile markets.

Our ability to successfully address the challenges posed by the rapidly evolving market for mobile transactions is crucial to our continued success, and any failure to continuously increase the volume of mobile transactions effected through our platforms could harm our business.

If we cannot keep pace with rapid technological developments or continue to innovate and create new initiatives to provide new programs, products and services, the use of our products and our revenues could decline.

Rapid, significant technological changes continue to confront the industries in which we operate and we cannot predict the effect of technological changes on our business. We also continuously strive to create new initiatives and innovations that offer growth opportunities, such as our new payments and advertising offerings. In addition to our own initiatives and innovations, we rely in part on third parties, including some of our competitors, for the development of and access to new technologies. We expect that new services and technologies applicable to the industries in which we operate will continue to emerge. These new services and technologies may be superior to, or render obsolete, the technologies we currently use in our products and services. Incorporating new technologies into our products and services may require substantial expenditures and take considerable time, and ultimately may not be successful. In addition, our ability to adopt new services and develop new technologies may be inhibited by industry-wide standards, new laws and regulations, resistance to change from our users, clients or merchants, or third parties’ intellectual property rights. Our success will depend on our ability to develop new technologies and adapt to technological changes and evolving industry standards.

Our business is subject to extensive government regulation and oversight.

We are subject to laws and regulations affecting our domestic and international operations in a number of areas, including consumer protection, data privacy requirements, intellectual property ownership and infringement, prohibited items and stolen goods, resale of event tickets, tax, anti-competition, export requirements, anti-corruption, labor, advertising, digital content, real estate, billing, ecommerce, promotions, quality of services, telecommunications, mobile communications and media, environmental, and health and safety regulations, as well as laws and regulations intended to combat money laundering and the financing of terrorist activities. In addition, we are, or may become, subject to further regulation in some of the above-mentioned areas or new areas as a result of our new payments capabilities.

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Compliance with these laws, regulations, and similar requirements may be onerous and expensive, and variances and inconsistencies from jurisdiction to jurisdiction may further increase the cost of compliance and doing business. Any such costs, which may rise in the future as a result of changes in these laws and regulations or in their interpretation, could individually or in the aggregate make our products and services less attractive to our customers, delay the introduction of new products or services in one or more regions, or cause us to change or limit our business practices. We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations or our policies and procedures.  

Regulation in the areas of privacy and protection of user data could harm our business.

We are subject to laws relating to the collection, use, retention, security, and transfer of personally identifiable information about our users around the world. Much of the personal information that we collect, especially financial information, is regulated by multiple laws. User data protection laws may be interpreted and applied inconsistently from country to country. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between or among ourselves, our subsidiaries, and other parties with which we have commercial relations. These laws continue to develop in ways we cannot predict and that may harm our business.

Regulatory scrutiny of privacy, user data protection, use of data and data collection is increasing on a global basis. We are subject to a number of privacy and similar laws and regulations in the countries in which we operate and these laws and regulations will likely continue to evolve over time, both through regulatory and legislative action and judicial decisions. For example, the General Data Protection Regulation (“GDPR”) was approved by the European Union Parliament in April 2016 and became effective in May 2018. The GDPR was designed to harmonize and enhance data privacy laws across Europe. Some of these laws impose requirements that are inconsistent with one another, yet regulators may claim that both apply. Complying with these varying national requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business and violations of privacy-related laws can result in significant penalties. In addition, compliance with these laws may restrict our ability to provide services to our customers that they may find to be valuable. A determination that there have been violations of laws relating to our practices under communications-based laws could expose us to significant damage awards, fines and other penalties that could, individually or in the aggregate, materially harm our business. In particular, because of the enormous number of texts, emails and other communications we send to our users, communications laws that provide a specified monetary damage award or fine for each violation (such as those described below) could result in particularly large awards or fines.

For example, the Federal Communications Commission amended certain of its regulations under the Telephone Consumer Protection Act, or TCPA, in 2012 and 2013 in a manner that could increase our exposure to liability for certain types of telephonic communication with customers, including but not limited to text messages to mobile phones. Under the TCPA, plaintiffs may seek actual monetary loss or statutory damages of $500 per violation, whichever is greater, and courts may treble the damage award for willful or knowing violations. We are regularly subject to class-action lawsuits, as well as individual lawsuits, containing allegations that our businesses violated the TCPA. These lawsuits, and other private lawsuits not currently alleged as class actions, seek damages (including statutory damages) and injunctive relief, among other remedies. Given the enormous number of communications we send to our users, a determination that there have been violations of the TCPA or other communications-based statutes could expose us to significant damage awards that could, individually or in the aggregate, materially harm our business.

We post on our websites our privacy policies and practices concerning the collection, use and disclosure of user data. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other federal, state or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others (e.g., class action privacy litigation), subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and adversely affect our business. Data collection, privacy and security have become the subject of increasing public concern. If Internet and mobile users were to reduce their use of our websites, mobile platforms, products, and services as a result of these concerns, our business could be harmed. As noted above, we are also subject to the possibility of security breaches, which themselves may result in a violation of these laws.


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Other laws and regulations could harm our business.

It is not always clear how laws and regulations governing matters relevant to our business, such as property ownership, copyrights, trademarks, and other intellectual property issues, parallel imports and distribution controls, taxation, libel and defamation, and obscenity apply to our businesses. Many of these laws were adopted prior to the advent of the Internet, mobile, and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Many of these laws, including some of those that do reference the Internet are subject to interpretation by the courts on an ongoing basis and the resulting uncertainty in the scope and application of these laws and regulations increases the risk that we will be subject to private claims and governmental actions alleging violations of those laws and regulations.

As our activities, the products and services we offer, and our geographical scope continue to expand, regulatory agencies or courts may claim or hold that we or our users are subject to additional requirements (including licensure) or prohibited from conducting our business in their jurisdiction, either generally or with respect to certain actions. Financial and political events have increased the level of regulatory scrutiny on large companies, and regulatory agencies may view matters or interpret laws and regulations differently than they have in the past and in a manner adverse to our businesses. Our success and increased visibility have driven some existing businesses that perceive us to be a threat to their businesses to raise concerns about our business models to policymakers and regulators. These businesses and their trade association groups employ significant resources in their efforts to shape the legal and regulatory regimes in countries where we have significant operations. They may employ these resources in an effort to change the legal and regulatory regimes in ways intended to reduce the effectiveness of our businesses and the ability of users to use our products and services. 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 the liability of the provider of an Internet marketplace for the conduct of its users related to those and other issues. Any changes to the legal or regulatory regimes in a manner that would increase our liability for third-party listings could negatively impact our business.

Numerous U.S. states and foreign jurisdictions, including the State of California, have regulations regarding “auctions” and the handling of property by “secondhand dealers” or “pawnbrokers.” Several states and some foreign jurisdictions have attempted to impose such regulations upon us or our users, and others may attempt to do so in the future. Attempted enforcement of these laws against some of our users appears to be increasing and we could be required to change the way we or our users do business in ways that increase costs or reduce revenues, such as forcing us to prohibit listings of certain items or restrict certain listing formats in some locations. We could also be subject to fines or other penalties, and any of these outcomes could harm our business.

A number of the lawsuits against us relating to trademark issues seek to have our platforms subject to unfavorable local laws. For example, “trademark exhaustion” principles provide trademark owners with certain rights to control the sale of a branded authentic product until it has been placed on the market by the trademark holder or with the holder’s consent. The application of “trademark exhaustion” principles is largely unsettled in the context of the Internet, and if trademark owners are able to force us to prohibit listings of certain items in one or more locations, our business could be harmed.

As we expand and localize our international activities, we are increasingly becoming obligated to comply with the laws of the countries or markets in which we operate. In addition, because our services are accessible worldwide and we facilitate sales of goods and provide services to users worldwide, one or more jurisdictions may claim that we or our users are required to comply with their laws based on the location of our servers or one or more of our users, or the location of the product or service being sold or provided in an ecommerce transaction. For example, we were found liable in France, under French law, for transactions on some of our websites worldwide that did not involve French buyers or sellers. Laws regulating Internet, mobile and ecommerce technologies outside of the United States are generally less favorable to us than those in the United States. Compliance may be more costly or may require us to change our business practices or restrict our service offerings, and the imposition of any regulations on us or our users may harm our business. In addition, we may be subject to multiple overlapping legal or regulatory regimes that impose conflicting requirements on us (e.g., in cross-border trade). Our alleged failure to comply with foreign laws could subject us to penalties ranging from criminal prosecution to significant fines to bans on our services, in addition to the significant costs we may incur in defending against such actions.


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We are regularly subject to general litigation, regulatory disputes, and government inquiries.

We are regularly subject to claims, lawsuits (including class actions and individual lawsuits), government investigations, and other proceedings involving competition and antitrust, intellectual property, privacy, consumer protection, accessibility claims, securities, tax, labor and employment, commercial disputes, content generated by our users, services and other matters. The number and significance of these disputes and inquiries have increased as our company has grown larger, our businesses have expanded in scope and geographic reach, and our products and services have increased in complexity.

The outcome and impact of such claims, lawsuits, government investigations, and proceedings cannot be predicted with certainty. Regardless of the outcome, such investigations and proceedings can have an adverse impact on us because of legal costs, diversion of management resources, and other factors. Determining reserves for our pending litigation is a complex, fact-intensive process that is subject to judgment calls. It is possible that a resolution of one or more such proceedings could require us to make substantial payments to satisfy judgments, fines or penalties or to settle claims or proceedings, any of which could harm our business. These proceedings could also result in reputational harm, criminal sanctions, consent decrees, or orders preventing us from offering certain products, or services, or requiring a change in our business practices in costly ways, or requiring development of non-infringing or otherwise altered products or technologies. Any of these consequences could harm our business.

We are subject to regulatory activity and antitrust litigation under competition laws.

We are subject to scrutiny by various government agencies under U.S. and foreign laws and regulations, including competition laws. Some jurisdictions also provide private rights of action for competitors or consumers to assert claims of anti-competitive conduct. Other companies and government agencies have in the past and may in the future allege that our actions violate the antitrust or competition laws of the United States, individual states, the European Commission or other countries, or otherwise constitute unfair competition. An increasing number of governments are regulating competition law activities, including increased scrutiny in large markets such as China. Our business partnerships or agreements or arrangements with customers or other companies could give rise to regulatory action or antitrust litigation. Some regulators, particularly those outside of the United States, may perceive our business to be used so broadly that otherwise uncontroversial business practices could be deemed anticompetitive. Certain competition authorities have conducted market studies of our industries. Such claims and investigations, even if without foundation, may be very expensive to defend, involve negative publicity and substantial diversion of management time and effort and could result in significant judgments against us or require us to change our business practices.

We are subject to patent litigation.

We have repeatedly been sued for allegedly infringing other parties’ patents. We are a defendant in a number of patent suits and have been notified of several other potential patent disputes. We expect that we will increasingly be subject to patent infringement claims because, among other reasons:

•
our products and services continue to expand in scope and complexity;
•
we continue to expand into new businesses, including through acquisitions; and
•
the universe of patent owners who may claim that we, any of the companies that we have acquired, or our customers infringe their patents, and the aggregate number of patents controlled by such patent owners, continues to increase.

Such claims may be brought directly against us and/or against our customers whom we may indemnify either because we are contractually obligated to do so or we choose to do so as a business matter. We believe that an increasing number of these claims against us and other technology companies have been, and continue to be, initiated by third parties whose sole or primary business is to assert such claims. In addition, we have seen significant patent disputes between operating companies in some technology industries. Patent claims, whether meritorious or not, are time-consuming and costly to defend and resolve, and could require us to make expensive changes in our methods of doing business, enter into costly royalty or licensing agreements, make substantial payments to satisfy adverse judgments or settle claims or proceedings, or cease conducting certain operations, which would harm our business.


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We are exposed to fluctuations in interest rates.

Some of our borrowings bear interest at floating rates and we have entered into agreements intended to convert the interest rate on some of our fixed rate debt instruments to floating rates. To the extent that prevailing rates increase, our interest expense under these debt instruments will increase.

Investments in both fixed-rate and floating-rate interest-earning instruments carry varying degrees of interest rate risk. The fair market value of our fixed-rate investment securities may be adversely impacted due to a rise in interest rates. In general, fixed-rate securities with longer maturities are subject to greater interest-rate risk than those with shorter maturities. While floating rate securities generally are subject to less interest-rate risk than fixed-rate securities, floating-rate securities may produce less income than expected if interest rates decrease and may also suffer a decline in market value if interest rates increase. Due in part to these factors, our investment income may decline or we may suffer losses in principal if securities are sold that have declined in market value due to changes in interest rates. In addition, relatively low interest rates limit our investment income. Fluctuations in interest rates that increase the cost of our current or future indebtedness, cause the market value of our assets to decline or reduce our investment income could adversely affect our financial results.

Our tickets business is subject to regulatory, competitive and other risks that could harm this business.

Our tickets business, which includes StubHub, is subject to numerous risks, including:

•
Some jurisdictions, in particular jurisdictions outside the United States, prohibit the resale of event tickets (anti-scalping laws) at prices above the face value of the tickets or at all, or highly regulate the resale of tickets, and new laws and regulations or changes to existing laws and regulations imposing these or other restrictions could limit or inhibit our ability to operate, or our users’ ability to continue to use, our tickets business.
•
Regulatory agencies or courts may claim or hold that we are responsible for ensuring that our users comply with these laws and regulations.
•
In many jurisdictions, our tickets business depends on commercial partnerships with event organizers or licensed ticket vendors, which we must develop and maintain on acceptable terms for our tickets business to be successful.
•
Our tickets business is subject to seasonal fluctuations and the general economic and business conditions that impact the sporting events and live entertainment industries.
•
A portion of the tickets inventory sold by sellers on the StubHub platform is processed by StubHub in digital form. Systems failures, security breaches, theft or other disruptions that result in the loss of such sellers’ tickets inventory, could result in significant costs and a loss of consumer confidence in our tickets business.
•
Lawsuits alleging a variety of causes of actions have in the past, and may in the future, be filed against StubHub and eBay by venue owners, competitors, ticket buyers, and unsuccessful ticket buyers. Such lawsuits could result in significant costs and require us to change our business practices in ways that negatively affect our tickets business.
•
Our tickets business also faces significant competition from a number of sources, including ticketing service companies, event organizers, ticket brokers, and online and offline ticket resellers. Some ticketing service companies, event organizers, and professional sports teams have begun to issue event tickets through various forms of electronic ticketing systems that are designed to restrict or prohibit the transferability (and by extension, the resale) of such event tickets either to favor their own resale affiliates or to discourage resale or restrict resale of season tickets to a preferred, designated website. Ticketing service companies have also begun to use market-based pricing strategies or dynamic pricing to charge much higher prices, and impose additional restrictions on transferability, for premium tickets.
•
Some sports teams have threatened to revoke the privileges of season ticket owners if they resell their tickets through a platform that is not affiliated with, or approved by, such sports teams.
•
To the extent that StubHub holds ticket inventory, we may be exposed to losses associated with such inventory.


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The listing or sale by our users of items that allegedly infringe the intellectual property rights of rights owners, including pirated or counterfeit items, may harm our business.

The listing or sale by our users of unlawful, counterfeit or stolen goods or unlawful services, or sale of goods or services in an unlawful manner, has resulted and may continue to result in allegations of civil or criminal liability for unlawful activities against us (including the employees and directors of our various entities) involving activities carried out by users through our services. In a number of circumstances, third parties, including government regulators and law enforcement officials, have alleged that our services aid and abet violations of certain laws, including laws regarding the sale of counterfeit items, laws restricting or prohibiting the transferability (and by extension, the resale) of digital goods (e.g., event tickets, books, music and software), the fencing of stolen goods, selective distribution channel laws, customs laws, distance selling laws, anti-scalping laws with respect to the resale of tickets, and the sale of items outside of the United States that are regulated by U.S. export controls.

In addition, allegations of infringement of intellectual property rights, including but not limited to counterfeit items, have resulted in threatened and actual litigation from time to time by rights owners, including the following luxury brand owners: Tiffany & Co. in the United States; Rolex S.A. and Coty Prestige Lancaster Group GmbH in Germany; Louis Vuitton Malletier and Christian Dior Couture in France; and L’Oréal SA, Lancôme Parfums et Beauté & Cie, and Laboratoire Garnier & Cie in several European countries. Plaintiffs in these and similar suits seek, among other remedies, injunctive relief and damages. Statutory damages for copyright or trademark violations could range up to $150,000 per copyright violation and $2,000,000 per trademark violation in the United States, and may be even higher in other jurisdictions. In the past, we have paid substantial amounts in connection with resolving certain trademark and copyright suits. These and similar suits may also force us to modify our business practices in a manner that increases costs, lowers revenue, makes our websites and mobile platforms less convenient to customers, and requires us to spend substantial resources to take additional protective measures or discontinue certain service offerings in order to combat these practices. In addition, we have received significant media attention relating to the listing or sale of illegal or counterfeit goods, which could damage our reputation, diminish the value of our brand names, and make users reluctant to use our products and services.

We are subject to risks associated with information disseminated through our services.

Online services companies may be subject to claims relating to information disseminated through their services, including claims alleging defamation, libel, breach of contract, invasion of privacy, negligence, copyright or trademark infringement, among other things. The laws relating to the liability of online services companies for information disseminated through their services are subject to frequent challenges both in the United States and foreign jurisdictions. Any liabilities incurred as a result of these matters could require us to incur additional costs and harm our reputation and our business.

Our potential liability to third parties for the user-provided content on our sites, particularly in jurisdictions outside the United States where laws governing Internet transactions are unsettled, may increase. If we become liable for information provided by our users and carried on our service in any jurisdiction in which we operate, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability, including expending substantial resources or discontinuing certain service offerings, which could harm our business.

Changes to our programs to protect buyers and sellers could increase our costs and loss rate.

Our eBay Money Back Guarantee program represents the means by which we compensate users who believe that they have been defrauded, have not received the item that they purchased or have received an item different from what was described. In addition, as we roll out our new payments capabilities, we may be exposed to losses associated with compensating our sellers for fraudulent payments. We expect to continue to receive communications from users requesting reimbursement or threatening or commencing legal action against us if no reimbursement is made. Our liability for these sort of claims is slowly beginning to be clarified in some jurisdictions and may be higher in some non-U.S. jurisdictions than it is in the United States. Litigation involving liability for any such third-party actions could be costly and time consuming for us, divert management attention, result in increased costs of doing business, lead to adverse judgments or settlements or otherwise harm our business. In addition, affected users will likely complain to regulatory agencies that could take action against us, including imposing fines or seeking injunctions.


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We may be unable to adequately protect or enforce our intellectual property rights, or third parties may allege that we are infringing their intellectual property rights.

We believe the protection of our intellectual property, including our trademarks, patents, copyrights, domain names, trade dress, and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations in the United States and internationally, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights when offering or procuring products and services, including confidentiality and invention assignment agreements entered into with our employees and contractors and confidentiality agreements with parties with whom we conduct business.

However, effective intellectual property protection may not be available in every country in which our products and services are made available, and contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademark, copyright, patent, domain name, trade dress and trade secret protection is very expensive to maintain and may require litigation. We must protect our intellectual property rights and other proprietary rights in an increasing number of jurisdictions, a process that is expensive and time consuming and may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to others. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Any failure to adequately protect or enforce our intellectual property rights, or significant costs incurred in doing so, could materially harm our business.

As the number of products in the software industry increases and the functionality of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. Litigation may be necessary to determine the validity and scope of the patent and other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop selling, delay roll-out, or redesign our products, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our customers. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

Failure to deal effectively with fraudulent activities on our platforms would increase our loss rate and harm our business, and could severely diminish merchant and consumer confidence in and use of our services.

We face risks with respect to fraudulent activities on our platforms and periodically receive complaints from buyers and sellers who may not have received the goods that they had contracted to purchase or payment for the goods that a buyer had contracted to purchase. In some European and Asian jurisdictions, buyers may also have the right to withdraw from a sale made by a professional seller within a specified time period. While we can, in some cases, suspend the accounts of users who fail to fulfill their payment or delivery obligations to other users, we do not have the ability to require users to make payment or deliver goods, or otherwise make users whole other than through our buyer protection program, which in the United States we refer to as the eBay Money Back Guarantee, or as we roll out our new payments capabilities, by compensating our sellers for fraudulent payments. Although we have implemented measures to detect and reduce the occurrence of fraudulent activities, combat bad buyer experiences and increase buyer satisfaction, including evaluating sellers on the basis of their transaction history and restricting or suspending their activity, there can be no assurance that these measures will be effective in combating fraudulent transactions or improving overall satisfaction among sellers, buyers, and other participants. Additional measures to address fraud could negatively affect the attractiveness of our services to buyers or sellers, resulting in a reduction in the ability to attract new users or retain current users, damage to our reputation, or a diminution in the value of our brand names.


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We have substantial indebtedness, and we may incur substantial additional indebtedness in the future, and we may not generate sufficient cash flow from our business to service our indebtedness. Failure to comply with the terms of our indebtedness could result in the acceleration of our indebtedness, which could have an adverse effect on our cash flow and liquidity.

We have a substantial amount of outstanding indebtedness and we may incur substantial additional indebtedness in the future, including under our commercial paper program and revolving credit facility or through public or private offerings of debt securities. Our outstanding indebtedness and any additional indebtedness we incur may have significant consequences, including, without limitation, any of the following:
    
•
requiring us to use a significant portion of our cash flow from operations and other available cash to service our indebtedness, thereby reducing the amount of cash available for other purposes, including capital expenditures and acquisitions;
•
our indebtedness and leverage may increase our vulnerability to downturns in our business, to competitive pressures, and to adverse changes in general economic and industry conditions;
•
adverse changes in the ratings assigned to our debt securities by credit rating agencies will likely increase our borrowing costs;
•
our ability to obtain additional financing for working capital, capital expenditures, acquisitions, share repurchases, dividends or other general corporate and other purposes may be limited; and
•
our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

Our ability to make payments of principal of and interest on our indebtedness depends upon our future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated results of operations and financial condition, many of which are beyond our control. If we are unable to generate sufficient cash flow from operations in the future to service our debt, we may be required to, among other things:
    
•
incur the tax cost of repatriating funds to the United States;
•
seek additional financing in the debt or equity markets;
•
refinance or restructure all or a portion of our indebtedness;
•
sell selected assets; or
•
reduce or delay planned capital or operating expenditures.

Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms or at all.

Our revolving credit facility and the indenture pursuant to which certain of our outstanding debt securities were issued contain, and any debt instruments we enter into in the future may contain, financial and other covenants that restrict or could restrict, among other things, our business and operations. If we fail to pay amounts due under, or breach any of the covenants in, a debt instrument, then the lenders would typically have the right to demand immediate repayment of all borrowings thereunder (subject in certain cases to grace or cure period). Moreover, any such acceleration and required repayment of or default in respect of any of our indebtedness could, in turn, constitute an event of default under other debt instruments, thereby resulting in the acceleration and required repayment of that other indebtedness. Any of these events could materially adversely affect our liquidity and financial condition.


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A downgrade in our credit ratings could materially adversely affect our business.
Some of our outstanding indebtedness has received credit ratings from certain rating agencies. Such ratings are limited in scope and do not purport to address all risks relating to an investment in those debt securities, but rather reflect only the view of each rating agency at the time the rating was issued. The credit ratings assigned to our debt securities could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and there can be no assurance that such ratings will not be lowered, suspended or withdrawn entirely by a rating agency or placed on a so-called “watch list” for a possible downgrade or assigned a negative ratings outlook if, in any rating agency’s judgment, circumstances so warrant. Moreover, these credit ratings are not recommendations to buy, sell or hold any of our debt securities. Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade or have been assigned a negative outlook, would likely increase our borrowing costs, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows and could harm our business.

Our credit ratings were downgraded as a result of the distribution of 100% of the outstanding common stock of PayPal to our stockholders (the “Distribution”), pursuant to which PayPal became an independent company. As of January 1, 2014, our long-term debt and short-term funding were rated investment grade by Standard and Poor’s Financial Services, LLC (long-term rated A, short-term rated A-1, with a stable outlook), Moody’s Investor Service (long-term rated A2, short-term rated P-1, with a stable outlook), and Fitch Ratings, Inc. (long-term rated A, short-term rated F-1, with a stable outlook). All of these credit rating agencies lowered their ratings in connection with the Distribution, which occurred on July 17, 2015. Since July 20, 2015, we have been rated investment grade by Standard and Poor’s Financial Services, LLC (long-term rated BBB+, short-term rated A-2, with a stable outlook), Moody’s Investor Service (long-term rated Baa1, short-term rated P-2, with a stable outlook), and Fitch Ratings, Inc. (long-term rated BBB, short-term rated F-2, with a stable outlook). We disclose these ratings to enhance the understanding of our sources of liquidity and the effects of these ratings on our costs of funds. Our borrowing costs depend, in part, on our credit ratings and any further actions taken by these credit rating agencies to lower our credit ratings, as described above, will likely increase our borrowing costs. 

Our business may be subject to sales and other taxes.

The application of indirect taxes (such as sales and use tax, value-added tax (“VAT”), goods and services tax (including the “digital services tax”), business tax and gross receipt tax) to ecommerce businesses is a complex and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and ecommerce. In many cases, it is not clear how existing statutes apply to ecommerce services. In addition, many state and foreign governments are increasingly looking for ways to increase revenues, which has resulted in legislative action, including new taxes on services and gross revenues and through other indirect taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

From time to time, some taxing authorities in the United States have notified us that they believe we owe them certain taxes imposed on our services. These notifications have not resulted in any significant tax liabilities to date, but there is a risk that some jurisdiction may be successful in the future, which would harm our business.

Similar issues exist outside of the United States, where the application of VAT or other indirect taxes on ecommerce providers is complex and evolving. While we attempt to comply in those jurisdictions where it is clear that a tax is due, some of our subsidiaries have, from time to time, received claims relating to the applicability of indirect taxes to our fees. Additionally, we pay input VAT on applicable taxable purchases within the various countries in which we operate. In most cases, we are entitled to reclaim this input VAT from the various countries. However, because of our unique business model, the application of the laws and rules that allow such reclamation is sometimes uncertain. A successful assertion by one or more countries that we are not entitled to reclaim VAT could harm our business.

In certain jurisdictions, we collect and remit indirect taxes on our fees and pay taxes on our purchases of goods and services. However, tax authorities may raise questions about our calculation, reporting and collection of these taxes and may ask us to remit additional taxes. Should any new taxes become applicable to our services or if the taxes we pay are found to be deficient, our business could be harmed.


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We may have exposure to greater than anticipated tax liabilities.

The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign jurisdictions and have structured our operations to reduce our effective tax rate. Our determination of our tax liability is always subject to audit and review by applicable domestic and foreign tax authorities, and we are currently undergoing a number of investigations, audits and reviews by taxing authorities throughout the world, including with respect to our business structure. Any adverse outcome of any such audit or review could harm our business, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. While we have established reserves based on assumptions and estimates that we believe are reasonable to cover such eventualities, these reserves may prove to be insufficient.

In addition, our future income taxes could be adversely affected by a shift in our jurisdictional earning mix, by changes in the valuation of our deferred tax assets and liabilities, as a result of gains on our foreign exchange risk management program, or changes in tax laws, regulations, or accounting principles, as well as certain discrete items.

In light of continuing fiscal challenges in certain U.S. states and in many countries in Europe, various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue, including corporate income taxes. A number of U.S. states have attempted to increase corporate tax revenues by taking an expansive view of corporate presence to attempt to impose corporate income taxes and other direct business taxes on companies that have no physical presence in their state, and taxing authorities in foreign jurisdictions may take similar actions. Many U.S. states are also altering their apportionment formulas to increase the amount of taxable income or loss attributable to their state from certain out-of-state businesses. Similarly, in Europe, and elsewhere in the world, there are various tax reform efforts underway designed to ensure that corporate entities are taxed on a larger percentage of their earnings. Companies that operate over the Internet, such as eBay, are a target of some of these efforts. If more taxing authorities are successful in applying direct taxes to Internet companies that do not have a physical presence in their respective jurisdictions, this could increase our effective tax rate.

Our business and its users are subject to internet sales tax and sales reporting and record-keeping obligations.

The application of sales tax and other indirect taxes on cross border sales by remote sellers is continuing to change and evolve. On June 21, 2018, the U.S. Supreme Court decided South Dakota v. Wayfair, Inc. et al, a case challenging the current law under which online retailers are not required to collect sales and use tax unless they have a physical presence in the buyer’s state. This decision will now allow states to adopt new or enforce existing laws requiring sellers to collect and remit sales and use tax, even in states in which the seller has no presence. The adoption or enforcement of any such legislation could result in a sales and use tax collection responsibility for certain of our sellers. This collection responsibility and the additional costs associated with complex sales and use tax collection, remittance and audit requirements could create additional burdens for buyers and sellers on our websites and mobile platforms and could harm our business. Similar laws imposing tax collection responsibility on foreign sellers are being consider in other countries as well. We are now jointly liable for U.K. VAT for certain non-U.K. sellers who fail to fulfill their U.K. VAT obligations unless we suspend their eBay activity until the seller resolves the matter with the U.K. VAT authority. Other jurisdictions are considering similar legislation.

Some jurisdictions have enacted laws which require marketplaces to report user activity or collect and remit taxes on certain items sold on the marketplace. For example, we are collecting Australian GST on certain imports into Australia and remitting the GST to the Australian Tax Office. Several U.S. states have enacted laws that require marketplace facilitators to collect and remit sales tax for some or all sellers using these marketplaces. The cost of complying with these new rules and the addition of taxes on certain items may harm our business.

One or more states, the U.S. federal government or foreign countries may seek to impose reporting or record-keeping obligations on companies that engage in or facilitate ecommerce. Such an obligation could be imposed by legislation intended to improve tax compliance or if one of our companies was ever deemed to be the legal agent of the users of our services by a jurisdiction in which it operates. Certain of our companies are required to report to the IRS and most states on customers subject to U.S. income tax if they reach certain payment thresholds. As a result, we are required to request tax identification numbers from certain payees, track payments by tax identification number and, under certain conditions, withhold a portion of payments and forward such withholding to the IRS. Our systems are able to meet these requirements. These obligations can increase operational costs and change our user experience.

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Any failure by us to meet these requirements could result in substantial monetary penalties and other sanctions and could harm our business. Imposition of an information reporting requirement could decrease seller or buyer activity on our sites and would harm our business.

We have periodically received requests from tax authorities for information regarding the transactions of large classes of sellers on our sites, and in some cases we have been legally obligated to provide this data. The imposition of any requirements on us to disclose transaction records for all or a class of sellers to tax or other regulatory authorities or to file tax forms on behalf of any sellers, especially requirements that are imposed on us but not on alternative means of ecommerce, and any use of those records to investigate, collect taxes from or prosecute sellers or buyers, could decrease activity on our sites and harm our business.

Our business is subject to online security risks, including security breaches and cyberattacks.

Our businesses involve the storage and transmission of users’ personal financial information. In addition, a significant number of our users authorize us to bill their payment card accounts directly for all transaction and other fees charged by us. An increasing number of websites, including those owned by several other large Internet and offline companies, have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their websites or infrastructure. The techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems, change frequently, may be difficult to detect for a long time, and often are not recognized until launched against a target. Certain efforts may be state sponsored and supported by significant financial and technological resources and therefore may be even more difficult to detect. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. Unauthorized parties may also attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities, fraud, trickery or other means of deceiving our employees, contractors and temporary staff. A party that is able to circumvent our security measures could misappropriate our or our users’ personal information, cause interruption or degradations in our operations, damage our computers or those of our users, or otherwise damage our reputation. In addition, our users have been and likely will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails to misappropriate user names, passwords, payment card numbers, or other personal information or to introduce viruses or other malware through “trojan horse” programs to our users’ computers. Our information technology and infrastructure may be vulnerable to cyberattacks or security incidents and third parties may be able to access our users’ proprietary information and payment card data that are stored on or accessible through our systems. Any security breach at a company providing services to us or our users could have similar effects.

In May 2014, we publicly announced that criminals were able to penetrate and steal certain data, including user names, encrypted user passwords and other non-financial user data. Upon making this announcement, we required all buyers and sellers on our platform to reset their passwords in order to log into their account. The breach and subsequent password reset have negatively impacted the business. In July 2014, a putative class action lawsuit was filed against us for alleged violations and harm resulting from the breach. The lawsuit was recently dismissed with leave to amend. In addition, we have received requests for information and are subject to investigations regarding this incident from numerous regulatory and other government agencies across the world.

We may also need to expend significant additional resources to protect against security breaches or to redress problems caused by breaches. These issues are likely to become more difficult and costly as we expand the number of markets where we operate. Additionally, our insurance policies carry low coverage limits, which may not be adequate to reimburse us for losses caused by security breaches and we may not be able to fully collect, if at all, under these insurance policies.

Systems failures or cyberattacks and resulting interruptions in the availability of or degradation in the performance of our websites, applications, products or services could harm our business.

Our systems may experience service interruptions or degradation due to of hardware and software defects or malfunctions, computer denial-of-service and other cyberattacks, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses, or other events. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems are not fully redundant and our disaster recovery planning is not sufficient for all eventualities.


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We have experienced and will likely continue to experience system failures, denial of service attacks and other events or conditions from time to time that interrupt the availability or reduce the speed or functionality of our websites and mobile applications. These events have resulted and likely will result in loss of revenue. A prolonged interruption in the availability or reduction in the speed or other functionality of our websites and mobile applications could materially harm our business. Frequent or persistent interruptions in our services could cause current or potential users to believe that our systems are unreliable, leading them to switch to our competitors or to avoid our sites, and could permanently harm our reputation and brands. Moreover, to the extent that any system failure or similar event results in damages to our customers or their businesses, these customers could seek significant compensation from us for their losses and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address. We also rely on facilities, components and services supplied by third parties and our business may be materially adversely affected to the extent these components or services do not meet our expectations or these third parties cease to provide the services or facilities. In particular, a decision by any of our third party hosting providers to close a facility that we use could cause system interruptions and delays, result in loss of critical data and cause lengthy interruptions in our services. We do not carry business interruption insurance sufficient to compensate us for losses that may result from interruptions in our service as a result of systems failures and similar events.

Acquisitions, dispositions, joint ventures, strategic partnerships and strategic investments could result in operating difficulties and could harm our business or impact our financial results.

We have acquired a significant number of businesses of varying size and scope, technologies, services, and products and have in July 2015 distributed 100% of the outstanding common stock of PayPal to our stockholders, pursuant to which PayPal became an independent company, and sold our Enterprise business in November 2015. We also expect to continue to evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions, and dispositions of businesses, technologies, services, products, and other assets, as well as strategic investments and joint ventures.

These transactions may involve significant challenges and risks, including:

•
the potential loss of key customers, merchants, vendors and other key business partners of the companies we acquire, or dispose of, following and continuing after announcement of our transaction plans;
•
declining employee morale and retention issues affecting employees of companies that we acquire or dispose of, which may result from changes in compensation, or changes in management, reporting relationships, future prospects or the direction of the acquired or disposed business;
•
difficulty making new and strategic hires of new employees;
•
diversion of management time and a shift of focus from operating the businesses to the transaction, and in the case of an acquisition, integration and administration;
•
the need to provide transition services to a disposed of company, which may result in the diversion of resources and focus;
•
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 an inherently risky and potentially lengthy and costly process;
•
the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise as a result;
•
the need to implement or improve controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition may have lacked such controls, procedures and policies or whose controls, procedures and policies did not meet applicable legal and other standards;
•
risks associated with our expansion into new international markets;
•
derivative lawsuits resulting from the acquisition or disposition;
•
liability for activities of the acquired or disposed of company before the transaction, including intellectual property and other litigation claims or disputes, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities and, in the case of dispositions, liabilities to the acquirors of those businesses under contractual provisions such as representations, warranties and indemnities;
•
the potential loss of key employees following the transaction;
•
the acquisition of new customer and employee personal information by us or a third party acquiring assets or businesses from us, which in and of itself may require regulatory approval and or additional controls, policies and procedures and subject us to additional exposure; and
•
our dependence on the acquired business’ accounting, financial reporting, operating metrics and similar systems, controls and processes and the risk that errors or irregularities in those systems, controls and

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processes will lead to errors in our consolidated financial statements or make it more difficult to manage the acquired business.

At any given time, we may be engaged in discussions or negotiations with respect to one or more of these types of transactions and any of these transactions could be material to our financial condition and results of operations. In addition, it may take us longer than expected to fully realize the anticipated benefits of these transactions, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect our business and operating results. Any acquisitions or dispositions may also require us to issue additional equity securities, spend our cash, or incur debt (and increased interest expense), liabilities, and amortization expenses related to intangible assets or write-offs of goodwill, which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders.
    
We have made certain investments, including through joint ventures, in which we have a minority equity interest and/or lack management and operational control. The controlling joint venture partner in a joint venture may have business interests, strategies, or goals that are inconsistent with ours, and business decisions or other actions or omissions of the controlling joint venture partner or the joint venture company may result in harm to our reputation or adversely affect the value of our investment in the joint venture. Our strategic investments may also expose us to additional risks. Any circumstances, which may be out of our control, that adversely affect the value of our investments, or cost resulting from regulatory action or lawsuits in connection with our investments, could harm our business or negatively impact our financial results.

In connection with a commercial agreement, we entered into a warrant agreement with a service provider that entitles us to acquire a fixed number of shares of the service provider’s common stock subject to certain milestones being met. This warrant is accounted for as a derivative instrument under ASC Topic 815, Derivatives and Hedging. Changes in the service provider’s common stock price and equity volatility may have a significant impact on the value of this warrant. We report this warrant on a quarterly basis at fair value in our consolidated balance sheets, and changes in the fair value of this warrant are recognized in our consolidated statement of income. Fluctuations in the service provider’s common stock or other changes in assumptions could result in material changes in the fair value that we report in our consolidated balance sheets and our consolidated statement of income, which could have a material impact on our financial results.

Our success largely depends on key personnel. Because competition for our key employees is intense, we may not be able to attract, retain, and develop the highly skilled employees we need to support our business. The loss of senior management or other key personnel could harm our business.

Our future performance depends substantially on the continued services of our senior management and other key personnel, including key engineering and product development personnel, and our ability to attract, retain, and motivate key personnel. Competition for key personnel is intense, especially in the Silicon Valley where our corporate headquarters are located, and we may be unable to successfully attract, integrate, or retain sufficiently qualified key personnel. In making employment decisions, particularly in the Internet and high-technology industries, job candidates often consider the value of the equity awards they would receive in connection with their employment and fluctuations in our stock price may make it more difficult to attract, retain, and motivate employees. In addition, we do not have long-term employment agreements with any of our key personnel and do not maintain any “key person” life insurance policies. The loss of the services of any of our senior management or other key personnel, or our inability to attract highly qualified senior management and other key personnel, could harm our business.

Problems with or price increases by third parties who provide services to us or to our sellers could harm our business.

A number of third parties provide services to us or to our sellers. Such services include seller tools that automate and manage listings, merchant tools that manage listings and interface with inventory management software, storefronts that help our sellers list items and shipping providers that deliver goods sold on our platform, among others. Financial or regulatory issues, labor issues (e.g., strikes, lockouts, or work stoppages), or other problems that prevent these companies from providing services to us or our sellers could harm our business.

Price increases by, or service terminations, disruptions or interruptions at, companies that provide services to us and our sellers and clients could also reduce the number of listings on our platforms or make it more difficult for our sellers to complete transactions, thereby harming our business. Some third parties who provide services to us or our

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sellers may have or gain market power and be able to increase their prices to us without competitive constraint. While we continue to work with global carriers to offer our sellers a variety of shipping options and to enhance their shipping experience, postal rate increases may reduce the competitiveness of certain sellers’ offerings, and postal service changes could require certain sellers to utilize alternatives which could be more expensive or inconvenient, which could in turn decrease the number of transactions on our sites, thereby harming our business.

We have outsourced certain functions to third-party providers, including some customer support and product development functions, which are critical to our operations. If our service providers do not perform satisfactorily, our operations could be disrupted, which could result in user dissatisfaction and could harm our business.

There can be no assurance that third parties who provide services directly to us or our sellers will continue to do so on acceptable terms, or at all. If any third parties were to stop providing services to us or our sellers on acceptable terms, including as a result of bankruptcy, we may be unable to procure alternatives from other third parties in a timely and efficient manner and on acceptable terms, or at all.

Our developer platforms, which are open to merchants and third-party developers, subject us to additional risks.

We provide third-party developers with access to application programming interfaces, software development kits and other tools designed to allow them to produce applications for use, with a particular focus on mobile applications. There can be no assurance that merchants or third-party developers will develop and maintain applications and services on our open platforms on a timely basis or at all, and a number of factors could cause such third-party developers to curtail or stop development for our platforms. In addition, our business is subject to many regulatory restrictions. It is possible that merchants and third-party developers who utilize our development platforms or tools could violate these regulatory restrictions and we may be held responsible for such violations, which could harm our business.

We cannot assure that we will continue to pay dividends on our common stock.
 
In January 2019, we initiated a quarterly cash dividend on our common stock. The timing, declaration, amount and payment of any future dividends fall within the discretion of our Board of Directors and will depend on many factors, including our available cash, working capital, financial condition, results of operations, capital requirements, covenants in our debt instruments, applicable law and other considerations that our Board of Directors considers relevant. A reduction in the amount of cash dividends on our common stock, the suspension of those dividends or a failure to meet market expectations regarding potential dividend increases could have a material adverse effect on the market price of our common stock. If we do not pay cash dividends on our common stock in the future, realization of a gain on an investment in our common stock will depend entirely on the appreciation of the price of our common stock, which may not occur.
 
We could incur significant liability if the Distribution is determined to be a taxable transaction.

We have received an opinion from outside tax counsel to the effect that the Distribution qualifies as a transaction that is described in Sections 355 and 368(a)(1)(D) of the Internal Revenue Code. The opinion relies on certain facts, assumptions, representations and undertakings from PayPal and us regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, our shareholders and we may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities. Notwithstanding the opinion of tax counsel we have received, the IRS could determine on audit that the Distribution is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion. If the Distribution is determined to be taxable for U.S. federal income tax purposes, our shareholders that are subject to U.S. federal income tax and we could incur significant U.S. federal income tax liabilities.

We may be exposed to claims and liabilities as a result of the Distribution.

We entered into a separation and distribution agreement and various other agreements with PayPal to govern the Distribution and the relationship of the two companies. These agreements provide for specific indemnity and liability obligations and could lead to disputes between us and PayPal. The indemnity rights we have against PayPal under the agreements may not be sufficient to protect us. In addition, our indemnity obligations to PayPal may be significant and these risks could negatively affect our results of operations and financial condition.


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ITEM 1B: UNRESOLVED STAFF COMMENTS

Not applicable.

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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. Our headquarters are located in San Jose, California and occupies approximately 0.5 million square feet. Our owned data centers are solely located in Utah. As of December 31, 2018, our owned and leased properties provided us with aggregate square footage as follows (in millions):
 
United States
 
Other Countries
 
Total
Owned facilities
1.3

 
—

 
1.3

Leased facilities
0.8

 
4.3

 
5.1

Total facilities
2.1

 
4.3

 
6.4


From time to time we consider various alternatives related to our long-term facilities needs. While we believe that our existing facilities are adequate to meet our immediate needs, it may become necessary to develop and improve land that we own or lease or acquire additional or alternative space to accommodate any future growth.


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ITEM 3: LEGAL PROCEEDINGS    

Overview

We are involved in legal and regulatory proceedings on an ongoing basis. Many of these proceedings are in early stages and may seek an indeterminate amount of damages. 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. 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) is not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a proceeding, we have disclosed that fact. In assessing the materiality of a 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 Item 3, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the year ended December 31, 2018. Except as otherwise noted for the proceedings described in this Item 3, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material. However, legal and regulatory proceedings are inherently unpredictable and subject to significant uncertainties. If one or more matters were resolved against us in a reporting period for amounts in excess of management’s expectations, the impact on our operating results or financial condition for that reporting period could be material.
General Matters

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 could be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly 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 and divestitures and in cases where we are entering new lines of business. 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 scope of our business (both in terms of the range of products and services that we offer and our geographical operations) 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, including suits by our users (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules or policies, that our practices, prices, rules, policies or customer/user agreements violate applicable law or that we have acted unfairly and/or not acted in conformity with such practices, prices, rules, policies or agreements. Further, the number and significance of these disputes and inquiries are increasing as the political and regulatory landscape changes and, as we have 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.

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Indemnification Provisions

We entered into a separation and distribution agreement and various other agreements with PayPal to govern the separation and relationship of the two companies. These agreements provide for specific indemnity and liability obligations and could lead to disputes between us and PayPal, which may be significant. In addition, the indemnity rights we have against PayPal under the agreements may not be sufficient to protect us and our indemnity obligations to PayPal may be significant.

In addition, we have entered into indemnification agreements with each of our directors, executive officers and certain other officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us.

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. 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 consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES        

Common Stock

Our common stock has been traded on The Nasdaq Global Select Market under the symbol “EBAY” since September 24, 1998. As of January 25, 2019, there were approximately 3,661 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

To date, we have not paid cash dividends on our stock. In January 2019, our Board of Directors initiated a quarterly cash dividend of $0.14 per share of common stock to be paid on or about March 20, 2019 to shareholders of record as of March 1, 2019. The timing, declaration, amount and payment of any future cash dividends are at the discretion of the Board of Directors and will depend on many factors, including our available cash, working capital, financial condition, results of operations, capital requirements, covenants in our credit agreement, applicable law and other business considerations that our Board of Directors considers relevant. See “We cannot assure that we will continue to pay dividends on our common stock” under “Item 1A. Risk Factors.”

Performance Measurement Comparison

The graph below shows the cumulative total stockholder return of an investment of $100 (and the reinvestment of any dividends thereafter) on December 31, 2013 (the last trading day for the year ended December 31, 2013) in (i) our common stock, (ii) the Nasdaq Composite Index, (iii) the S&P 500 Index and (iv) the S&P 500 Information Technology Index. For the purpose of this graph, the distribution of 100% of the outstanding common stock of PayPal Holdings, Inc. (“PayPal”) to our stockholders, pursuant to which PayPal became an independent company, is treated as a non-taxable cash dividend of $41.46, an amount equal to the opening price of PayPal common stock on July 20, 2015 which was deemed reinvested in eBay common stock at the opening price on July 20, 2015.
 
Our stock price performance shown in the graph below is not indicative of future stock price performance. The graph and related information shall not be deemed “soliciting material” or be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any past or future filing with the SEC, except to the extent that such filing specifically states that such graph and related information are incorporated by reference into such filing.

CHART-B64EE3FB7CCC5A9B923.JPG



32


Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Stock repurchase activity during the three months ended December 31, 2018 was as follows:
Period Ended
 
Total Number of
Shares
Purchased
 
Average Price Paid
per Share (2)
 
Total Number of
Shares Purchased
as Part of Publicly
Announced
Programs
 
Maximum Dollar
Value that May Yet
be Purchased Under
the Programs (1)
October 31, 2018
 
—

 
$
—

 
—

 
$
4,650,996,317

November 30, 2018
 
28,893,212

 
$
28.96

 
28,893,212

 
$
3,814,130,578

December 31, 2018
 
22,930,017

 
$
28.91

 
22,930,017

 
$
3,151,117,766

 
 
51,823,229

 
 
 
51,823,229

 
 
 
(1)
In January 2018 our Board authorized a $6.0 billion stock repurchase program. The stock repurchase program has no expiration from the date of authorization.
Our stock repurchase program is intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any share repurchases under our stock repurchase program may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives.
During the three months ended December 31, 2018, we repurchased approximately $1.5 billion of our common stock under our stock repurchase program. As of December 31, 2018, a total of approximately $3.2 billion remained available for future repurchases of our common stock under our stock repurchase program. In January 2019, our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization.
We expect, subject to market conditions and other uncertainties, to continue making opportunistic and programmatic repurchases of our common stock. However, our stock repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, price and other market conditions and management’s determination as to the appropriate use of our cash. 
(2)
Excludes broker commissions.

33


ITEM 6: SELECTED FINANCIAL DATA

The following selected consolidated financial 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 for the years ended December 31, 2018, 2017 and 2016 are derived from our audited consolidated financial statements. The consolidated balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements. The consolidated balance sheet data as of December 31, 2016 has been derived from our audited consolidated financial statements adjusted for the adoption of the ASC 606, Revenue from Contracts with Customers (ASC 606). The consolidated statement of income data and consolidated balance sheet data as of and for the years ended December 31, 2015 and 2014 are derived from our audited consolidated financial statements, which have not been adjusted for ASC 606.

 
Year Ended December 31,
 
2018 (5)
 
2017 (3)(6)
 
2016 (3)(7)
 
2015
 
2014 (8)
 
(In millions, except per share amounts)
Consolidated Statement of Income Data: (1)
 
 
 
 
 
 
 
 
 
Net revenues
$
10,746

 
$
9,927

 
$
9,298

 
$
8,592

 
$
8,790

Gross profit
8,364

 
7,706

 
7,294

 
6,821

 
7,127

Income from operations
2,222

 
2,264

 
2,325

 
2,197

 
2,476

Income from continuing operations before income taxes
2,718

 
2,275

 
3,651

 
2,406

 
2,515

Income (loss) from continuing operations
2,528

 
(1,013
)
 
7,285

 
1,947

 
(865
)
Income (loss) per share from continuing operations:
 
 
 
 
 
 
 
 
 
Basic
$
2.58

 
$
(0.95
)
 
$
6.43

 
$
1.61

 
$
(0.69
)
Diluted
$
2.55

 
$
(0.95
)
 
$
6.37

 
$
1.60

 
$
(0.69
)
Weighted average shares:
 
 
 
 
 
 
 
 
 
Basic
980

 
1,064

 
1,133

 
1,208

 
1,251

Diluted
991

 
1,064

 
1,144

 
1,220

 
1,251


34


 
As of December 31,
 
2018 (5)
 
2017 (3) (6)
 
2016 (3) (7)
 
2015
 
2014 (8)
 
(In millions)
Consolidated Balance Sheet Data: (1)
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,202

 
$
2,120

 
$
1,816

 
$
1,832

 
$
4,105

Short-term investments
2,713

 
3,743

 
5,333

 
4,299

 
3,730

Long-term investments
3,778

 
6,331

 
3,969

 
3,391

 
5,736

Working capital - continuing operations
2,672

 
4,185

 
5,010

 
5,641

 
4,463

Working capital - discontinued operations
—

 
—

 
—

 
—

 
4,537

Working capital total (2)
2,672

 
4,185

 
5,010

 
5,641

 
9,000

Total assets - continuing operations
22,819

 
25,986

 
23,851

 
17,785

 
21,716

Total assets - discontinued operations
—

 
—

 
—

 
—

 
23,416

Total assets
22,819

 
25,986

 
23,851

 
17,785

 
45,132

Short-term debt
1,546

 
781

 
1,451

 
—

 
850

Long-term debt
7,685

 
9,234

 
7,509

 
6,779

 
6,777

Total stockholders’ equity (4)
6,281

 
8,049

 
10,526

 
6,576

 
19,906


(1)
Includes the impact of acquisitions and dispositions. For a summary of recent significant acquisitions and dispositions, please see “Note 3 - Business Combinations” to the consolidated financial statements included in this report.
(2)
Working capital is calculated as the difference between total current assets and total current liabilities.
(3)
Reflects the impact of the adoption of the new revenue recognition accounting standard in 2018. Periods prior to 2016 have not been revised.
(4)
Includes the impact of the Distribution of PayPal on July 17, 2015.
(5)
The consolidated balance sheet data as of December 31, 2018 includes the impact of a $463 million reduction to the provisional current and deferred tax liabilities recorded in the fourth quarter of 2017 and a $120 million reduction in 2018 to the deferred tax asset recognized in 2017 as a result of a tax rate change. The consolidated statement of income data for the year ended December 31, 2018 includes a $463 million income tax benefit and $120 million tax expense associated with such current and deferred tax liabilities and assets, respectively.
(6)
The consolidated balance sheet data as of December 31, 2017 includes the impact of a $695 million deferred tax asset recognized in 2017 as a result of our voluntary domiciling our Classifieds intangible assets into a new jurisdiction. The consolidated statement of income data for the year ended December 31, 2017 includes a $695 million income tax benefit associated with such deferred tax asset, $376 million caused by the foreign exchange remeasurement of our deferred tax assets and a $3.1 billion provisional tax expense associated with the enactment of the Tax Cuts and Jobs Act.
(7)
The consolidated balance sheet data for the year ended December 31, 2016 includes the impact of a $4.6 billion deferred tax asset recognized in 2016 as a result of our election to terminate an existing tax ruling and finalize a new agreement with the foreign tax authority. The consolidated statement of income data for the year ended December 31, 2016 includes a $4.6 billion income tax benefit associated with such deferred tax asset.
(8)
The consolidated statement of income data for the year ended December 31, 2014 includes an income tax provision of approximately $3.0 billion to recognize deferred tax liabilities on $9.0 billion of undistributed foreign earnings of certain of our foreign subsidiaries for 2013.

35


ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 “Item 1A: Risk Factors” of this Annual Report on Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission. 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 consolidated financial statements and the related notes included in this report.

OVERVIEW
 
Business

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. Our StubHub platforms include our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Our Classifieds platforms include a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others.

Seasonality

We expect transaction activity patterns on our platforms to mirror general consumer buying patterns and expect that these trends will continue. The following table sets forth, for the periods presented, our total net revenues and the sequential quarterly movements of these net revenues (in millions, except percentages):

 
Quarter Ended
 
March 31
 
June 30
 
September 30
 
December 31
2016
 
 
 
 
 
 
 
Net revenues
$
2,216

 
$
2,309

 
$
2,299

 
$
2,474

Percent change from prior quarter
(5
)%
 
4
%
 
0
 %
 
8
%
2017
 
 
 
 
 
 
 
Net revenues
$
2,303

 
$
2,419

 
$
2,498

 
$
2,707

Percent change from prior quarter
(7
)%
 
5
%
 
3
 %
 
8
%
2018
 
 
 
 
 
 
 
Net revenues
$
2,580

 
$
2,640

 
$
2,649

 
$
2,877

Percent change from prior quarter
(5
)%
 
2
%
 
0
 %
 
9
%


36


Impact of Foreign Currency Exchange Rates

Our commerce platforms operate globally, resulting in certain revenues that are denominated in foreign currencies, primarily the euro, British pound, Korean won and Australian dollar, subjecting us to foreign currency risk which may impact our financial results. Because of this and the fact that we generate a majority of our net revenues internationally, including during the years ended December 31, 2018, 2017 and 2016, we are subject to the risks related to doing business in foreign countries as discussed under “Item 1A: Risk Factors.”

In addition to the corresponding measures under generally accepted accounting principles (“GAAP”), management uses non-GAAP measures in reviewing our financial results. The foreign exchange neutral (“FX-Neutral”), or constant currency, net revenue amounts discussed below are non-GAAP financial measures and are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Accordingly, the FX-Neutral information appearing in the following discussion of our results of operations should be read in conjunction with the information provided below in “Non-GAAP Measures of Financial Performance,” which includes reconciliations of FX-Neutral financial measures to the most directly comparable GAAP measures. We calculate the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts.

The effect of foreign currency exchange rate movements during 2018 was primarily attributable to the weakening of the U.S. dollar against the euro, British pound and Korean won.

Fiscal Year Highlights

Net revenues increased 8% to $10.7 billion in 2018 compared to 2017, primarily driven by Marketplace net transaction revenues and Classifieds marketing services and other revenues. FX-Neutral net revenue (as defined below) increased 6% in 2018 compared to 2017. Operating margin decreased to 20.7% in 2018 compared to 22.8% in 2017.

In the third quarter of 2018, we sold our investment in Flipkart and received gross proceeds of $1.0 billion. We generated cash flow from continuing operating activities of $2.7 billion in 2018 compared to $3.1 billion in 2017, ending the year with cash, cash equivalents and non-equity investments of $8.6 billion.

In the fourth quarter of 2018, we completed our analysis of the impacts of U.S. tax reform in the fourth quarter and recognized a $463 million reduction to the provisional tax amounts recorded in the fourth quarter of 2017, which is included as a component of income tax expense from continuing operations.

Diluted earnings per share from continuing operations was $2.55 in 2018 compared to diluted loss per share of $0.95 in 2017. In January 2019, our Board of Directors initiated a quarterly cash dividend of $0.14 per share of common stock to be paid on or about March 20, 2019 to shareholders of record as of March 1, 2019.














37


RESULTS OF OPERATIONS

Net Revenues

We generate two types of net revenues: net transaction revenues and marketing services and other (“MS&O”) revenues. Net transaction revenues are derived principally from final value fees (which are fees payable on transactions closed on our Marketplace and StubHub platforms), listing fees and other service fees. MS&O revenues consist of Marketplace, StubHub and Classifieds revenue principally from the sale of advertisements, vehicles classifieds listing on Marketplace platforms, revenue sharing arrangements, classifieds fees and marketing service fees. Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider or customer, as the case may be, is located. To drive traffic to our platforms, we provide incentives to our users, including discounts, coupons and rewards. If an incentive is considered a payment to a customer it is treated as a reduction in revenue.

The following table presents net revenues by type and geography (in millions, except percentages):
 
Year Ended December 31,
 
2018
 
% Change
 
2017
 
% Change
 
2016
Net Revenues by Type:
 
 
 
 
 
 
 
 
 
Net transaction revenues:
 
 


 
 
 
 
 
 
Marketplace (1)
$
7,416

 
9
 %
 
$
6,809

 
6
%
 
$
6,425

StubHub
1,068

 
6
 %
 
1,011

 
8
%
 
938

Total net transaction revenues
8,484

 
8
 %
 
7,820

 
6
%
 
7,363

Marketing services and other revenues:
 
 
 
 
 
 
 
 
 
Marketplace
1,225

 
3
 %
 
1,192

 
5
%
 
1,137

Classifieds
1,022

 
14
 %
 
897

 
13
%
 
791

StubHub, Corporate and other
15

 
(17
)%
 
18

 
**

 
7

Total marketing services and other revenues
2,262

 
7
 %
 
2,107

 
9
%
 
1,935

Total net revenues
$
10,746

 
8
 %
 
$
9,927

 
7
%
 
$
9,298

 
 
 
 
 
 
 
 
 
 
Net Revenues by Geography:
 
 
 
 
 
 
 
 
 
U.S.
$
4,373

  
4
 %
 
$
4,187

  
6
%
 
$
3,967

International
6,373

 
11
 %
 
5,740

 
8
%
 
5,331

Total net revenues
$
10,746

 
8
 %
 
$
9,927

 
7
%
 
$
9,298

 
**
Not meaningful
(1)
Marketplace net transaction revenues were net of $8 million and $28 million of hedging activity in 2018 and 2017, respectively. There were no hedging activities within net revenues during 2016. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for further discussion of our hedging activity.


38


The following table presents certain key operating metrics that we believe are significant factors affecting our net transaction revenues (in millions, except percentages):
 
Year Ended December 31,
 
2018
 
% Change
 
2017
 
% Change
 
2016
Supplemental Operating Data:
 
 
 
 
 
 
 
 
 
GMV (1):
 
 
 
 
 
 
 
 
 
Marketplace
$
89,829

 
7
%
 
$
83,883

 
6
%
 
$
79,178

StubHub
4,751

 
5
%
 
4,520

 
5
%
 
4,310

Total GMV
$
94,580

 
7
%
 
$
88,403

 
6
%
 
$
83,488

 
 
 
 
 
 
 
 
 
 
Transaction take rate:
 
 
 
 
 
 
 
 
 
Marketplace (2)
8.25
%
 
0.13
%
 
8.12
%
 
0.01
%
 
8.11
%
StubHub (3)
22.48
%
 
0.11
%
 
22.37
%
 
0.60
%
 
21.77
%
Total transaction take rate (4)
8.97
%
 
0.12
%
 
8.85
%
 
0.03
%
 
8.82
%
 
(1)
We define Gross Merchandise Volume (“GMV”) as the total value of all successfully closed transactions between users on our Marketplace and StubHub platforms during the applicable period regardless of whether the buyer and seller actually consummated the transaction. We believe that GMV provides a useful measure of the overall volume of closed transactions that flow through our platforms in a given period, notwithstanding the inclusion in GMV of closed transactions that are not ultimately consummated.
(2)
We define Marketplace transaction take rate as Marketplace net transaction revenues divided by Marketplace GMV.
(3)
We define StubHub transaction take rate as StubHub net transaction revenues divided by StubHub GMV.
(4)
We define total transaction take rate as total net transaction revenues divided by GMV.

Net Transaction Revenues

The following table presents total net transaction revenues and supplemental operating data (in millions, except percentages):
 
Year Ended December 31,
 
% Change
 
Year Ended December 31,
 
% Change
 
2018
 
2017
 
As Reported
 
FX-Neutral
 
2017
 
2016
 
As Reported
 
FX-Neutral
Total net transaction revenues
8,484

 
7,820

 
8
%
 
7
%
 
7,820

 
7,363

 
6
%
 
7
%
Percentage of net revenues
79
%
 
79
%
 
 
 
 
 
79
%
 
79
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total GMV
94,580

 
88,403

 
7
%
 
5
%
 
88,403

 
83,488

 
6
%
 
6
%
Total transaction take rate
8.97
%
 
8.85
%
 
0.12
%
 
 
 
8.85
%
 
8.82
%
 
0.03
%
 
 

The changes in net transaction revenues and total transaction take rate were primarily driven by our Marketplace platform as further discussed below.

Net transaction revenues earned internationally totaled $4.7 billion, $4.2 billion and $4.0 billion in 2018, 2017 and 2016, respectively, representing 55%, 54% and 55% of total net transaction revenues in the respective periods. The increase in net transaction revenues earned internationally as a percentage of total net transaction revenues in 2018 compared to 2017 was primarily driven by a favorable impact from foreign currency movements relative to the U.S. dollar. The decrease in net transaction revenues earned internationally as a percentage of total net transaction revenue in 2017 compared to 2016 was primarily driven by an unfavorable impact from foreign currency movements relative to the U.S. dollar.


39


Marketplace Net Transaction Revenues

The following table presents Marketplace net transaction revenues and supplemental operating data (in millions, except percentages):

 
Year Ended December 31,
 
% Change
 
Year Ended December 31,
 
% Change
 
2018
 
2017
 
As Reported
 
FX-Neutral
 
2017
 
2016
 
As Reported
 
FX-Neutral
Marketplace net transaction revenues
7,416

 
6,809

 
9
%
 
7
%
 
6,809

 
6,425

 
6
%
 
7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketplace GMV
89,829

 
83,883

 
7
%
 
5
%
 
83,883

 
79,178

 
6
%
 
6
%
Marketplace take rate
8.25
%
 
8.12
%
 
0.13
%
 
 
 
8.12
%
 
8.11
%
 
0.01
%
 
 

The increase in Marketplace net transaction revenues in 2018 compared to 2017 was primarily due to an increase in Marketplace GMV and a favorable impact from foreign currency movements relative to the U.S. dollar. Marketplace transaction take rate was higher in 2018 compared to 2017, primarily due to growth in promoted listing fees, which along with final value fees are calculated as a percentage of an items sale price, and a decrease in seller incentives, partially offset by a decrease in revenues from final value fees attributable to pricing and category mix.

The increase in Marketplace net transaction revenues in 2017 compared to 2016 was primarily due to Marketplace GMV growth, partially offset by hedging activity and an unfavorable impact from foreign currency movements relative to the U.S. dollar. Marketplace transaction take rate in 2017 compared to 2016 was relatively flat.

StubHub Net Transaction Revenues

The following table presents StubHub net transaction revenues and supplemental operating data (in millions, except percentages):
 
Year Ended December 31,
 
% Change
 
Year Ended December 31,
 
% Change
 
2018
 
2017
 
As Reported
 
FX-Neutral
 
2017
 
2016
 
As Reported
 
FX-Neutral
StubHub net transaction revenues
1,068

 
1,011

 
6
%
 
6
%
 
1,011

 
938

 
8
%
 
8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
StubHub GMV
4,751

 
4,520

 
5
%
 
5
%
 
4,520

 
4,310

 
5
%
 
5
%
StubHub take rate
22.48
%
 
22.37
%
 
0.11
%
 
 
 
22.37
%
 
21.77
%
 
0.60
%
 
 

The increase in StubHub net transaction revenues in 2018 compared to 2017 was primarily due to an increase in StubHub GMV. The increase in StubHub GMV in 2018 compared to 2017 was primarily driven by concerts and sporting events. The increase in StubHub transaction take rate in 2018 compared to 2017 was primarily due to pricing changes on the platform.

The increase in StubHub net transaction revenues in 2017 compared to 2016 was primarily due to an increase in StubHub take rate and StubHub GMV. The increase in StubHub transaction take rate in 2017 compared to 2016 was primarily due to pricing changes and a decrease in our buyer incentives, which are accounted for as a reduction of revenue. The increase in StubHub GMV in 2017 compared to 2016 was primarily driven by theater and concerts, partially offset by sporting events.

40



Marketing Services and Other Revenues

The following table presents MS&O revenues (in millions, except percentages):

 
Year Ended December 31,
 
% Change
 
Year Ended December 31,
 
% Change
 
2018
 
2017
 
As Reported
 
FX-Neutral
 
2017
 
2016
 
As Reported
 
FX-Neutral
MS&O revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketplace
$
1,225

 
$
1,192

 
3
 %
 
1
 %
 
$
1,192

 
$
1,137

 
5
%
 
5
%
Classifieds
1,022

 
897

 
14
 %
 
10
 %
 
897

 
791

 
13
%
 
12
%
StubHub, Corporate and other
15

 
18

 
(17
)%
 
(18
)%
 
18

 
7

 
**

 
**

Total MS&O revenues
$
2,262

 
$
2,107

 
7
 %
 
5
 %
 
$
2,107

 
$
1,935

 
9
%
 
8
%
Percentage of net revenues
21
%
 
21
%
 
 
 
 
 
21
%
 
21
%
 
 
 
 

Marketplace MS&O Revenues

The increase in Marketplace MS&O revenues in 2018 compared to 2017 was primarily driven by an increase in revenues attributable to our first-party inventory program in Korea and revenue sharing arrangements, particularly shipping, partially offset by a decrease in advertising revenues that was driven by our ongoing shift to promoted listing fees, which are recognized in net transaction revenues. The increase in Marketplace MS&O revenues in 2017 compared to 2016 was primarily driven by an increase in revenues attributable to our first-party inventory program in Korea and, to a lesser extent, our Brands4friends online shopping community.

Classifieds MS&O Revenues

The increases in Classifieds MS&O revenues in 2018 compared to 2017 and in 2017 compared to 2016 was primarily driven by increased revenue from our Classifieds horizontal and vertical motors platforms primarily in Germany.

Cost of Net Revenues

Cost of net revenues primarily consists of costs associated with customer support, site operations, costs of goods sold and payment processing. Significant components of these costs include employee compensation, contractor costs, facilities costs, depreciation of equipment and amortization expense, first party inventory costs, bank transaction fees, and credit card interchange and assessment fees. The following table presents cost of net revenues (in millions, except percentages): 

 
Year Ended December 31,
 
2018
 
% Change
  
2017
 
% Change
  
2016
Cost of net revenues
$
2,382

 
7
%
  
$
2,221

 
11
%
  
$
2,004

As a percentage of net revenues
22.2
%
 
 
 
22.4
%
 
 
 
21.6
%

The increase in cost of net revenues in 2018 compared to 2017 was primarily due to an increase in site operation and payment processing costs as we increased our investments in our business, and an increase in costs of goods sold driven by our first-party inventory program in Korea.

The increase in cost of net revenues in 2017 compared to 2016 was primarily due to an increase in costs of goods sold driven by our first-party inventory program in Korea and our Brands4friends online shopping community and increased investments in site operations.
 
Cost of net revenues was unfavorably impacted by $34 million attributable to foreign currency movements relative to the U.S. dollar in 2018. Cost of net revenues, net of $3 million from hedging activities, was unfavorably impacted by $19 million attributable to foreign currency movements relative to the U.S. dollar in 2017 compared to 2016. There was no hedging activity within cost of net revenues in 2018.


41



Operating Expenses

The following table presents operating expenses (in millions, except percentages): 
 
Year Ended December 31,
 
2018
 
% Change
 
2017
 
% Change
 
2016
Sales and marketing
$
3,391

 
18
%
 
$
2,878

 
7
%
 
$
2,691

Percentage of net revenues
32
%
 
 
 
29
%
 
 
 
29
%
Product development
1,285

 
5
%
 
1,224

 
10
%
 
1,114

Percentage of net revenues
12
%
 
 
 
12
%
 
 
 
12
%
General and administrative
1,131

 
10
%
 
1,030

 
15
%
 
899

Percentage of net revenues
11
%
 
 
 
10
%
 
 
 
10
%
Provision for transaction losses
286

 
5
%
 
272

 
18
%
 
231

Percentage of net revenues
3
%
 
 
 
3
%
 
 
 
2
%
Amortization of acquired intangible assets
49

 
27
%
 
38

 
12
%
 
34

Total operating expenses
$
6,142

 
13
%
 
$
5,442

 
10
%
 
$
4,969


Operating expenses were unfavorably impacted by $68 million attributable to foreign currency movements relative to the U.S. dollar in 2018 compared to 2017. Operating expenses, net of $8 million from hedging activities, were unfavorably impacted by $14 million attributable to foreign currency movements relative to the U.S. dollar in 2017 compared to 2016. There was no hedging activity within operating expenses in 2018.

Sales and Marketing
 
Sales and marketing expenses primarily consist of advertising and marketing program costs (both online and offline), employee compensation, certain user coupons and rewards, contractor costs, facilities costs and depreciation on equipment. Online marketing expenses represent traffic acquisition costs in various channels such as paid search, affiliates marketing and display advertising. Offline advertising primarily includes brand campaigns and buyer/seller communications.

The increase in sales and marketing expense in 2018 compared to 2017 was primarily due to an increase in user coupons and rewards and traffic acquisition costs. The increase in sales and marketing expense in 2017 compared to 2016 was primarily due to an increase in brand spend and employee-related costs.

Product Development
 
Product development expenses primarily consist of employee compensation, contractor costs, facilities costs and depreciation on equipment. Product development expenses are net of required capitalization of major platform and other product development efforts, including the development and maintenance of our technology platform. Our top technology priorities include payment intermediation capabilities and improved seller tools and buyer experiences built on a foundation of structured data and leveraging artificial intelligence and computer vision.

Capitalized internal use and platform development costs were $147 million and $140 million in 2018 and 2017, respectively, and are primarily reflected as a cost of net revenues when amortized in future periods.

The increase in product development expenses in 2018 compared to 2017 was primarily due to an increase in employee-related costs, partially offset by a decrease in depreciation on equipment. The increase in product development expenses in 2017 compared to 2016 was primarily due to an increase in employee-related costs.

General and Administrative
 
General and administrative expenses primarily consist of employee compensation, contractor costs, facilities costs, depreciation of equipment, employer payroll taxes on stock-based compensation, legal expenses, restructuring, insurance premiums and professional fees. Our legal expenses, including those related to various ongoing legal proceedings, may fluctuate substantially from period to period.


42


The increase in general and administrative expenses in 2018 compared to 2017 was primarily due to restructuring costs related to our global workforce reduction and an increase in employee-related costs. For additional details related to the restructuring, refer to “Note 17 – Restructuring” to the consolidated financial statements included in this report.

The increase in general and administrative expenses in 2017 compared to 2016 was primarily due to increased data, information security and employee-related costs, as well as costs related to the integration of prior period acquisitions and realignment of our legal structure.
  
Provision for Transaction Losses

Provision for transaction losses primarily consists of transaction loss expense associated with our buyer protection programs, fraud and bad debt expense associated with our accounts receivable balance. We expect our provision for transaction losses to fluctuate depending on many factors, including changes to our protection programs and the impact of regulatory changes.

The increase in provision for transaction losses in 2018 compared to 2017 was not significant. The increase in provision for transaction losses in 2017 compared to 2016 was primarily due to higher customer protection program costs and an increase in costs related to uncollectible accounts.

Interest and Other, Net
 
Interest and other, net primarily consists of interest earned on cash, cash equivalents and investments, as well as foreign exchange transaction gains and losses, gains and losses due to changes in fair value of the warrant received from a service provider, our portion of operating results from investments accounted for under the equity method of accounting, investment gain/loss on acquisitions or disposals and interest expense, consisting of interest charges on any amounts borrowed and commitment fees on unborrowed amounts under our credit agreement and interest expense on our outstanding debt securities and commercial paper, if any. The following table presents interest and other, net (in millions, except percentages):

 
Year Ended December 31,
 
2018
 
% Change
  
2017
 
% Change
  
2016
Interest income
$
176

 
(1
)%
  
$
177

 
42
 %
  
$
125

Interest expense
(326
)
 
12
 %
 
(292
)
 
30
 %
 
(225
)
Gains on investments and sale of business
663

 
**

 
115

 
(91
)%
 
1,343

Other
(17
)
 
**

  
11

 
(87
)%
  
83

Total interest and other, net
$
496

 
**

  
$
11

 
(99
)%
  
$
1,326


The increase in interest and other, net in 2018 compared to 2017 was primarily attributable to the $313 million gain recognized on the sale of our investment in Flipkart and $266 million gain recognized upon relinquishment of our existing equity method investment in Giosis and $104 million gain recognized due to the change in fair value of the warrant.

The decrease in interest and other, net in 2017 compared to 2016 was primarily due to the $1.3 billion pre-tax gain from the sale of our equity holdings of MercadoLibre, Inc. in 2016.


43


Income Tax Provision

The following table presents provision for income taxes (in millions, except percentages):

 
Year Ended December 31,
 
2018
 
2017
 
2016
Income tax provision (benefit)
$
190

 
$
3,288

 
$
(3,634
)
Effective tax rate
7.0
%
  
144.5
%
  
(99.5
)%

The decrease in our effective tax rate in 2018 compared to 2017 was primarily due to the $3.1 billion provisional tax charge related to the Tax Cuts and Jobs Act (the “Act” or “U.S. tax reform”) recorded in 2017. In 2018, as we completed our analysis of U.S. tax reform, we recorded a $463 million reduction to the provisional tax amounts recorded in 2017. Further, the 2018 effective tax rate was favorably impacted by U.S. tax reform and the gain recognized from the relinquishment of our existing equity method investment in Giosis in the second quarter 2018 that is not subject to U.S. federal income tax on a current basis.

The increase in our effective tax rate in 2017 compared to 2016 was primarily due to a $3.1 billion provisional tax charge for the impacts of U.S. tax reform. Additionally, the 2017 effective tax rate was impacted by the increase in our foreign tax rate as we no longer benefit from certain tax rulings and a noncash income tax charge of $376 million due to the foreign exchange remeasurement of our deferred tax assets, partially offset by the recognition in the first quarter of 2017 of deferred tax assets of approximately $695 million.

As a result of the realignment of our legal structure in 2016 and 2017, we no longer benefit from tax rulings previously concluded in several different jurisdictions. Without the benefit of the rulings, the noncash tax impacts of the realignment in our foreign eBay and Classifieds platforms have increased our income tax rate in certain foreign jurisdictions, most significantly Switzerland. The higher rate results from eBay being subject to a higher enacted tax rate for the foreseeable future.

While our tax rate is higher, the realignment allows us to achieve certain foreign cash tax benefits due to the step-up in tax basis achieved in certain foreign jurisdictions. We expect these cash tax benefits to remain consistent, subject to the performance of our foreign platforms, for a period in excess of 10 years. The realignment was substantially completed in 2018 and primarily impacted our international entities. However, U.S. tax reform and the new U.S. minimum tax on foreign earnings has reduced our expected consolidated cash tax benefits.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted. U.S. tax reform, among other things, reduces the U.S. federal income tax rate from 35% to 21% in 2018, instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings in 2017 and created a new U.S. minimum tax on earnings of foreign subsidiaries. We recognized a provisional income tax charge of $3.1 billion in the fourth quarter of 2017, which was included as a component of the income tax provision on our consolidated statement of income. We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018 and recognized a $463 million reduction to the provisional tax amounts recorded in the fourth quarter of 2017, which is included as a component of income tax expense from continuing operations.

Included in the provisional amount was $1.4 billion for the income tax on the deemed repatriation of unremitted foreign earnings. We completed the computation of this amount as part of the 2017 income tax return filing and reduced the provisional amount by $18 million. Additionally, we utilized $213 million of foreign tax credits to reduce the net liability.

The remaining provisional amount of $1.7 billion was for the deferred income tax effects of the Act, primarily the impact of the new U.S. minimum tax on foreign earnings, partially offset by the reversal of our existing deferred tax liability associated with repatriation of unremitted foreign earnings. We completed our analysis of the components of the deferred tax computation in the fourth quarter of 2018 and recognized a tax benefit of $445 million as a reduction to the provisional amounts recorded in the fourth quarter of 2017 for the deferred income tax effects of the Act. This amount includes a $389 million tax benefit as a result of clarification by Swiss tax authorities regarding the applicability of withholding tax to repatriated earnings in October 2018.


44


As a result of U.S. tax reform, our earnings in foreign jurisdictions are taxed at substantially the same rate as the U.S. federal statutory tax rate of 21%. In prior years, our provision for income taxes differed from the provision computed by applying the U.S. federal statutory rate of 35% primarily due to lower tax rates associated with certain earnings from our operations in jurisdictions outside the U.S. The impact on our provision for income taxes of foreign income being taxed at different rates that the U.S. federal statutory rate was a benefit of approximately $217 million in 2017 and $451 million in 2016. In those years, the foreign jurisdictions with lower tax rates that had the most significant impact on our provision for income taxes in the periods presented include Switzerland. See “Note 14 - Income Taxes” to the consolidated financial statements included in this report for more information on our tax rate reconciliation.

Our relative pretax earnings and revenues attributable to the U.S. as compared to the rest of the world may differ over time. In general, these differences are attributable to higher amortization of U.S. based intangible assets, larger stock-based compensation expense recorded in the U.S. for U.S. based employees, overhead related to our corporate operations which are primarily U.S. based and higher average margins earned by non-U.S. businesses. Our U.S. share of pretax income and net revenues was 11.0% and 40.7%, respectively for 2018 and 18.4% and 42.8% for 2017. The difference in relative pretax income and net revenues attributable to the U.S. as compared to the rest of the world for 2018 and 2017 was primarily due to the general drivers discussed above.

From time to time we engage in certain intercompany transactions. We consider many factors when evaluating these transactions. These transactions may impact our tax rate and/or result in additional cash tax payments. The impact in any period may be significant. These transactions are complex and the impact of such transactions on future periods may be difficult to estimate.

We are regularly under examination by tax authorities both domestically and internationally. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, although we cannot assure you that this will be the case given the inherent uncertainties in these examinations. Due to the ongoing tax examinations, it is generally impractical to determine the amount and timing of these adjustments. However, we expect several tax examinations to close within the next twelve months. See “Note 14 - Income Taxes” to the consolidated financial statements included in this report for more information on estimated settlements within the next twelve months.

Non-GAAP Measures of Financial Performance

To supplement our consolidated financial statements presented in accordance with generally accepted accounting principles we use FX-Neutral net revenues, which are non-GAAP financial measures. Management uses the foregoing non-GAAP measures in reviewing our financial results. We define FX-Neutral net revenues as net revenues minus the exchange rate effect. We define exchange rate effect as the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts, excluding hedging activity.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP. These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance and its prospects for the future. Specifically, we believe these non-GAAP measures provide useful information to both management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook. In addition, because we have historically reported certain non-GAAP results to investors, we believe that the inclusion of these non-GAAP measures provide consistency in our financial reporting.


45


The following tables set forth a reconciliation of FX-Neutral GMV and FX-Neutral net revenues (each as defined below) to our reported GMV and net revenues for the periods presented (in millions, except percentages):
 
Year Ended
December 31, 2018
 
Year Ended
December 31, 2017
 
 
 
 
 
As Reported
 
Exchange Rate Effect(1)(3)
 
FX-Neutral(2)
 
As Reported
 
As Reported % Change
 
FX-Neutral
% Change
GMV:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
$
89,829

 
$
1,659

 
$
88,170

 
$
83,883

 
7
 %
 
5
 %
StubHub
4,751

 
5

 
4,746

 
4,520

 
5
 %
 
5
 %
Total GMV
$
94,580

 
$
1,664

 
$
92,916

 
$
88,403

 
7
 %
 
5
 %
 
 
 
 
 
 
 
 
 
 
 
 
Net transaction revenues:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
$
7,416

 
$
118

 
$
7,298

 
$
6,809

 
9
 %
 
7
 %
StubHub
1,068

 
1

 
1,067

 
1,011

 
6
 %
 
6
 %
Total net transaction revenues
8,484

 
119

 
8,365

 
7,820

 
8
 %
 
7
 %
Marketing services and other revenues:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
1,225

 
22

 
1,203

 
1,192

 
3
 %
 
1
 %
Classifieds
1,022

 
33

 
989

 
897

 
14
 %
 
10
 %
StubHub, Corporate and other
15

 
—

 
15

 
18

 
(17
)%
 
(18
)%
Total marketing services and other revenues
2,262

 
55

 
2,207

 
2,107

 
7
 %
 
5
 %
Total net revenues
$
10,746

 
$
174

 
$
10,572

 
$
9,927

 
8
 %
 
6
 %

 
Year Ended
December 31, 2017
 
Year Ended
December 31, 2016
 
 
 
 
 
As Reported
 
Exchange Rate Effect(1)(3)
 
FX-Neutral(2)
 
As Reported
 
As Reported % Change
 
FX-Neutral
% Change
GMV:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
$
83,883

 
$
(224
)
 
$
84,107

 
$
79,178

 
6
%
 
6
%
StubHub
4,520

 
(5
)
 
4,525

 
4,310

 
5
%
 
5
%
Total GMV
$
88,403

 
$
(229
)
 
$
88,632

 
$
83,488

 
6
%
 
6
%
 
 
 
 
 
 
 
 
 
 
 
 
Net transaction revenues:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
$
6,809

 
$
(52
)
 
$
6,861

 
$
6,425

 
6
%
 
7
%
StubHub
1,011

 
—

 
1,011

 
938

 
8
%
 
8
%
Total net transaction revenues
7,820

 
(52
)
 
7,872

 
7,363

 
6
%
 
7
%
Marketing services and other revenues:
 
 
 
 
 
 
 
 
 
 
 
Marketplace
1,192

 
—

 
1,192

 
1,137

 
5
%
 
5
%
Classifieds
897

 
13

 
884

 
791

 
13
%
 
12
%
StubHub, Corporate and other
18

 
—

 
18

 
7

 
**

 
**

Total marketing services and other revenues
2,107

 
13

 
2,094

 
1,935

 
9
%
 
8
%
Total net revenues
$
9,927

 
$
(39
)
 
$
9,966

 
$
9,298

 
7
%
 
7
%
 
(1)
We define exchange rate effect as the year-over-year impact of foreign currency movements using prior period foreign currency rates applied to current year transactional currency amounts, excluding hedging activity.
(2)
We define FX-Neutral GMV as GMV minus the exchange rate effect. We define the non-GAAP financial measures of FX-Neutral net revenues as net revenues minus the exchange rate effect.
(3)
Marketplace Exchange Rate Effect was net of $8 million and $28 million of hedging activity in 2018 and 2017, respectively.     


46


Liquidity and Capital Resources

Cash Flows 
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions)
Net cash provided by (used in):
 
 
 
 
 
Continuing operating activities
$
2,661

 
$
3,146

 
$
2,827

Investing activities
2,894

 
(1,295
)
 
(2,017
)
Financing activities
(5,398
)
 
(1,784
)
 
(744
)
Effect of exchange rates on cash, cash equivalents and restricted cash
(75
)
 
238

 
(90
)
Net increase (decrease) in cash, cash equivalents and restricted cash - discontinued operations
(3
)
 
—

 
(1
)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
79

 
$
305

 
$
(25
)
 
Continuing Operating Activities

Cash provided by continuing operating activities of $2.7 billion in 2018 was primarily attributable to net income of $2.5 billion with adjustments of $696 million in depreciation and amortization, $538 million in stock-based compensation and $286 million in provision for transaction losses, partially offset by a decrease of $577 million in changes in assets and liabilities, net of acquisition effects, and adjustments of $572 million for gain on investments, $153 million for deferred income taxes and $104 million for changes in fair value of the warrant.

The net cash provided by continuing operating activities of $3.1 billion in 2017 was primarily due to $1.1 billion of changes in assets and liabilities, net of acquisition effects, and a net loss of $1.0 billion offset by adjustments of $1.7 billion in deferred income taxes, $676 million in depreciation and amortization and $483 million in stock-based compensation.

The net cash provided by continuing operating activities of $2.8 billion in 2016 was primarily due to net income of $7.3 billion with adjustments for $682 million in depreciation and amortization, $416 million in stock-based compensation and $20 million in changes in assets and liabilities, net of acquisition effects, partially offset by a decrease of $4.6 billion related to deferred income taxes and $1.2 billion related to gain on sale of investments.

Cash paid for income taxes in 2018 was $597 million, which included tax payments related to our liability for deemed repatriation of foreign earnings under U.S. tax reform of $168 million, including a prepayment of $72 million. Cash paid for income taxes in 2017 and 2016 was $308 million and $492 million, respectively.

Investing Activities

Cash provided by investing activities of $2.9 billion in 2018 was primarily attributable to proceeds of $30.9 billion from the maturities and sales of investments and $1.0 billion from the sale of equity investment in Flipkart, partially offset by cash paid for purchases of investments of $28.1 billion, property and equipment of $651 million and acquisitions of $302 million.

The net cash used in investing activities of $1.3 billion in 2017 was primarily due to cash paid for property and equipment of $666 million and cash paid for our equity investment in Flipkart of $514 million.

The net cash used in investing activities of $2.0 billion in 2016 was primarily due to cash paid for investments of $11.2 billion, property and equipment of $626 million and net cash paid for acquisition of businesses of $212 million, partially offset by proceeds of $10.1 billion from the maturities and sales of investments.

The largely offsetting effects of purchases of investments and maturities and sale of investments results from the management of our investments. As our immediate cash needs change, purchase and sale activity will fluctuate.


47


Financing Activities

Cash used in financing activities of $5.4 billion in 2018 was primarily used to repurchase $4.5 billion of common stock and repay $750 million of our outstanding senior notes.

The net cash used in financing activities of $1.8 billion in 2017 was primarily due to $2.7 billion of cash used to repurchase common stock and $1.5 billion of cash used to repay outstanding debt, partially offset by $2.5 billion of cash proceeds from debt issuances.

The net cash used in financing activities of $744 million in 2016 was primarily due to $2.9 billion of cash paid to repurchase common stock, partially offset by $2.2 billion of proceeds from debt issuances.

The negative effect of exchange rate movements on cash and cash equivalents was due to the strengthening of the U.S. dollar against other currencies, primarily the euro, Korean won and British pound, during 2018. The positive effect of exchange rate movements on cash and cash equivalents was due to the weakening of the U.S. dollar against other currencies, primarily the euro and Korean won, during 2017. The negative impact of currency exchange rates on our cash and cash equivalents during 2016 was due to the strengthening of the U.S. dollar against other currencies, primarily the euro.

Stock Repurchases

In July 2017, our Board authorized a $3.0 billion stock repurchase program and in January 2018, our Board authorized an additional $6.0 billion stock repurchase program. These stock repurchase programs have no expiration from the date of authorization. Our stock repurchase programs are intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any share repurchases under our stock repurchase programs may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives.

During 2018, we repurchased approximately $4.5 billion of our common stock under our stock repurchase programs. As of December 31, 2018, a total of approximately $3.2 billion remained available for future repurchases of our common stock under our stock repurchase programs. In January 2019, our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization.

We expect, subject to market conditions and other uncertainties, to continue making opportunistic and programmatic repurchases of our common stock. However, our stock repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, price and other market conditions and management’s determination as to the appropriate use of our cash.  

Dividends

In January 2019, our Board of Directors initiated a quarterly cash dividend of $0.14 per share of common stock to be paid on or about March 20, 2019 to shareholders of record as of March 1, 2019.

Shelf Registration Statement and Debt

As of December 31, 2018, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depositary shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with the covenants in our credit agreement.


48


Senior Notes

As of December 31, 2018, we had floating- and fixed-rate senior notes outstanding for an aggregate principal amount of $9.3 billion. The net proceeds from the issuances of these senior notes were used for general corporate purposes, including, among other things, capital expenditures, share repurchases, repayment of indebtedness and possible acquisitions. The floating rate notes are not redeemable prior to maturity. On and after March 1, 2021, we may redeem some or all of the 6.000% fixed rate notes due 2056 at any time and from time to time prior to their maturity, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. We may redeem some or all of the other fixed rate notes of each series at any time and from time to time prior to their maturity, generally at a make-whole redemption price plus accrued and unpaid interest. If a change of control triggering event occurs with respect to the 2.150% fixed rate notes due 2020, the 3.800% fixed rate notes due 2022, the floating rate notes due 2023, the 2.750% fixed rate notes due 2023, the 3.600% fixed rate notes due 2027 or the 6.000% fixed rate notes due 2056, we must, subject to certain exceptions, offer to repurchase all of the notes of the applicable series at a price equal to 101% of the principal amount plus accrued and unpaid interest. For additional details related to our senior notes, please see “Note 10 – Debt” to the consolidated financial statements included in this report.

To help achieve our interest rate risk management objectives, in connection with the previous issuance of certain senior notes, we entered into interest rate swap agreements that effectively converted $2.4 billion of the fixed rate notes to floating rate debt based on the London InterBank Offered Rate (“LIBOR”) plus a spread. These swaps were designated as fair value hedges against changes in the fair value of certain fixed rate senior notes resulting from changes in interest rates.

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.

Commercial Paper

We have a commercial paper program pursuant to which we may issue commercial paper notes in an aggregate principal amount at maturity of up to $1.5 billion outstanding at any time with maturities of up to 397 days from the date of issue. As of December 31, 2018, there were no commercial paper notes outstanding.

Credit Agreement

In November 2015, we entered into a credit agreement that provides for an unsecured $2 billion five-year revolving credit facility. We may also, subject to the agreement of the applicable lenders, increase the commitments under the revolving credit facility by up to an aggregate amount of $1 billion. Funds borrowed under the credit agreement may be used for working capital, capital expenditures, dividends, acquisitions and other general corporate purposes.

As of December 31, 2018, no borrowings were outstanding under our $2 billion credit agreement. However, as described above, we have an up to $1.5 billion commercial paper program and therefore maintain $1.5 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, $500 million of borrowing capacity was available as of December 31, 2018 for other purposes permitted by the credit agreement.  

Loans under the credit agreement bear interest at either (i) LIBOR plus a margin (based on our public debt credit ratings) ranging from 0.875 percent to 1.5 percent or (ii) a formula based on the agent bank’s prime rate, the federal funds effective rate plus 0.5 percent or LIBOR plus 1.0 percent, plus a margin (based on our public debt credit ratings) ranging from zero percent to 0.5 percent. The credit agreement will terminate and all amounts owing thereunder will be due and payable on November 9, 2020, unless (a) the commitments are terminated earlier, either at our request or, if an event of default occurs, by the lenders (or automatically in the case of certain bankruptcy-related events of default), or (b) the maturity date is extended upon our request, subject to the agreement of the lenders. The credit agreement includes customary representations, warranties, affirmative and negative covenants, including financial covenants, events of default and indemnification provisions in favor of the banks. The negative covenants include restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case, subject to certain exceptions. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest

49


coverage ratio and a maximum consolidated leverage ratio. The events of default include the occurrence of a change of control (as defined in the credit agreement) with respect to us.

We were in compliance with all covenants in our outstanding debt instruments for the period ended December 31, 2018.

Credit Ratings

As of December 31, 2018, we were rated investment grade by Standard and Poor’s Financial Services, LLC (long-term rated BBB+, short-term rated A-2, with a stable outlook), Moody’s Investor Service (long-term rated Baa1, short-term rated P-2, with a stable outlook), and Fitch Ratings, Inc. (long-term rated BBB, short-term rated F-2, with a stable outlook). We disclose these ratings to enhance the understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our borrowing costs depend, in part, on our credit ratings and any further actions taken by these credit rating agencies to lower our credit ratings, as described above, will likely increase our borrowing costs. 

Commitments and Contingencies

We have certain fixed contractual obligations and commitments that include future estimated payments for general operating purposes. Changes in our business needs, contractual cancellation provisions, fluctuating interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of these payments. The following table summarizes our fixed contractual obligations and commitments (in millions):
Payments Due During the Year Ending December 31,
 
Debt
 
 Leases
 
Purchase Obligations
  
Total
2019
 
$
1,841

 
$
136

 
$
209

 
$
2,186

2020
 
1,259

 
104

 
147

 
1,510

2021
 
983

 
91

 
128

 
1,202

2022
 
1,935

 
76

 
116

 
2,127

2023
 
1,284

 
51

 
38

 
1,373

Thereafter
 
5,220

 
119

 
—

 
5,339

 
 
$
12,522

 
$
577

 
$
638

 
$
13,737


The significant assumptions used in our determination of amounts presented in the above table are as follows:

•
Debt amounts include the principal and interest amounts of the respective debt instruments. For additional details related to our debt, please see “Note 10 – Debt” to the consolidated financial statements included in this report. This table does not reflect any amounts payable under our $2 billion revolving credit facility or $1.5 billion commercial paper program, for which no borrowings were outstanding as of December 31, 2018.

•
Lease amounts include minimum rental payments under our non-cancelable operating leases for office space, data centers, as well as fulfillment centers and other corporate assets that we utilize under lease arrangements. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases, unless a substantial change in our headcount needs requires us to expand our occupied space or exit an office facility early.

•
Purchase obligation amounts include minimum 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 of settlement of liabilities related to unrecognized tax benefits, net, the table does not include $466 million of such non-current liabilities included in other liabilities on our consolidated balance sheet as of December 31, 2018. The gross amount of unrecognized tax benefits expected to be reduced within the next twelve months is approximately $196 million. See “Note 14 - Income Taxes” to the consolidated financial statements included in this report for more information on unrecognized tax benefits.


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Liquidity and Capital Resource Requirements

As of December 31, 2018 and December 31, 2017, we had assets classified as cash and cash equivalents, as well as short-term and long-term non-equity investments, in an aggregate amount of $8.6 billion and $11.3 billion, respectively. As of December 31, 2018, this amount included assets held in certain of our foreign operations totaling approximately $7.8 billion. As a result of U.S. tax reform, the $7.8 billion held by our non-U.S. subsidiaries was subject to current tax in the U.S. in 2017. As of December 31, 2018, we have repatriated a portion of these funds to the U.S. As we repatriate these funds to the U.S., we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. We have accrued deferred taxes for the tax effect of repatriating the funds to the U.S.

We actively monitor all counterparties that hold our cash and cash equivalents and non-equity investments, focusing primarily on the safety of principal and secondarily on improving yield on these assets. We diversify our cash and cash equivalents and investments among various counterparties in order to reduce our exposure should any one of these counterparties fail or encounter difficulties. To date, we have not experienced any material loss or lack of access to our invested cash, cash equivalents or short-term investments; however, we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions in the financial markets. At any point in time we have funds in our operating accounts and customer accounts that are deposited and invested with third party financial institutions.

In October 2018, we announced our acquisition of the UK-based classifieds site, Motors.co.uk. We believe the acquisition will increase our international presence and give buyers access to more listings. We expect to close this transaction in the first half of 2019, subject to customary closing conditions and regulatory approvals. The purchase price payable at closing is subject to adjustment. Accordingly, we are unable to estimate the financial statement impact of the acquisition at this time

We believe that our existing cash, cash equivalents and 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, repayment of debt, stock repurchases and dividends for the foreseeable future.
 
Off-Balance Sheet Arrangements

As of December 31, 2018, 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.

We have a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals from the financial institution based upon our aggregate operating cash balances held within the same financial institution (“Aggregate Cash Deposits”). This arrangement also allows 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 the arrangement. As of December 31, 2018, we had a total of $2.7 billion in aggregate cash deposits, partially offset by $2.4 billion in cash withdrawals, held within the financial institution under the cash pooling arrangement.

Indemnification Provisions

We entered into a separation and distribution agreement and various other agreements with PayPal to govern the separation and relationship of the two companies. These agreements provide for specific indemnity and liability obligations and could lead to disputes between us and PayPal, which may be significant. In addition, the indemnity rights we have against PayPal under the agreements may not be sufficient to protect us and our indemnity obligations to PayPal may be significant.

In addition, we have entered into indemnification agreements with each of our directors, executive officers and certain other officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us.


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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. 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 consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively.

Critical Accounting Policies, Judgments and Estimates

General

The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and related notes and other disclosures included in this report.

Revenue Recognition

We may enter into certain revenue contracts that include promises to transfer multiple goods or services including discounts on future services. We also may enter into arrangements to purchase services from certain customers. As a result, significant interpretation and judgment is sometimes required to determine the appropriate accounting for these transactions including: (1) whether services are considered distinct performance obligations that should be accounted for separately or combined; (2) developing an estimate of the stand-alone selling price of each distinct performance obligation; (3) whether revenue should be reported gross (as eBay is acting as a principal), or net (as eBay is acting as an agent); (4) evaluating whether a promotion or incentive is a payment to a customer; and (5) whether the arrangement would be characterized as revenue or reimbursement of costs incurred. Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

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 and respective government taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly and adjust the balances as new information becomes available. Our income tax rate is significantly affected by the tax rates that apply to our foreign earnings. In addition to local country tax laws and regulations, our income tax rate depends on the extent that our earnings are indefinitely reinvested outside the U.S. Indefinite reinvestment is determined by management’s judgment about and intentions concerning our future operations. As a result of U.S. tax reform and the current U.S. taxation of deemed repatriated earnings, management has no specific plans to indefinitely reinvest the undistributed earnings of our foreign subsidiaries at the balance sheet date.


52


Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including our historical experience and short-range and long-range business forecasts. As of December 31, 2018, we had a valuation allowance on certain net operating loss and tax credit carryforwards based on our assessment that it is more likely than not that the deferred tax asset will not be realized.

We recognize and measure uncertain tax positions in accordance with generally accepted accounting principles in the U.S., or GAAP, pursuant to which we only recognize the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. GAAP further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter in which such change occurs. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We file annual income tax returns in multiple taxing jurisdictions around the world. A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, we believe that our reserves for income taxes reflect the most likely outcome. We adjust these reserves, as well as the related interest, where appropriate in light of changing facts and circumstances. Settlement of any particular position could require the use of cash.

The following table illustrates our effective tax rates for 2018, 2017 and 2016:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions, except percentages)
Income tax provision (benefit)
$
190

 
$
3,288

 
$
(3,634
)
Effective tax rate
7.0
%
 
144.5
%
 
(99.5
)%

Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets or liabilities, or by changes or interpretations in tax laws, regulations or accounting principles. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service, as well as various state and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Based on our results for the year ended December 31, 2018, a one-percentage point change in our provision for income taxes as a percentage of income before taxes would have resulted in an increase or decrease in the provision of approximately $27 million, resulting in an approximate $0.03 change in diluted earnings per share.

We accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in our 2017 consolidated financial statements. We completed our accounting in the fourth quarter of 2018, within the one year measurement period from the enactment date.

Goodwill and Intangible Assets

The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.


53


As of December 31, 2018, our goodwill totaled $5.2 billion and our identifiable intangible assets, net totaled $92 million. We assess the impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting units. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2018 and 2017. As of December 31, 2018, we determined that no impairment of the carrying value of goodwill for any reporting units was required. See “Note 4 - Goodwill and Intangible Assets” to the consolidated financial statements included in this report.

Legal Contingencies

In connection with certain pending litigation and other claims, we have estimated the range of probable loss, net of expected recoveries, and provided for such losses through charges to our consolidated statement of income. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based upon new information and future events.

From time to time, we are involved in disputes and regulatory inquiries that arise in the ordinary course of business. We are currently involved in legal proceedings, some of which are discussed in “Item 1A: Risk Factors,” “Item 3: Legal Proceedings” and “Note 11 - Commitments and Contingencies” to the consolidated financial statements included in this report. We believe that we have meritorious defenses to the claims against us, and we intend to defend ourselves vigorously. However, even if successful, our defense against certain actions will be costly and could require significant amounts of management’s time and result in the diversion of significant operational resources. If the plaintiffs were to prevail on certain claims, we might be forced to pay significant damages and licensing fees, modify our business practices or even be prohibited from conducting a significant part of our business. Any such results could materially harm our business and could result in a material adverse impact on the financial position, results of operations or cash flows.

Recent Accounting Pronouncements

See "Note 1 - The Company and Summary of Significant Accounting Policies" to the consolidated financial statements included in this report, regarding the impact of certain recent accounting pronouncements on our consolidated financial statements.


54


ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk relating to our investments and outstanding debt. In addition, adverse economic conditions and events (including volatility or distress in the equity and/or debt or credit markets) may impact regional and global financial markets. These events and conditions, including uncertainties and instability in economic and market conditions caused by the United Kingdom’s vote to exit the European Union and any outcomes resulting from that vote, could cause us to write down our assets or investments. We seek to reduce earnings volatility that may result from adverse economic conditions and events or changes in interest rates.

As of December 31, 2018, approximately 25% of our total cash and investments was held in cash and cash equivalents. As such, changes in interest rates will impact interest income. As discussed below, the fair values of our fixed rate securities may be adversely affected due to a rise in interest rates, and we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates.
 
As of December 31, 2018, the balance of our corporate debt and government bond securities was $6.3 billion, which represented approximately 73% of our total cash and investments. Investments in both fixed-rate and floating-rate interest-earning instruments carry varying degrees of interest rate risk. The fair market value of our fixed-rate investment securities may be adversely impacted due to a rise in interest rates. In general, fixed-rate securities with longer maturities are subject to greater interest rate risk than those with shorter maturities. While floating rate securities generally are subject to less interest rate risk than fixed-rate securities, floating-rate securities may produce less income than expected if interest rates decrease and may also suffer a decline in market value if interest rates increase. Due in part to these factors, our investment income may fall short of expectations or we may suffer losses in principal if we sell securities that have declined in market value due to changes in interest rates. A hypothetical 100 basis point increase in interest rates would have resulted in a decrease in the fair value of our investments of $44 million and $93 million as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, we had an aggregate principal amount of $9.3 billion of outstanding senior notes, of which 91% bore interest at fixed rates. We entered into $2.4 billion of interest rate swap agreements that have the economic effect of modifying the fixed interest obligations associated with $1.15 billion of our 2.200% senior notes due July 2019, $750 million of our 2.875% senior notes due July 2021, and $500 million of our 3.450% senior notes due July 2024 so that the interest payable on those notes effectively became variable based on LIBOR plus a spread. Further changes in interest rates will impact interest expense on any borrowings under our revolving credit facility, which bear interest at floating rates, and the interest rate on any commercial paper borrowings we make and any debt securities we may issue in the future and, accordingly, will impact interest expense. For additional details related to our debt, see “Note 10 – Debt” to the consolidated financial statements included in this report.
 
Equity Price Risk

Investments

The primary objective of our investment activities is to preserve principal while at the same time improving yields without significantly increasing risk. To achieve this objective, we maintain our cash equivalents and short-term and long-term investments in a variety of asset types, including bank deposits, government bonds and corporate debt securities.

As of December 31, 2018, our equity investments totaled $143 million, which represented approximately 2% of our total cash and investments, and were primarily related to equity investments without readily determinable fair values. We review our investments for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value is other-than-temporary. Our analysis includes a review of recent operating results and trends, recent sales/acquisitions of the securities in which we have invested and other publicly available data.

Warrant

We entered into a warrant agreement with a service provider, which subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service providers fully diluted issued and outstanding share capital. The warrant is accounted for as a derivative instrument under ASC Topic 815, Derivatives and Hedging. Changes in the service provider’s common stock price and equity volatility may have a significant impact on the value

55


of the warrant. As of December 31, 2018, a one dollar change in the service provider’s common stock, holding other factors constant, would increase or decrease the fair value of the warrant by approximately $1 million. For additional details related to the warrant, please see “Note 7 - Derivative Instruments” to our consolidated financial statements included in this report.

Foreign Currency Risk

Our commerce platforms operate globally, resulting in certain revenues and costs that are denominated in foreign currencies, primarily the euro, British pound, Korean won and Australian dollar, subjecting us to foreign currency risk, which may adversely impact 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 we provide. Our cash flow, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities.

We have a foreign exchange exposure management program designed to identify material foreign currency exposures, manage these exposures and reduce the potential effects of currency fluctuations on our reported consolidated cash flows and results of operations through the purchase of foreign currency exchange contracts. The effectiveness of the program and resulting usage of foreign exchange derivative contracts is at times limited by our ability to achieve cash flow hedge accounting. For additional details related to our derivative instruments, please see “Note 7 – Derivative Instruments” to our consolidated financial statements included in this report.

We use foreign exchange derivative contracts to help protect our forecasted U.S. dollar-equivalent earnings from adverse changes in foreign currency exchange rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse currency exchange rate movements. Most of these contracts are designated as cash flow hedges for accounting purposes. For qualifying cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. For contracts not designated as cash flow hedges for accounting purposes, the derivative’s gain or loss is recognized immediately in earnings in our consolidated statement of income. However, only certain revenue and costs are eligible for cash flow hedge accounting.

The following table illustrates the fair values of outstanding foreign exchange contracts designated as cash flow hedges and net investment hedges, and the before-tax effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed as of December 31, 2018. The sensitivity for foreign currency contracts is based on a 20% adverse change in foreign exchange rates, against relevant functional currencies.
 
Fair Value Asset/(Liability)
 
Fair Value Sensitivity
 
(In millions)
Foreign exchange contracts - Cash flow hedges
$
76

 
$
(118
)
Foreign exchange contracts - Net investment hedges
$
(1
)
 
$
(160
)

Since our risk management programs are highly effective, the potential loss in value described above would be largely offset by changes in the value of the underlying exposure.

Beginning in the third quarter of 2017, due to the realignment of our legal structure, more currency flows met the GAAP criteria for cash flow hedge accounting. Accordingly, $28 million in qualifying hedging activity was netted against marketplace net transaction revenues in the second half of 2017 as compared to $8 million for the full year of 2018.

In addition, we use foreign exchange contracts to offset the foreign exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts reduce, but do not entirely eliminate, the impact of currency exchange rate movements on our assets and liabilities. The foreign currency gains and losses on the assets and liabilities are recorded in interest and other, net, which are offset by the gains and losses on the foreign exchange contracts.


56


We considered the historical trends in currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 20% for all currencies could be experienced in the near term. These changes would have resulted in an adverse impact on income before income taxes of approximately $26 million as of December 31, 2018 taking into consideration the offsetting effect of foreign exchange forwards in place as of December 31, 2018.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are included elsewhere in this Annual Report on Form 10-K.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures: Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2018.

Changes in internal controls: There were no changes in our internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s annual report on internal control over financial reporting: Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.

The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K.

ITEM 9B: OTHER INFORMATION

Not applicable.


57


PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated by reference from our Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.

Code of Ethics, Governance Guidelines and Committee Charters

We have adopted a Code of Business Conduct and Ethics that applies to all eBay employees and directors. The Code of Business Conduct and Ethics is posted on our website at https://investors.ebayinc.com/corporate-governance/governance-documents/. We will post any amendments to or waivers from the Code of Business Conduct and Ethics at that location.

We have also adopted Governance Guidelines for the Board of Directors and a written committee charter for each of our Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee. Each of these documents is available on our website at https://investors.ebayinc.com/corporate-governance/governance-documents/.

ITEM 11: EXECUTIVE COMPENSATION

Incorporated by reference from our Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from our Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from our Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from our Proxy Statement for our 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2018.


58


PART IV

ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements:
 
 
Page Number
Report of Independent Registered Public Accounting Firm
F-1
Consolidated Balance Sheet
F-2
Consolidated Statement of Income
F-3
Consolidated Statement of Comprehensive Income
F-4
Consolidated Statement of Stockholders’ Equity
F-5
Consolidated Statement of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-8
 
 
2. Financial Statement Schedule
 
 
 
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
 
 
 
3. Exhibits Required by Item 601 of Regulation S-K
 
The information required by this Item is set forth in the Index to Exhibits that precedes the signature page of this Annual Report.

ITEM 16: FORM 10-K SUMMARY
None.


59


Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of eBay Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of eBay Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2018 appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenues from contracts with customers in 2018.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s annual report on internal control over financial reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 30, 2019

We have served as the Company’s auditor since 1997.

F-1


PART II: FINANCIAL INFORMATION
ITEM 8:
FINANCIAL STATEMENTS
eBay Inc.
CONSOLIDATED BALANCE SHEET
 
December 31,
 
2018
 
2017
 
(In millions, except par value)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,202


$
2,120

Short-term investments
2,713


3,743

Accounts receivable, net
712


696

Other current assets
1,499


1,185

Total current assets
7,126


7,744

Long-term investments
3,778


6,331

Property and equipment, net
1,597


1,597

Goodwill
5,160


4,773

Intangible assets, net
92


69

Deferred tax assets
4,792

 
5,199

Other assets
274


273

Total assets
$
22,819


$
25,986

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 

 
 

Short-term debt
$
1,546

 
$
781

Accounts payable
286

 
330

Accrued expenses and other current liabilities
2,335

 
2,134

Deferred revenue
170

 
137

Income taxes payable
117

 
177

Total current liabilities
4,454

 
3,559

Deferred tax liabilities
2,925

 
3,424

Long-term debt
7,685

 
9,234

Other liabilities
1,474

 
1,720

Total liabilities
16,538

 
17,937

Commitments and contingencies (Note 11)

 

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 3,580 shares authorized; 915 and 1,029 shares outstanding
2

 
2

Additional paid-in capital
15,716

 
15,293

Treasury stock at cost, 763 and 632 shares
(26,394
)
 
(21,892
)
Retained earnings
16,459

 
13,929

Accumulated other comprehensive income
498

 
717

Total stockholders’ equity
6,281

 
8,049

Total liabilities and stockholders’ equity
$
22,819

 
$
25,986


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

F-2


eBay Inc.
CONSOLIDATED STATEMENT OF INCOME
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions, except per share amounts)
Net revenues
$
10,746

 
$
9,927

 
$
9,298

Cost of net revenues
2,382

 
2,221

 
2,004

Gross profit
8,364

 
7,706

 
7,294

Operating expenses:
 
 
 

 
 
Sales and marketing
3,391

 
2,878

 
2,691

Product development
1,285

 
1,224

 
1,114

General and administrative
1,131

 
1,030

 
899

Provision for transaction losses
286

 
272

 
231

Amortization of acquired intangible assets
49

 
38

 
34

Total operating expenses
6,142

 
5,442

 
4,969

Income from operations
2,222

 
2,264

 
2,325

Interest and other, net
496

 
11

 
1,326

Income from continuing operations before income taxes
2,718

 
2,275

 
3,651

Income tax benefit (provision)
(190
)
 
(3,288
)
 
3,634

Income (loss) from continuing operations
$
2,528

 
$
(1,013
)
 
$
7,285

Income (loss) from discontinued operations, net of income taxes
2

 
(4
)
 
(19
)
Net income (loss)
$
2,530

 
$
(1,017
)
 
$
7,266

 
 
 
 
 
 
Income (loss) per share - basic:
 
 
 
 
 
Continuing operations
$
2.58

 
$
(0.95
)
 
$
6.43

Discontinued operations
—

 
—

 
(0.02
)
Net income (loss) per share - basic
$
2.58

 
$
(0.95
)
 
$
6.41

 
 
 
 
 
 
Income (loss) per share - diluted:
 
 
 
 
 
Continuing operations
$
2.55

 
$
(0.95
)
 
$
6.37

Discontinued operations
—

 
—

 
(0.02
)
Net income (loss) per share - diluted
$
2.55

 
$
(0.95
)
 
$
6.35

 
 
 
 
 
 
Weighted average shares:
 
 
 
 
 
Basic
980

 
1,064

 
1,133

Diluted
991

 
1,064

 
1,144


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


F-3


eBay Inc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions)
Net income (loss)
$
2,530

 
$
(1,017
)
 
$
7,266

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

 
 

 
 

Foreign currency translation adjustment
(286
)
 
978

 
(185
)
Unrealized gains (losses) on investments, net
(41
)
 
(66
)
 
(794
)
Tax benefit (expense) on unrealized gains (losses) on investments, net
10

 
23

 
314

Unrealized gains (losses) on hedging activities, net
125

 
(111
)
 
18

Tax benefit (expense) on unrealized gains (losses) on hedging activities, net
(27
)
 
17

 
(3
)
Other comprehensive income (loss), net of tax
(219
)
 
841

 
(650
)
Comprehensive income (loss)
$
2,311

 
$
(176
)
 
$
6,616


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


F-4


eBay Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions)
Common stock:
 
 
 
 
 
Balance, beginning of year
$
2

 
$
2

 
$
2

Common stock issued
—

 
—

 
—

Common stock repurchased/forfeited
—

 
—

 
—

Balance, end of year
2

 
2

 
2

Additional paid-in-capital:
 
 
 
 
 
Balance, beginning of year
15,293

 
14,907

 
14,538

Common stock and stock-based awards issued
109

 
120

 
102

Tax withholdings related to net share settlements of restricted stock awards and units
(225
)
 
(219
)
 
(121
)
Stock-based compensation
538

 
484

 
416

Stock-based awards tax impact
—

 
—

 
5

Other
1

 
1

 
(33
)
Balance, end of year
15,716

 
15,293

 
14,907

Treasury stock at cost:
 
 
 
 
 
Balance, beginning of year
(21,892
)
 
(19,205
)
 
(16,203
)
Common stock repurchased
(4,502
)
 
(2,687
)
 
(3,002
)
Balance, end of year
(26,394
)
 
(21,892
)
 
(19,205
)
Retained earnings:
 
 
 
 
 
Balance, beginning of year
13,929

 
14,946

 
7,713

Net income (loss)
2,530

 
(1,017
)
 
7,266

Cumulative effect of accounting change
—

 
—

 
(13
)
Distribution of PayPal
—

 
—

 
(20
)
Balance, end of year
16,459

 
13,929

 
14,946

Accumulated other comprehensive income (loss):
 
 
 
 
 
Balance, beginning of year
717

 
(124
)
 
526

Change in unrealized gains (losses) on investments
(41
)
 
(66
)
 
(794
)
Change in unrealized gains (losses) on derivative instruments
125

 
(111
)
 
18

Foreign currency translation adjustment
(286
)
 
978

 
(185
)
Tax benefit (provision) on above items
(17
)
 
40

 
311

Balance, end of year
498

 
717

 
(124
)
Total stockholders’ equity
$
6,281

 
$
8,049

 
$
10,526

Number of shares:
 
 
 
 
 
Common stock - shares outstanding:
 
 
 
 
 
Balance, beginning of year
1,029

 
1,087

 
1,184

Common stock issued
17

 
24

 
22

Common stock repurchased/forfeited
(131
)
 
(82
)
 
(119
)
Balance, end of year
915

 
1,029

 
1,087


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


F-5


eBay Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(In millions)
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
2,530

 
$
(1,017
)
 
$
7,266

(Income) loss from discontinued operations, net of income taxes
(2
)
 
4

 
19

Adjustments:
 
 
 
 
 
Provision for transaction losses
286

 
272

 
231

Depreciation and amortization
696

 
676

 
682

Stock-based compensation
538

 
483

 
416

(Gain) Loss on investments, net
(572
)
 
49

 
(1,236
)
Gain on sale of business
—

 
(167
)
 
—

Deferred income taxes
(153
)
 
1,728

 
(4,556
)
Change in fair value of warrant
(104
)
 
—

 
—

Other
19

 
—

 
(15
)
Changes in assets and liabilities, net of acquisition effects
 
 
 
 
 
Accounts receivable
(98
)
 
(195
)
 
(48
)
Other current assets
(143
)
 
(148
)
 
23

Other non-current assets
108

 
19

 
94

Accounts payable
(47
)
 
19

 
(28
)
Accrued expenses and other liabilities
(437
)
 
206

 
(130
)
Deferred revenue
33

 
8

 
4

Income taxes payable and other tax liabilities
7

 
1,209

 
105

Net cash provided by continuing operating activities
2,661

 
3,146

 
2,827

Net cash used in discontinued operating activities
(3
)
 
—

 
(1
)
Net cash provided by operating activities
2,658

 
3,146

 
2,826

Cash flows from investing activities:
 

 
 

 
 

Purchases of property and equipment
(651
)
 
(666
)
 
(626
)
Purchases of investments
(28,115
)
 
(14,599
)
 
(11,212
)
Maturities and sales of investments
30,901

 
14,520

 
10,063

Equity investment in Flipkart
—

 
(514
)
 
—

Proceeds from sale of equity investment in Flipkart
1,029

 
—

 
—

Acquisitions, net of cash acquired
(302
)
 
(34
)
 
(212
)
Other
32

 
(2
)
 
(30
)
Net cash provided by (used in) investing activities
2,894

 
(1,295
)
 
(2,017
)
Cash flows from financing activities:
 

 
 

 
 

Proceeds from issuance of common stock
109

 
120

 
102

Repurchases of common stock
(4,502
)
 
(2,746
)
 
(2,943
)
Tax withholdings related to net share settlements of restricted stock awards and units
(225
)
 
(219
)
 
(121
)
Proceeds from issuance of long-term debt, net
—

 
2,484

 
2,216

Repayment of debt
(750
)
 
(1,452
)
 
(20
)
Other
(30
)
 
29

 
22

Net cash used in financing activities
(5,398
)
 
(1,784
)
 
(744
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(75
)
 
238

 
(90
)
Net increase (decrease) in cash, cash equivalents and restricted cash
79

 
305

 
(25
)
Cash, cash equivalents and restricted cash at beginning of period
2,140

 
1,835

 
1,860

Cash, cash equivalents and restricted cash of continuing operations at end of period
$
2,219

 
$
2,140

 
$
1,835

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

F-6


Supplemental cash flow disclosures:
 

 
 

 
 

Cash paid for:
 
 
 
 
 
Interest
$
314

 
$
285

 
$
220

Income taxes
$
597

 
$
308

 
$
492

Noncash investing activities:
 
 
 
 
 
Relinquishment of equity method investment
$
266

 
$
—

 
$
—

Sale of business in exchange for ownership interest in Flipkart
$
—

 
$
211

 
$
—

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

F-7


eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company and Summary of Significant Accounting Policies

The Company

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. Our StubHub platforms include our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Our Classifieds platforms include a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. 

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 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 losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, investments, 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 financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities (“VIE”) where we are 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 as equity investments to be measured at fair value or, under an election, at cost if it does not have readily determinable fair value, in which case the carrying value would be adjusted upon the occurrence of an observable price change or impairment.

Certain prior period amounts have been reclassified on our consolidated financial statements to conform with current year presentation. We have evaluated all subsequent events through the date the consolidated financial statements were issued.


F-8
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Significant Accounting Policies

Revenue recognition
We recognize revenue when we transfer control of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Revenue is recognized net of any taxes collected, which are subsequently remitted to governmental authorities.
Net transaction revenues
Our net transaction revenues primarily include final value fees, feature fees, including fees to promote listings, and listing fees from sellers in our Marketplace and final value fees from sellers and buyers on our StubHub platforms. Our net transaction revenues also include store subscription and other fees often from large enterprise sellers. Our net transaction revenues are reduced by incentives provided to our customers.
We identified one performance obligation to sellers on our Marketplace platform, which is to connect buyers and sellers on our secure and trusted Marketplace platforms. Final value fees are recognized when an item is sold on a Marketplace platform, satisfying this performance obligation. There may be additional services available to Marketplace sellers, mainly to promote or feature listings, that are not distinct within the context of the contract. Accordingly, feature and listing fees associated with these services are recognized when the single performance obligation is satisfied when an item is sold, or when the contract expires. On our StubHub platform, our performance obligation extends to both buyers and sellers. We made the policy election to consider delivery of tickets in our StubHub platform to be fulfillment activities and, consequently, the performance obligation is satisfied, and final value fees are recognized, upon payment to sellers.
Store subscription and other nonstandard listing contracts may contain multiple performance obligations, including discounts on future services. Determining whether performance obligations should be accounted for separately or combined may require significant judgment. The transaction price is allocated to each performance obligation based on its stand-alone selling price (“SSP”). In instances where SSP is not directly observable, we generally estimate selling prices based on when they are sold to customers of a similar nature and geography. These estimates are generally based on pricing strategies, market factors, strategic objectives and observable inputs. Store subscription revenues are recognized over the subscription period, and discounts offered through store subscription or nonstandard listing contracts are recognized when the options are exercised or when the options expire.
Further, to drive traffic to our platforms, we provide incentives to buyers and sellers in various forms including discounts on fees, discounts on items sold, coupons and rewards. Evaluating whether a promotion or incentive is a payment to a customer may require significant judgment. Promotions and incentives which are consideration payable to a customer are recognized as a reduction of revenue at the later of when revenue is recognized or when we pay or promise to pay the incentive. Promotions and incentives to most buyers on our Marketplace platforms, to whom we have no performance obligation, are recognized as sales and marketing expense. In addition, we may provide credits to customers when we refund certain fees. Credits are accounted for as variable consideration at contract inception when estimating the amount of revenue to be recognized when a performance obligation is satisfied to the extent that it is probable that a significant reversal of revenue will not occur and updated as additional information becomes available.
Marketing services and other revenues

Our marketing services and other revenues are derived principally from the sale of advertisements, classifieds fees, and revenue sharing arrangements. Advertising revenue is derived principally from the sale of online advertisements which are based on “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) or “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) delivered to advertisers. We use the output method and apply the practical expedient to recognize advertising revenue in the amount to which we have a right to invoice. For contracts with target advertising commitments with rebates, estimated payout is accounted for as a variable consideration to the extent it is probable that a significant reversal of revenue will not occur.

We generate net revenues related to fees for listing items on our Classifieds platforms, which are recognized over the estimated period of the classifieds listing and fees to feature the listing that are recognized over the feature

F-9
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


period or a point in time depending on the nature of the feature purchased. Discounts offered through purchase of packages of multiple services are allocated based on the SSP of each respective feature.

Revenues related to revenue sharing arrangements are recognized based on whether we are the principal and are responsible for fulfilling the promise to provide the specified services or whether we are an agent arranging for those services to be provided by our partners. Determining whether we are a principal or agent in these contracts may require significant judgment. If we are the principal, we recognize revenue in the gross amount of consideration received from the customer, whereas if we are an agent, we recognize revenue net of the consideration due to our partners at a point in time when the services are provided. Our most significant revenue share arrangements are with shipping service providers. We are primarily acting as an agent in these contracts and revenues are recognized at a point in time when we have satisfied our promise of connecting the shipping service provider to our customer.
Refer to “Note 5 - Segments” for further information, including revenue by types and geographical markets.
Contract balances  

Timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable represents amounts invoiced and revenue recognized prior to invoicing when we have satisfied our performance obligation and have the unconditional right to payment. The allowance for doubtful accounts and authorized credits is estimated based upon our assessment of various factors including historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. The allowance for doubtful accounts and authorized credits was $106 million and $102 million as of December 31, 2018 and December 31, 2017, respectively.
Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following reporting period. The amount of revenue recognized for the twelve months ended December 31, 2018 that was included in the deferred revenue balance at the beginning of the period was $96 million. The amount of revenue recognized for the twelve months ended December 31, 2017 that was included in the deferred revenue balance at the beginning of the period was $88 million.

Internal use software and platform development costs

Direct costs incurred to develop software for internal use and platform development costs are capitalized and amortized over an estimated useful life of one to five years. During the years ended December 31, 2018 and 2017, we capitalized costs, primarily related to labor and stock-based compensation, of $147 million and $140 million, respectively. Amortization of previously capitalized amounts was $160 million, $156 million and $149 million for 2018, 2017 and 2016, respectively. Costs related to the design or maintenance of internal use software and platform development are expensed as incurred.

Advertising expense

We expense the costs of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used, in each case as sales and marketing expense. Internet advertising expenses are recognized based on the terms of the individual agreements, which are generally over the greater of the ratio of the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising expense totaled $1.4 billion, $1.3 billion and $1.2 billion for the years ended December 31, 2018, 2017 and 2016, respectively.


F-10
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Stock-based compensation

We have equity incentive plans under which we grant equity awards, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units, and performance share units, to our directors, officers and employees. We primarily issue RSUs. We determine compensation expense associated with RSUs based on the fair value of our common stock on the date of grant. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for 2018, 2017 and 2016 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. We recognize a benefit or provision from stock-based compensation in earnings as a component of income tax expense to the extent that an incremental tax benefit or deficiency is realized by following the ordering provisions of the tax law. In addition, we account for the indirect effects of stock-based compensation on the research tax credit and the foreign tax credit through our consolidated statement of income.

Provision for transaction losses

Provision for transaction losses consists primarily of losses resulting from our buyer protection programs, fraud and bad debt expense associated with our accounts receivable balance. Provisions for these items represent our estimate of actual losses based on our historical experience and many other factors including changes to our protection programs, the impact of regulatory changes as well as economic conditions.

Income taxes

We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis in our 2017 consolidated financial statements. We completed our accounting in the fourth quarter of 2018 within the one year measurement period from the enactment date.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are primarily comprised of bank deposits and certificates of deposit.

Investments

Short-term investments, which may include marketable equity securities, time deposits, certificates of deposit, government bonds and corporate debt securities with original maturities of greater than three months but less than one year when purchased, are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses related to equity securities are recognized in interest & other, net, with all other unrealized gains and losses reported as a component of other comprehensive income (loss), net of related estimated income tax provisions or benefits.

Long-term investments may include marketable government bonds and corporate debt securities, time deposits, certificates of deposit and equity investments. Debt securities are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses on our available-for-sale debt securities are excluded from earnings and reported as a component of other comprehensive income (loss), net of related estimated income tax provisions or benefits.

F-11
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



Our equity investments are primarily investments in privately-held companies. Our consolidated results of operations include, as a component of interest and other, net, our share of the net income or loss of the equity investments accounted for under the equity method of accounting. Our share of investees’ results of operations is not significant for any period presented. Equity investments without readily determinable fair values are accounted for at cost, less impairment and adjusted for subsequent observable price changes obtained from orderly transactions for identical or similar investments issued by the same investee. Such changes in the basis of the equity investment are recognized in interest & other, net.

We assess whether an other-than-temporary impairment loss on our investments has occurred due to declines in fair value or other market conditions. With respect to our debt securities, this assessment takes into account the severity and duration of the decline in value, our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and whether we expect to recover the entire amortized cost basis of the security (that is, whether a credit loss exists).

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation for equipment, buildings and leasehold improvements commences once they are ready for our intended use. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally, one to three years for computer equipment and software, up to thirty years for buildings and building improvements, the shorter of five years or the term of the lease for leasehold improvements and three years for furniture, fixtures and vehicles. Land is not depreciated.
 
Goodwill and intangible assets

Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level. A qualitative assessment can be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using income and market approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate. The market approach uses comparable company prices and other relevant information generated by market transactions (either publicly traded entities or mergers and acquisitions) to develop pricing metrics to be applied to historical and expected future operating results of our reporting units. Failure to achieve these expected results, changes in the discount rate or market pricing metrics may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2018 and 2017 and determined that no adjustment to the carrying value of goodwill for any reporting units was required. 

Intangible assets consist of purchased customer lists and user base, marketing related, developed technologies and other intangible assets, including patents and contractual agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to five years. No significant residual value is estimated for intangible assets.

Impairment of long-lived assets

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. In 2018, 2017 and 2016, no impairment was noted.


F-12
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Foreign currency
 
Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated into U.S. dollars using exchange rates prevailing at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year. Gains and losses resulting from the translation of our consolidated balance sheet are recorded as a component of accumulated other comprehensive income.

Gains and losses from foreign currency transactions are recognized as interest and other, net.

Derivative instruments

We use derivative financial instruments, primarily forwards, options and swaps, to hedge certain foreign currency and interest rate exposures. We may also use other derivative instruments not designated as hedges, such as forwards to hedge foreign currency balance sheet exposures. We do not use derivative financial instruments for trading purposes. 

We also entered into a warrant agreement in addition to a commercial agreement with a service provider that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service provider’s fully diluted issued and outstanding share capital at a specific date. The warrant is accounted for as a derivative instrument under ASC Topic 815, Derivatives and Hedging.

See “Note 7 - Derivative Instruments” for a full description of our derivative instrument activities and related accounting policies.

Concentration of credit risk

Our cash, cash equivalents, accounts receivable and derivative instruments are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Our accounts receivable are derived from revenue earned from customers. In each of the years ended December 31, 2018, 2017 and 2016, no customer accounted for more than 10% of net revenues. Our derivative instruments expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the agreements.

Recently Adopted Accounting Pronouncements

In 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard replaces all current GAAP guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations. We adopted the standard effective January 1, 2018 using the full retrospective transition method and recast each prior reporting period presented. The cumulative adjustment to retained earnings as of January 1, 2016 was immaterial.

Under the new standard, we identified one performance obligation related to the core service offered to sellers on our Marketplace platform and believe additional services, mainly to promote or feature listings at the option of sellers, are not distinct within the context of the contract. Accordingly, certain fees paid by sellers for these services will be recognized when the single performance obligation is satisfied or when the contract expires resulting, in some cases, in a change in the timing of recognition. In addition, we made the policy election to consider delivery of tickets in our StubHub business to be fulfillment activities and, consequently, the performance obligation is considered to be satisfied upon payment to sellers. The impact of this policy election will allow an acceleration of revenue recognition for certain users. The total impact resulting from the change in timing of recognition for both the Marketplace and StubHub platforms was an immaterial net change in transaction revenue for both the twelve month periods ended December 31, 2017 and 2016, and an increase in deferred revenue of $20 million and $19 million as of December 31, 2017 and 2016, respectively.

F-13
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



Further, certain incentives, such as coupons and rewards provided to certain users from which we do not earn revenue within the context of the identified contract, of $363 million and $323 million for the twelve months ended December 31, 2017 and 2016, respectively, was recognized as sales and marketing expenses, which historically was recorded as a reduction of revenue.

Adoption of this guidance impacted our previously reported results as follows (in millions, except per share data):
 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
Net revenues
 
$
9,567

 
$
9,927

 
$
8,979

 
$
9,298

Cost of net revenues
 
$
2,222

 
$
2,221

 
$
2,007

 
$
2,004

Sales and marketing
 
$
2,515

 
$
2,878

 
$
2,368

 
$
2,691

Net income (loss)
 
$
(1,016
)
 
$
(1,017
)
 
$
7,266

 
$
7,266

 
 
 
 
 
 
 
 
 
Net income (loss) per share - basic
 
$
(0.95
)
 
$
(0.95
)
 
$
6.41

 
$
6.41

 
 
 
 
 
 
 
 
 
Net income (loss) per share - diluted
 
$
(0.95
)
 
$
(0.95
)
 
$
6.35

 
$
6.35



In 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. In 2018, the FASB issued certain clarifications related to the application of the new guidance. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption. We anticipate that the standard will increase the volatility of our other income (expense), net, as a result of the remeasurement of equity investments.

In 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. Additionally, the FASB issued new guidance to include restricted cash with cash and cash equivalents when reconciling the beginning-of-the-period and end-of-the-period total amounts shown on the statement of cash flows. The new standards are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2016, the FASB issued new guidance that requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. It is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance that narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption; however, adoption of the new guidance will impact management’s consideration of strategic investments.

In 2017, the FASB issued new guidance to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also defines what constitutes an “in substance nonfinancial asset”

F-14
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance to amend the scope of modification accounting for share-based payment arrangements. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under ASC 718, Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. We adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance to simplify the application of the hedge accounting guidance in current GAAP and improve the financial reporting of hedging relationships by allowing entities to better align its risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods with early adoption permitted. We early adopted this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2018, the FASB issued new guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, eliminating the stranded tax effects resulting from the Tax Cuts and Jobs Act. However, the new guidance only applies to the tax effects resulting from the Tax Cuts and Jobs Act and does not change the underlying guidance to recognize the effect of a change in tax laws or rates in income from continuing operations. The amendments are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We have elected to not reclassify the stranded tax effects resulting from the Tax Cut and Jobs Act to retained earnings. Accordingly, the standard does not have an impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In 2016, the FASB issued new guidance related to accounting for leases. The new guidance requires the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. In 2018, the FASB also approved an amendment that would permit the option to adopt the new standard prospectively as of the effective date, without adjusting comparative periods presented. The new standard will be effective for us beginning January 1, 2019. In preparation for the adoption of the new standard, we have implemented internal controls and a new lease accounting information system to enable the preparation of financial information. We will elect the optional transition approach to not apply the new lease standard in the comparative periods presented and the package of practical expedients. We will also elect the practical expedient to not account for lease and non-lease components separately for data center operating leases. We expect adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases of approximately $700 million to $800 million at January 1, 2019, with the most significant impact from recognition of ROU assets and lease liabilities related to our office space, data center, fulfillment center and other corporate asset operating leases. The adoption of the new standard will not have a material impact on our consolidated statement of income, stockholders’ equity and cash flows.

In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2017, the FASB issued new guidance to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure

F-15
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2017, the FASB issued new guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. The new guidance will not impact debt securities held at a discount. Adoption of this standard will be made on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This standard will be effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued guidance to permit use of the Overnight Index Swap (“OIS”) rate as a U.S. benchmark interest rate for hedge accounting purposes in addition to the UST, the London InterBank Offered Rate (“LIBOR”) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Market Association Municipal Swap Rate. This guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance to clarify the interaction between Collaborative Arrangements and Revenue from Contracts with Customers standards. The guidance (1) clarifies that certain transactions between collaborative arrangement participants should be accounted under revenue guidance; (2) adds unit of account guidance to the collaborative arrangement guidance to align with the revenue standard; and (3) clarifies presentation guidance for transactions with a collaborative arrangement participant that is not accounted for under the revenue standard. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.


F-16
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 2 – Net Income (loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) 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 equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares.

The following table presents the computation of basic and diluted net income (loss) per share (in millions, except per share amounts):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Income (loss) from continuing operations
$
2,528

 
$
(1,013
)
 
$
7,285

Income (loss) from discontinued operations, net of income taxes
2

 
(4
)
 
(19
)
Net income (loss)
$
2,530

 
$
(1,017
)
 
$
7,266

Denominator:
 
 
 
 
 
Weighted average shares of common stock - basic
980

 
1,064

 
1,133

Dilutive effect of equity incentive awards
11

 
—

 
11

Weighted average shares of common stock - diluted
991

 
1,064

 
1,144

Income (loss) per share - basic:
 
 
 
 
 
Continuing operations
$
2.58

 
$
(0.95
)
 
$
6.43

Discontinued operations
—

 
—

 
(0.02
)
Net income (loss) per share - basic
$
2.58

 
$
(0.95
)
 
$
6.41

Income (loss) per share - diluted:
 
 
 
 
 
Continuing operations
$
2.55

 
$
(0.95
)
 
$
6.37

Discontinued operations
—

 
—

 
(0.02
)
Net income (loss) per share - diluted
$
2.55

 
$
(0.95
)
 
$
6.35

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
12

 
46

 
8




F-17


Note 3 – Business Combinations

Business Combinations

In 2018, we completed the acquisition of 100% of Giosis Pte. Ltd.’s (“Giosis”) Japan business, including the Qoo10.jp platform, in exchange for $306 million in cash and the relinquishment of our existing equity method investment in Giosis. We believe the acquisition allows us to offer Japanese consumers more inventory and grow our international presence. Refer to “Note 6 - Investments” for further details on the relinquishment of our equity method investment in Giosis’ non-Japanese business. The aggregate purchase consideration was allocated as follows (in millions):
 
Giosis
Goodwill
$
532

Purchased intangible assets
91

Net liabilities
(50
)
Total
$
573



These allocations were prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Giosis. We generally do not expect goodwill to be deductible for income tax purposes.

Acquisition activity in 2017 was immaterial.

During 2016, we completed six acquisitions – Cargigi Inc., Expertmaker, SalesPredict, Ticketbis, Ticket Utils and Corrigon Ltd. – for an aggregate purchase consideration of approximately $212 million in cash. We believe these acquisitions will help us build a better user experience, improve discoverability and grow our international presence.

The aggregate purchase consideration of our 2016 acquisitions was allocated as follows (in millions):
 
Ticketbis
 
Other
 
Total
Purchased intangible assets
$
48

 
$
28

 
$
76

Goodwill
128

 
57

 
185

Net liabilities
(35
)
 
(14
)
 
(49
)
Total
$
141

 
$
71

 
$
212



These allocations have been prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. We generally do not expect goodwill to be deductible for income tax purposes.

Our consolidated financial statements include the operating results of acquired businesses from the date of acquisition. Separate operating results and pro forma results of operations for the acquisition above have not been presented as the effect of these acquisitions is not material to our financial results.

Note 4 – Goodwill and Intangible Assets

Goodwill

The following table presents goodwill activity for the years ended December 31, 2018 and 2017 (in millions):
 
December 31,
2016
 
Goodwill Acquired
 
Adjustments
 
December 31,
2017
 
Goodwill
Acquired
 
Adjustments
 
December 31,
2018
Goodwill
$
4,501

 
10

 
262

 
$
4,773

 
532

 
(145
)
 
$
5,160



The adjustments to goodwill during the years ended December 31, 2018 and 2017 were primarily due to foreign currency translation. There were no impairments to goodwill in 2018 and 2017.


F-18
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Intangible Assets

The components of identifiable intangible assets are as follows (in millions, except years): 
 
December 31, 2018
 
December 31, 2017
 
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)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
519

 
$
(445
)
 
$
74

 
5
 
$
458

 
$
(430
)
 
$
28

 
5
Marketing-related
584

 
(578
)
 
6

 
5
 
607

 
(587
)
 
20

 
5
Developed technologies
278

 
(269
)
 
9

 
3
 
273

 
(258
)
 
15

 
3
All other
160

 
(157
)
 
3

 
4
 
156

 
(150
)
 
6

 
4
Total
$
1,541

 
$
(1,449
)
 
$
92

 
 
 
$
1,494

 
$
(1,425
)
 
$
69

 
 

  
Amortization expense for intangible assets was $63 million, $64 million and $56 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Expected future intangible asset amortization as of December 31, 2018 is as follows (in millions):
Fiscal year:
 
2019
$
49

2020
34

2021
9

Thereafter
—

Total
$
92



Note 5 – Segments

We have one operating and reportable segment. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The following table sets forth the breakdown of net revenues by type for the periods presented (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Net revenues by type:
 
 
 
 
 
Net transaction revenues:
 
 
 
 
 
Marketplace
$
7,416

 
$
6,809

 
$
6,425

StubHub
1,068

 
1,011

 
938

Total net transaction revenues
8,484

 
7,820

 
7,363

Marketing services and other revenues:
 
 
 
 
 
Marketplace
1,225

 
1,192

 
1,137

Classifieds
1,022

 
897

 
791

StubHub, Corporate and other
15

 
18

 
7

Total marketing services and other revenues
2,262

 
2,107

 
1,935

Total net revenues
$
10,746

 
$
9,927

 
$
9,298




F-19
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


The following tables summarize the allocation of net revenues and long-lived tangible assets based on geography (in millions):  
 
Year Ended December 31,
 
2018
  
2017
  
2016
Net revenues by geography:
 
 
 
 
 
U.S.
$
4,373

  
$
4,187

  
$
3,967

Germany
1,591

  
1,464

  
1,359

United Kingdom
1,481

  
1,368

  
1,331

South Korea
1,195

 
1,061

 
957

Rest of world
2,106

  
1,847

  
1,684

Total net revenues
$
10,746

 
$
9,927

 
$
9,298


 
As of December 31,
 
2018
  
2017
Long-lived tangible assets by geography:
 
 
 
U.S.
$
1,661

  
$
1,603

International
151

  
160

Total long-lived tangible assets
$
1,812

  
$
1,763



Net revenues, inclusive of the effects of foreign exchange during each period, are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider, or customer, as the case may be, is located. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned.

Note 6 – Investments
The following tables summarize the unrealized gains and losses and estimated fair value of our investments classified as available-for-sale as of December 31, 2018 and 2017 (in millions):
 
December 31, 2018
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
17

  
$
—

  
$
—

 
$
17

Corporate debt securities
2,615

  
—

  
(9
)
 
2,606

Government and agency securities
90

  
—

  
—

 
90

 
$
2,722

  
$
—

  
$
(9
)
 
$
2,713

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
3,682

  
1

  
(48
)
 
3,635

 
$
3,682

  
$
1

  
$
(48
)
 
$
3,635

 

F-20
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 
December 31, 2017
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
20

  
$
—

  
$
—

 
$
20

Corporate debt securities
3,726

  
1

  
(4
)
 
3,723

 
$
3,746

 
$
1

 
$
(4
)
 
$
3,743

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
5,458

  
12

  
(24
)
 
5,446

 
$
5,458

  
$
12

  
$
(24
)
 
$
5,446



Restricted cash is held primarily in interest bearing accounts for letters of credit primarily related to our global sabbatical program and various lease arrangements. Our fixed-income investments consist of predominantly investment grade corporate debt securities and government and agency securities. The corporate debt and government and agency securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies.

The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We regularly review investment securities for other-than-temporary impairment using both qualitative and quantitative criteria. We presently do not intend to sell any of the securities in an unrealized loss position and expect to realize the full value of all these investments upon maturity or sale.

Investment securities in a continuous loss position for greater than 12 months had an estimated fair value $2.7 billion and unrealized losses of $41 million as of December 31, 2018 and an estimated fair value of $360 million and an immaterial amount of unrealized losses as of December 31, 2017. As of December 31, 2018, these securities had a weighted average remaining maturity of approximately 17 months. Refer to “Note 16 - Accumulated Other Comprehensive Income” for amounts reclassified to earnings from unrealized gains and losses.
 
The estimated fair values of our short-term and long-term investments classified as available-for-sale by date of contractual maturity as of December 31, 2018 are as follows (in millions):  
 
December 31,
2018
One year or less (including restricted cash of $17)
$
2,713

One year through two years
1,922

Two years through three years
1,123

Three years through four years
473

Four years through five years
117

Thereafter
—

Total
$
6,348



Equity investments

Our equity investments are reported in long-term investments on our consolidated balance sheet. The following table provides a summary of our equity investments as of December 31, 2018 and December 31, 2017 (in millions):
 
December 31, 2018
 
December 31, 2017
Equity investments without readily determinable fair values
$
137

 
$
872

Equity investments under the equity method of accounting
6

 
13

Total equity investments
$
143

 
$
885



In 2018, we sold our investment in Flipkart and relinquished our existing equity method investment in Giosis as part of the exchange for the acquisition of Giosis’ Japan business. The $313 million gain upon sale of our investment in Flipkart and the $266 million gain upon relinquishment of our equity method investment in Giosis were recorded in

F-21
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


interest and other, net on our consolidated statement of income. Refer to “Note 3 - Business Combinations” for further details on the Giosis acquisition.

In 2017, we made a cost method investment of $50 million. In addition, we received a 5.44% ownership interest in Flipkart in exchange for our eBay India business and a $500 million cash investment, resulting in a cost method investment of $725 million. The gain on disposal of our eBay India business of $167 million was recorded in interest and other, net on our consolidated statement of income. In addition, we recorded a $61 million impairment charge to write-down our cost method investment in Jasper Infotech Private Limited (“Snapdeal”). The investment was measured at fair value due to events and circumstances that we identified as having significant impact on its fair value. The fair value measurement of the impaired investment was measured using significant unobservable inputs. The impairment charge, representing the difference between the net book value and the fair value, was recorded to interest and other, net.

The following table provides a summary of unrealized gains and losses recorded in interest and other, net during the twelve months ended December 31, 2018 related to equity investments without readily determinable fair values still held at December 31, 2018.

 
 
Year Ended
December 31, 2018
Net gains/(losses) recognized during the period on equity investments
 
$
313

Less: Net gains/(losses) recognized during the period on equity investments sold during the period
 
(313
)
Total unrealized gains/(losses) on equity investments still held
at December 31, 2018
 
$
—



The following table summarizes the total carrying value of equity investments without readily determinable fair values during the twelve months ended December 31, 2018 (in millions):

 
 
Year Ended
December 31, 2018
Carrying value, beginning of period
 
$
872

Additions
 
23

Sales
 
(718
)
Downward adjustments for observable price changes and impairment
 
(20
)
Foreign currency translation and other
 
(20
)
Carrying value, end of period
 
$
137



For such equity investments without readily determinable fair values as of December 31, 2018, cumulative downward adjustments for price changes and impairment was $81 million. As of December 31, 2018, there have been no upward adjustments for price changes to our equity investments without readily determinable fair values.

Note 7 – Derivative Instruments

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use any of our derivative instruments for trading purposes.

We use foreign currency exchange contracts to reduce the volatility of cash flows related to forecasted revenues, expenses, assets and liabilities, including intercompany balances denominated in foreign currencies. These contracts are generally one month to one year in duration, but with maturities up to 18 months. The objective of the foreign exchange contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. We evaluate the effectiveness of our foreign

F-22
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


exchange contracts designated as cash flow or net investment hedges on a quarterly basis.

We use interest rate swaps to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024. These interest rate swaps had the economic effect of modifying the fixed interest obligations associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became variable based on LIBOR plus a spread. The duration of these interest rate contracts matches the duration of the fixed rate notes due 2019, 2021 and 2024.

Cash Flow Hedges

For derivative instruments that are designated as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Unrealized gains and losses in AOCI associated with such derivative instruments are immediately reclassified into earnings. As of December 31, 2018, we have estimated that approximately $64 million of net derivative gain related to our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months. We classify cash flows related to our cash flow hedges as operating activities in our consolidated statement of cash flows.

Net Investment Hedges

For derivative instruments that are designated as net investment hedges, the derivative’s gain or loss is initially reported in the translation adjustments component of AOCI and is reclassified to net earnings in the period in which the hedged subsidiary is either sold or substantially liquidated.

Fair Value Hedges

We have designated the interest rate swaps used to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024 as qualifying hedging instruments and are accounting for them as fair value hedges. These transactions are designated as fair value hedges for financial accounting purposes because they protect us against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate movements. Changes in the fair values of these interest rate swap agreements are recognized in other assets or other liabilities with a corresponding increase or decrease in long-term debt. Each quarter we pay interest based on LIBOR plus a spread to the counterparty and on a semi-annual basis receive interest from the counterparty per the fixed rate of these senior notes. The net amount is recognized as interest expense in interest and other, net.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets or liabilities, including intercompany balances denominated in non-functional currencies. The gains and losses on our derivatives not designated as hedging instruments are recorded in interest and other, net, which are offset by the foreign currency gains and losses on the related assets and liabilities that are also recorded in interest and other, net. We classify cash flows related to our non-designated hedging instruments as operating activities in our consolidated statement of cash flows.

Warrant

We entered into a warrant agreement in conjunction with a commercial agreement with a service provider that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service providers fully diluted issued and outstanding share capital at a specific date. The warrant has a term of seven years and will vest in a series of four tranches, at a specified price per share upon meeting significant processing volume milestone targets on a calendar year basis. If and when the relevant milestone is reached, the warrant becomes exercisable with respect to the corresponding tranche of warrant shares up until the warrant expiration date of January 31, 2025. The maximum number of tranches that can vest in one calendar year is two.
 
The warrant is accounted for as a derivative under ASC Topic 815, Derivatives and Hedging. We report the warrant at fair value within other assets in our consolidated balance sheets and changes in the fair value of the warrant are

F-23
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


recognized in interest and other, net in our consolidated statement of income. The day-one value attributable to the other side of the warrant, which was recorded as a deferred credit, is reported within other liabilities in our consolidated balance sheets and will be amortized over the life of the commercial arrangement.

Fair Value of Derivative Contracts

The fair values of our outstanding derivative instruments as of December 31, 2018 and 2017 were as follows (in millions):
 
Balance Sheet Location
 
December 31,
2018
 
December 31,
2017
Derivative Assets:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Assets
 
$
72

 
$
16

Foreign exchange contracts not designated as hedging instruments
Other Current Assets
 
38

 
10

Warrant
Other Assets
 
148

 
—

Foreign exchange contracts designated as cash flow hedges
Other Assets
 
4

 
—

Interest rate contracts designated as fair value hedges
Other Assets
 
—

 
2

Total derivative assets
 
 
$
262

 
$
28

 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Liabilities
 
$
—

 
$
18

Foreign exchange contracts designated as net investment hedges
Other Current Liabilities
 
1

 
—

Interest rate contracts designated as fair value hedges
Other Current Liabilities
 
7

 
—

Foreign exchange contracts not designated as hedging instruments
Other Current Liabilities
 
30

 
11

Interest rate contracts designated as fair value hedges
Other Liabilities
 
10

 
—

Total derivative liabilities
 
 
$
48

 
$
29

 
 
 
 
 
 
Total fair value of derivative instruments
 
 
$
214

 
$
(1
)


Under the master netting agreements with the respective counterparties to our derivative contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type 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 on our consolidated balance sheet. As of December 31, 2018, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $30 million, resulting in net derivative assets of $84 million and net derivative liabilities of $1 million.

Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following tables present the activity of derivative instruments designated as cash flow hedges as of December 31, 2018 and 2017, and the impact of these derivative contracts on AOCI for the years ended December 31, 2018 and 2017 (in millions):
 
December 31, 2017
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
December 31, 2018
Foreign exchange contracts designated as cash flow hedges
$
(57
)
 
117

 
(8
)
 
$
68



F-24
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 
December 31, 2016
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
December 31, 2017
Foreign exchange contracts designated as cash flow hedges
$
54

 
(104
)
 
7

 
$
(57
)

Effect of Derivative Contracts on Consolidated Statement of Income

The following table provides a summary of the total gain (loss) recognized in the consolidated statement of income from our foreign exchange derivative contracts by location (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
(8
)
 
$
(28
)
 
$
—

Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues and operating expenses
—

 
11

 
7

Foreign exchange contracts designated as cash flow hedges recognized in interest and other, net
—

 
24

 
101

Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
9

 
(16
)
 
11

Total gain (loss) recognized from foreign exchange derivative contracts in the consolidated statement of income
$
1

 
$
(9
)
 
$
119


The following table provides a summary of the total gain (loss) recognized in the consolidated statement of income from our interest rate derivative contracts by location (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Gain (loss) from interest rate contracts designated as fair value hedges recognized in interest and other, net
$
(19
)
 
$
(21
)
 
$
(18
)
Gain (loss) from hedged items attributable to hedged risk recognized in interest and other, net
19

 
21

 
18

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

 
$
—

 
$
—


The following table provides a summary of the total gain recognized in the consolidated statement of income due to changes in the fair value of the warrant (in millions): 
 
Year Ended
December 31,
 
2018
 
2017
 
2016
Gain attributable to changes in the fair value of warrant recognized in interest and other, net
$
104

 
$
—

 
$
—





F-25
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Notional Amounts of Derivative Contracts

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 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. The following table provides the notional amounts of our outstanding derivatives as of December 31, 2018 and 2017 (in millions):
 
December 31,
 
2018
 
2017
Foreign exchange contracts designated as cash flow hedges
$
1,510

 
$
1,990

Foreign exchange contracts designated as net investment hedges
804

 
—

Foreign exchange contracts not designated as hedging instruments
3,517

 
2,349

Interest rate contracts designated as fair value hedges
2,400

 
2,400

Total
$
8,231

 
$
6,739



Credit Risk

Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. To further limit credit risk, we also enter into collateral security arrangements related to certain interest rate derivative instruments whereby collateral is posted between counterparties if the fair value of the derivative instrument exceeds certain thresholds. Additional collateral would be required in the event of a significant credit downgrade by either party. We are not required to pledge, nor are we entitled to receive, collateral related to our foreign exchange derivative transactions. As of December 31, 2018, we had neither pledged nor received collateral related to our interest rate derivative transactions.

Note 8 – Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017 (in millions):
 
December 31, 2018
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant 
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,202

 
$
2,052

 
$
150

 
$
—

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
17

 
17

 
—

 
—

Corporate debt securities
2,606

 
—

 
2,606

 
—

Government and agency securities
90

 
—

 
90

 
—

Total short-term investments
2,713

 
17

 
2,696

 
—

Derivatives
262

 
—

 
114

 
148

Long-term investments:
 
 
 
 
 
 
 
Corporate debt securities
3,635

 
—

 
3,635

 
—

Total long-term investments
3,635

 
—

 
3,635

 
—

Total financial assets
$
8,812

 
$
2,069

 
$
6,595

 
$
148

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
48

 
$
—

 
$
48

 
$
—



F-26
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


 
December 31, 2017
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
Significant 
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,120

 
$
2,120

 
$
—

 
$
—

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
20

 
20

 
—

 
—

Corporate debt securities
3,723

 
—

 
3,723

 
—

Total short-term investments
3,743

 
20

 
3,723

 
—

Derivatives
28

 
—

 
28

 
—

Long-term investments:
 
 
 
 
 
 
 
Corporate debt securities
5,446

 
—

 
5,446

 
—

Total long-term investments
5,446

 
—

 
5,446

 
—

Total financial assets
$
11,337

 
$
2,140

 
$
9,197

 
$
—

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivatives
$
29

 
$
—

 
$
29

 
$
—

 
Our financial assets and liabilities are valued using market prices on both active markets (Level 1), less active markets (Level 2) and little or no market activity (Level 3). 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. Level 3 instrument valuations typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. We did not have any transfers of financial instruments between valuation levels during 2018 or 2017.

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 warrant, which is accounted for as a derivative instrument, is valued using a Black-Scholes model. Key assumptions used in the valuation include risk-free interest rates; the service provider’s common stock price, equity volatility and common stock outstanding; exercise price; and details specific to the warrant. The value is also probability adjusted for management assumptions with respect to meeting the processing volume milestone targets. Refer to “Note 7 - Derivative Instruments” for further details on our derivative instruments.

Other financial instruments, including accounts receivable and accounts payable, are carried at cost, which approximates their fair value because of the short-term nature of these instruments.

The following table presents a reconciliation of the opening to closing balance of assets measured using significant unobservable inputs (Level 3) as of December 31, 2018 (in millions):

 
December 31,
2018
Opening balance as of January 1, 2018
$
—

Recognition of warrant
44

Change in fair value
104

Closing balance as of December 31, 2018
$
148




F-27
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 9 – Balance Sheet Components

Other Current Assets

 
December 31,
2018
 
2017
(In millions)
Customer accounts and funds receivable
$
670

 
$
662

Other
829

 
523

Other current assets
$
1,499

 
$
1,185




Property and Equipment, Net
 
December 31,
2018
 
2017
(In millions)
Computer equipment and software
$
4,933

 
$
4,609

Land and buildings, including building improvements
713

 
620

Leasehold improvements
399

 
370

Furniture and fixtures
169

 
169

Construction in progress and other
130

 
239

Property and equipment, gross
6,344

 
6,007

Accumulated depreciation
(4,747
)
 
(4,410
)
Property and equipment, net
$
1,597

 
$
1,597


Total depreciation expense on our property and equipment for the years ended December 31, 2018, 2017 and 2016 totaled $626 million, $612 million and $605 million, respectively.

Accrued Expenses and Other Current Liabilities

 
December 31,
2018
 
2017
(In millions)
Customer accounts and funds payable
$
681

 
$
629

Compensation and related benefits
410

 
469

Advertising accruals
264

 
236

Other current tax liabilities
229

 
—

Other
751

 
800

Accrued expenses and other current liabilities
$
2,335

 
$
2,134




F-28


Note 10 – Debt
The following table summarizes the carrying value of our outstanding debt (in millions, except percentages):

 
 
Coupon
 
As of
 
Effective
 
As of
 
Effective
 
 
 Rate
 
December 31, 2018
 
 Interest Rate
 
December 31, 2017
 
 Interest Rate
Long-Term Debt
 
 
 
 
 
 
 
 
 
 
Floating Rate Notes:
 
 
 
 
 
 
 
 
 
 
Senior notes due 2019
 
LIBOR plus 0.48%
 
$
400

 
3.123
%
 
$
400

 
1.955
%
Senior notes due 2023
 
LIBOR plus 0.87%
 
400

 
3.499
%
 
400

 
2.349
%
 
 
 
 
 
 
 
 
 
 
 
Fixed Rate Notes:
 
 
 
 
 
 
 
 
 
 
Senior notes due 2018
 
2.500%
 
—

 
—
%
 
750

 
2.775
%
Senior notes due 2019
 
2.200%
 
1,150

 
2.346
%
 
1,150

 
2.346
%
Senior notes due 2020
 
3.250%
 
500

 
3.389
%
 
500

 
3.389
%
Senior notes due 2020
 
2.150%
 
500

 
2.344
%
 
500

 
2.344
%
Senior notes due 2021
 
2.875%
 
750

 
2.993
%
 
750

 
2.993
%
Senior notes due 2022
 
3.800%
 
750

 
3.989
%
 
750

 
3.989
%
Senior notes due 2022
 
2.600%
 
1,000

 
2.678
%
 
1,000

 
2.678
%
Senior notes due 2023
 
2.750%
 
750

 
2.866
%
 
750

 
2.866
%
Senior notes due 2024
 
3.450%
 
750

 
3.531
%
 
750

 
3.531
%
Senior notes due 2027
 
3.600%
 
850

 
3.689
%
 
850

 
3.689
%
Senior notes due 2042
 
4.000%
 
750

 
4.114
%
 
750

 
4.114
%
Senior notes due 2056
 
6.000%
 
750

 
6.547
%
 
750

 
6.547
%
Total senior notes
 
 
 
9,300

 
 
 
10,050

 
 
Hedge accounting fair value adjustments
 
 
 
(10
)
 
 
 
2

 
 
Unamortized discount and debt issuance costs
 
 
 
(55
)
 
 
 
(68
)
 
 
Less: Current portion of long-term debt
 
 
 
(1,550
)
 
 
 
(750
)
 
 
Total long-term debt
 
 
 
7,685

 
 
 
9,234

 
 
 
 
 
 
 
 
 
 
 
 
 
Short-Term Debt
 
 
 
 
 
 
 
 
 
 
Current portion of long-term debt
 
 
 
1,550

 
 
 
750

 
 
Hedge accounting fair value adjustments
 
 
 
(7
)
 
 
 
—

 
 
Unamortized discount and debt issuance costs
 
 
 
(1
)
 
 
 
—

 
 
Other indebtedness
 
 
 
4

 
 
 
31

 
 
Total short-term debt
 
 
 
1,546

 
 
 
781

 
 
Total Debt
 
 
 
$
9,231

 
 
 
$
10,015

 
 


Senior Notes

In 2018, $750 million of 2.500% fixed rate notes due 2018 matured and were repaid. In 2017, we issued senior unsecured notes, or senior notes, in an aggregate principal amount of $2.5 billion. The issuance consisted of $400 million of floating rate notes due 2023, $500 million of 2.150% fixed rate notes due 2020, $750 million of 2.750% fixed rate notes due 2023 and $850 million of 3.600% fixed rate notes due 2027. In addition, $1.0 billion of 1.350% fixed rate notes due 2017 and $450 million of floating rate notes due 2017 matured and were repaid in 2017.


F-29



None of the floating rate notes are redeemable prior to maturity. On and after March 1, 2021, we may redeem some or all of the 6.000% fixed rate notes due 2056 at any time and from time to time prior to their maturity at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. We may redeem some or all of the other fixed rate notes of each series at any time and from time to time prior to their maturity, generally at a make-whole redemption price, plus accrued and unpaid interest.

If a change of control triggering event occurs with respect to the 2.150% fixed rate notes due 2020, the 3.800% fixed rate notes due 2022, the floating rate notes due 2023, the 2.750% fixed rate notes due 2023, the 3.600% fixed rate notes due 2027 or the 6.000% fixed rate notes due 2056, we must, subject to certain exceptions, offer to repurchase all of the notes of the applicable series at a price equal to 101% of the principal amount, plus accrued and unpaid interest.

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.

To help achieve our interest rate risk management objectives, in connection with the previous issuance of certain senior notes, we entered into interest rate swap agreements that effectively converted $2.4 billion of our fixed rate notes to floating rate debt based on LIBOR plus a spread. These swaps were designated as fair value hedges against changes in the fair value of certain fixed rate senior notes resulting from changes in interest rates. The gains and losses related to changes in the fair value of interest rate swaps substantially offset changes in the fair value of the hedged portion of the underlying debt that are attributable to changes in market interest rates.

The effective interest rates for our 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 either quarterly or semiannually. Interest expense associated with these senior notes, including amortization of debt issuance costs, during the years ended December 31, 2018, 2017 and 2016 was approximately $318 million, $307 million and $254 million, respectively. As of December 31, 2018 and 2017, the estimated fair value of these senior notes, using Level 2 inputs, was approximately $9.0 billion and $10.1 billion, respectively.

Commercial Paper

We have a commercial paper program pursuant to which we may issue commercial paper notes in an aggregate principal amount at maturity of up to $1.5 billion outstanding at any time with maturities of up to 397 days from the date of issue. As of December 31, 2018, there were no commercial paper notes outstanding.

Credit Agreement

In November 2015, we entered into a credit agreement that provides for an unsecured $2 billion five-year revolving credit facility. We may also, subject to the agreement of the applicable lenders, increase the commitments under the revolving credit facility by up to an aggregate amount of $1 billion. Funds borrowed under the credit agreement may be used for working capital, capital expenditures, dividends, acquisitions and other general corporate purposes.

As of December 31, 2018, no borrowings were outstanding under our $2 billion credit agreement. However, as described above, we have an up to $1.5 billion commercial paper program and therefore maintain $1.5 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, $500 million of borrowing capacity was available as of December 31, 2018 for other purposes permitted by the credit agreement.  

Loans under the credit agreement bear interest at either (i) LIBOR plus a margin (based on our public debt credit ratings) ranging from 0.875 percent to 1.5 percent or (ii) a formula based on the agent bank’s prime rate, the federal funds effective rate plus 0.5 percent or LIBOR plus 1.0 percent, plus a margin (based on our public debt credit ratings) ranging from zero percent to 0.5 percent. The credit agreement will terminate and all amounts owing thereunder will be due and payable on November 9, 2020, unless (a) the commitments are terminated earlier, either at our request or, if an event of default occurs, by the lenders (or automatically in the case of certain bankruptcy-related events of default), or (b) the maturity date is extended upon our request, subject to the agreement of the lenders. The credit agreement includes customary representations, warranties, affirmative and negative covenants, including financial

F-30


covenants, events of default and indemnification provisions in favor of the banks. The negative covenants include restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case, subject to certain exceptions. The financial covenants require us to meet a quarterly financial test with respect to a minimum consolidated interest coverage ratio and a maximum consolidated leverage ratio. The events of default include the occurrence of a change of control (as defined in the credit agreement) with respect to us.

We were in compliance with all covenants in our outstanding debt instruments for the period ended December 31, 2018.

Future Maturities

Expected future principal maturities as of December 31, 2018 are as follows (in millions):
Fiscal Years:
 
2019
$
1,550

2020
1,000

2021
750

2022
1,750

2023
1,150

Thereafter
3,100

Total future maturities
$
9,300



Note 11 – Commitments and Contingencies

Commitments

Lease Arrangements

We have lease obligations under certain non-cancelable operating leases. Future minimum rental payments under our non-cancelable operating leases as of December 31, 2018 are as follows (in millions):  
 
Leases
2019
$
136

2020
104

2021
91

2022
76

2023
51

Thereafter
119

Total minimum lease payments
$
577



Rent expense for the years ended December 31, 2018, 2017 and 2016 totaled $118 million, $105 million and $84 million, respectively.

Off-Balance Sheet Arrangements

As of December 31, 2018, 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.


F-31
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


We have a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals from the financial institution based upon our aggregate operating cash balances held within the same financial institution (“Aggregate Cash Deposits”). This arrangement also allows 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 the arrangement. As of December 31, 2018, we had a total of $2.7 billion in aggregate cash deposits, partially offset by $2.4 billion in cash withdrawals, held within the financial institution under the cash pooling arrangement.

Litigation and Other Legal Matters
 
Overview
We are involved in legal and regulatory proceedings on an ongoing basis. Many of these proceedings are in early stages and may seek an indeterminate amount of damages. 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. 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) is not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a proceeding, we have disclosed that fact. In assessing the materiality of a 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 11, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable were not material for the twelve months ended December 31, 2018. Except as otherwise noted for the proceedings described in this Note 11, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material. However, legal and regulatory proceedings are inherently unpredictable and subject to significant uncertainties. If one or more matters were resolved against us in a reporting period for amounts in excess of management’s expectations, the impact on our operating results or financial condition for that reporting period could be material. Legal fees are expensed as incurred.

General Matters

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 could be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly 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 and divestitures and in cases where we are entering new lines of business. 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 scope of our business (both in terms of the range of products and services that we offer and our geographical operations) 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, including suits by our users (individually or as class actions) alleging, among other things, improper disclosure

F-32
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


of our prices, rules or policies, that our practices, prices, rules, policies or customer/user agreements violate applicable law or that we have acted unfairly and/or not acted in conformity with such practices, prices, rules, policies or agreements. Further, the number and significance of these disputes and inquiries are increasing as the political and regulatory landscape changes and, as we have 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.

Indemnification Provisions

We entered into a separation and distribution agreement and various other agreements with PayPal to govern the separation and relationship of the two companies. These agreements provide for specific indemnity and liability obligations and could lead to disputes between us and PayPal, which may be significant. In addition, the indemnity rights we have against PayPal under the agreements may not be sufficient to protect us and our indemnity obligations to PayPal may be significant.

In addition, we have entered into indemnification agreements with each of our directors, executive officers and certain other officers. These agreements require us to indemnify such individuals, to the fullest extent permitted by Delaware law, for certain liabilities to which they may become subject as a result of their affiliation with us.

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. 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 consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively. 


F-33
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 12 – Stockholders’ Equity

Preferred Stock

We are authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series; to establish the number of shares included within each series; to fix the rights, preferences and privileges of the shares of each wholly unissued series and any related qualifications, limitations or restrictions; and to increase or decrease the number of shares of any series (but not below the number of shares of a series then outstanding) without any further vote or action by our stockholders. As of December 31, 2018 and 2017, there were 10 million shares of $0.001 par value preferred stock authorized for issuance, and no shares issued or outstanding.

Common Stock

Our Amended and Restated Certificate of Incorporation authorizes us to issue 3.6 billion shares of common stock.

Stock Repurchase Programs

Our stock repurchase programs are intended to programmatically offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, to make opportunistic and programmatic repurchases of our common stock to reduce our outstanding share count. Any share repurchases under our stock repurchase programs may be made through open market transactions, block trades, privately negotiated transactions (including accelerated share repurchase transactions) or other means at times and in such amounts as management deems appropriate and will be funded from our working capital or other financing alternatives. Our stock repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, price and other market conditions and management’s determination as to the appropriate use of our cash.  

In July 2017, our Board of Directors (“Board”) authorized a $3.0 billion stock repurchase program, and in January 2018, our Board authorized an additional $6.0 billion stock repurchase program. These stock repurchase programs have no expiration from the date of authorization. The stock repurchase activity under our stock repurchase programs during 2018 was as follows (in millions, except per share amounts):
 
Shares Repurchased (1)
 
Average Price per Share (2)
 
Value of Shares Repurchased (2)
 
Remaining Amount Authorized
Balance as of January 1, 2018
 
 
 
 
 
 
$
1,651

Authorization of additional plan in January 2018
 
 
 
 
 
 
6,000

Repurchase of shares of common stock
131

 
$
34.31

 
$
4,500

 
(4,500
)
Balance as of December 31, 2018
 
 
 
 
 
 
$
3,151

 
(1)
These repurchased shares of common stock were recorded as treasury stock and were accounted for under the cost method. None of the repurchased shares of common stock have been retired.
(2)
Excludes broker commissions.

In January 2019, our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization. In addition, our Board of Directors initiated a quarterly cash dividend of $0.14 per share of common stock to be paid on or about March 20, 2019 to shareholders of record as of March 1, 2019.


F-34
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 13 – Employee Benefit Plans

Equity Incentive Plans
 
We have equity incentive plans under which we grant equity awards, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PBRSUs”), stock payment awards and performance share units, to our directors, officers and employees. As of December 31, 2018, 755 million shares were authorized under our equity incentive plans and 66 million shares were available for future grant.

Stock options granted under these plans generally vest 12.5% six months from the date of grant (or 25% one year from the date of grant for grants to new employees) with the remainder vesting at a rate of 2.08% per month thereafter, and generally expire seven to ten years from the date of grant. RSU awards granted to eligible employees under our equity incentive plans generally vest in annual or quarterly installments over a period of three to five years, are subject to the employees’ continuing service to us and do not have an expiration date.

In 2018, 2017 and 2016, certain executives were eligible to receive PBRSU. PBRSU awards are subject to performance and time-based vesting requirements. The target number of shares subject to the PBRSU award are adjusted based on our business performance measured against the performance goals approved by the Compensation Committee at the beginning of the performance period. Generally, if the performance criteria is satisfied, one-half of the award vests in March following the end of the performance period and the other half of the award vests in March of the following year.

Deferred Stock Units

Prior to December 31, 2016, we granted deferred stock units to each non-employee director (other than Mr. Omidyar) at the time of our annual meeting of stockholders and to new non-employee directors upon their election to the Board. Each deferred stock unit award granted to a new non-employee director upon election to the Board vests 25% one year from the date of grant, and at a rate of 2.08% per month thereafter. In addition, directors were permitted to elect to receive, in lieu of annual retainer and committee chair fees and at the time these fees would otherwise be payable, fully vested deferred stock units with an initial value equal to the amount based on the fair market value of common stock at the date of grant. Following termination of a non-employee director’s service on the Board, deferred stock units granted prior to August 1, 2013 are payable in stock or cash (at our election), while deferred stock units granted on or after August 1, 2013 are payable solely in stock. As of December 31, 2018, there were approximately 207,179 deferred stock units outstanding, which are included in our restricted stock unit activity below. As of December 31, 2016, we no longer grant deferred stock units.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan (“ESPP”) for all eligible employees. Under the plan, shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last day of the six-month purchase period. Employees may purchase shares having a value not exceeding 10% of their eligible compensation during an offering period. During 2018, 2017, and 2016, employees purchased approximately 4 million, 4 million and 4 million shares under this plan at average prices of $23.82, $22.32 and $18.97 per share, respectively. As of December 31, 2018, approximately 12 million shares of common stock were reserved for future issuance.

Stock Option Activity

No stock options were granted in 2018 and 2017, and an immaterial amount of stock options were granted during 2016. The weighted average grant-date fair value of options granted during 2016 was $5.40.

During 2018, 2017 and 2016, the aggregate intrinsic value of options exercised under our equity incentive plans was $18 million, $26 million and $16 million, respectively, determined as of the date of option exercise. As of December 31, 2018, options to purchase 2 million shares of our common stock were outstanding and in-the-money.


F-35
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Restricted Stock Unit Activity

The following table presents RSU activity (including PBRSUs that have been earned) under our equity incentive plans as of and for the year ended December 31, 2018 (in millions except per share amounts):
 
 
Units 
 
Weighted Average
Grant-Date
Fair Value
(per share)
Outstanding as of January 1, 2018
42

 
$
28.54

Awarded and assumed
19

 
$
39.05

Vested
(18
)
 
$
28.57

Forfeited
(9
)
 
$
32.47

Outstanding as of December 31, 2018
34

 
$
33.59

Expected to vest as of December 31, 2018
28

 
 


During 2018, 2017 and 2016, the aggregate intrinsic value of RSUs vested under our equity incentive plans was $684 million, $635 million and $418 million, respectively.

Stock-Based Compensation Expense

The following table presents stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016 (in millions):  
 
Year Ended December 31,
 
2018
 
2017
 
2016
Cost of net revenues
$
59

 
$
53

 
$
34

Sales and marketing
111

 
94

 
95

Product development
197

 
178

 
158

General and administrative
171

 
158

 
129

Total stock-based compensation expense
$
538

 
$
483

 
$
416

Capitalized in product development
$
14

 
$
14

 
$
13



As of December 31, 2018, there was approximately $820 million of unearned stock-based compensation that will be expensed from 2019 through 2022. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards, change the mix of grants between stock options and restricted stock units or assume unvested equity awards in connection with acquisitions.

Employee Savings Plans

We have a defined contribution plan, which is qualified under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 50% of their eligible compensation, but not more than statutory limits. In 2018, 2017 and 2016, we contributed one dollar for each dollar a participant contributed, with a maximum contribution of 4% of each employee’s eligible compensation, subject to a maximum employer contribution of $11,000, $10,800 and $10,600 per employee for each period, respectively. Our non-U.S. employees are covered by various other savings plans. Total expense for these plans was $60 million, $57 million and $49 million in 2018, 2017 and 2016, respectively.


F-36
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Note 14 – Income Taxes

The components of pretax income for the years ended December 31, 2018, 2017 and 2016 are as follows (in millions):
 
Year Ended December 31,
 
2018
  
2017
  
2016
United States
$
299

  
$
417

  
$
1,529

International
2,419

  
1,858

  
2,122

 
$
2,718


$
2,275


$
3,651



The provision (benefit) for income taxes is comprised of the following (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
Federal
$
73

 
$
1,426

 
$
689

State and local
25

 
(17
)
 
55

Foreign
245

 
151

 
178

 
$
343

 
$
1,560

 
$
922

Deferred:
 
 
 
 
 
Federal
$
(488
)
 
$
1,788

 
$
77

State and local
(10
)
 
4

 
—

Foreign
345

 
(64
)
 
(4,633
)
 
(153
)
 
1,728

 
(4,556
)
 
$
190

 
$
3,288

 
$
(3,634
)

The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate of 21% for 2018 and 35% for 2017 and 2016 to income before income taxes (in millions):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Provision at statutory rate
$
571

 
$
797

 
$
1,278

Foreign income taxed at different rates
(16
)
 
(217
)
 
(451
)
Other taxes on foreign operation
26

 
330

 
105

Stock-based compensation
(3
)
 
(33
)
 
24

State taxes, net of federal benefit
13

 
(13
)
 
55

Research and other tax credits
(30
)
 
(35
)
 
(16
)
Tax basis step-up resulting from realignment
(9
)
 
(695
)
 
(4,621
)
Impact of tax rate change
108

 
—

 
—

U.S. tax reform
(463
)
 
3,142

 
—

Other
(7
)
 
12

 
(8
)
 
$
190


$
3,288


$
(3,634
)




F-37
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following (in millions):
 
As of December 31,
 
2018
 
2017
Deferred tax assets:
 
 
 
Net operating loss, capital loss and credits
$
136

 
$
86

Accruals and allowances
168

 
129

Stock-based compensation
22

 
40

Amortizable tax basis in intangibles
4,757

 
5,164

Net deferred tax assets
5,083

 
5,419

Valuation allowance
(65
)
 
(19
)
 
$
5,018

 
$
5,400

Deferred tax liabilities:
 
 
 
Unremitted foreign earnings
$
(2,930
)
 
$
(3,514
)
Acquisition-related intangibles
(46
)
 
(24
)
Depreciation and amortization
(132
)
 
(89
)
Net unrealized gain
(27
)
 
(2
)
Available-for-sale securities
(15
)
 
(2
)
 
(3,150
)
 
(3,631
)
 
$
1,868

 
$
1,769



As of December 31, 2018, our federal, state and foreign net operating loss carryforwards for income tax purposes were approximately $12 million, $55 million and $247 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal and state net operating loss carryforwards will begin to expire in 2021 and 2020, respectively. The carryforward periods on our foreign net operating loss carryforwards are as follows: $64 million do not expire, $132 million are subject to valuation allowance and begin to expire in 2019, and $51 million are not subject to valuation allowance but will begin to expire in 2024. As of December 31, 2018, state tax credit carryforwards for income tax purposes were approximately $129 million. Most of the state tax credits carry forward indefinitely.

As of December 31, 2018 and 2017, we maintained a valuation allowance with respect to certain of our deferred tax assets relating primarily to operating losses in certain non-U.S. jurisdictions and certain state tax credits that we believe are not likely to be realized.

During the fourth quarter of 2016, we began the process of realigning our legal structure, subsequent to the distribution of PayPal Holdings, Inc., to better reflect how we manage and operate our platforms. We consider many factors in effecting this realignment, including foreign exchange exposures, long-term cash flows and cash needs of our platforms, capital allocation considerations and the associated tax effects. As a result, we achieved a substantial step-up in the tax basis of the intangible assets in our foreign eBay platforms in 2016. The step-up in tax basis of our foreign eBay platforms resulted from our election to terminate an existing tax ruling and finalize a new agreement with the foreign tax authority. In the fourth quarter of 2016, we recognized a tax benefit of $4.6 billion, which represented the income tax effect of this step-up in tax basis. During the first half of 2017, we recognized a noncash income tax charge of $376 million caused by the foreign exchange remeasurement of the associated deferred tax asset. In the first quarter of 2017, we achieved a step-up in the tax basis of the intangible assets in our foreign Classifieds platforms as a result of voluntary domiciling our Classifieds intangible assets into a new jurisdiction and recognized a tax benefit of $695 million.

As a result of the realignment of our legal structure in 2016 and 2017, we no longer benefit from tax rulings previously concluded in several different jurisdictions. Without the benefit of the rulings, the noncash tax impacts of the realignment in our foreign eBay and Classifieds platforms have increased our income tax rate in certain foreign jurisdictions, most significantly Switzerland. The higher rate results from eBay being subject to a higher enacted tax rate for the foreseeable future.

F-38
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)



While our tax rate is higher, the realignment allows us to achieve certain foreign cash tax benefits due to the step-up in tax basis achieved in certain foreign jurisdictions. We expect these cash tax benefits to remain consistent, subject to the performance of our foreign platforms, for a period in excess of 10 years. The realignment was substantially completed by the end of 2018 and primarily impact our international entities. However, U.S. tax reform and the new U.S. minimum tax on foreign earnings has reduced our expected consolidated cash tax benefits.

On December 22, 2017, the Tax Cuts and Jobs Act was enacted. U.S. tax reform, among other things, reduces the U.S. federal income tax rate from 35% to 21% in 2018, instituted a dividends received deduction for foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings in 2017 and created a new U.S. minimum tax on earnings of foreign subsidiaries. We recognized a provisional income tax charge of $3.1 billion in the fourth quarter of 2017, which was included as a component of the income tax provision on our consolidated statement of income. We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018 and recognized a $463 million reduction to the provisional tax amounts recorded in the fourth quarter of 2017, which is included as a component of income tax expense from continuing operations.

Included in the provisional amount was $1.4 billion for the income tax on the deemed repatriation of unremitted foreign earnings. We completed the computation of this amount as part of the 2017 income tax return filing and reduced the provisional amount by $18 million. Additionally, we utilized $213 million of foreign tax credits to reduce the net liability. We elected to pay the liability for the deemed repatriation of foreign earnings in installments, as specified by the Act. Accordingly, as of December 31, 2018 and 2017, $968 million and $1.2 billion of our liability for deemed repatriation of foreign earnings was included in other liabilities on our consolidated balance sheet.

The remaining provisional amount of $1.7 billion was for the deferred income tax effects of the Act, primarily the impact of the new U.S. minimum tax on foreign earnings, partially offset by the reversal of our existing deferred tax liability associated with repatriation of unremitted foreign earnings. We completed our analysis of the components of the deferred tax computation in the fourth quarter of 2018 and recognized a tax benefit of $445 million as a reduction to the provisional amounts recorded in the fourth quarter of 2017 for the deferred income tax effects of the Act. This amount includes a $389 million tax benefit as a result of clarification by Swiss tax authorities regarding the applicability of withholding tax to repatriated earnings in October 2018.

We completed our analysis of the impacts of U.S. tax reform in the fourth quarter of 2018. Accordingly, we have recognized the tax consequences of all foreign unremitted earnings and management has no specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of the balance sheet date. We have not provided for deferred taxes on outside basis differences in our investments in our foreign subsidiaries that are unrelated to unremitted earnings. These basis differences will be indefinitely reinvested. A determination of the unrecognized deferred taxes related to these other components of our outside basis difference is not practicable.

The following table reflects changes in unrecognized tax benefits for the years ended December 31, 2018, 2017 and 2016 (in millions):
 
2018
 
2017
 
2016
Gross amounts of unrecognized tax benefits as of the beginning of the period
$
487

 
$
458

 
$
440

Increases related to prior period tax positions
64

 
37

 
24

Decreases related to prior period tax positions
(10
)
 
(28
)
 
(20
)
Increases related to current period tax positions
28

 
58

 
47

Settlements
(18
)
 
(38
)
 
(33
)
Gross amounts of unrecognized tax benefits as of the end of the period
$
551

 
$
487

 
$
458



Included within our gross amounts of unrecognized tax benefits of $551 million as of December 31, 2018 is $100 million of unrecognized tax benefits indemnified by PayPal. If total unrecognized tax benefits were realized in a future period, it would result in a tax benefit of $466 million. Of this amount, approximately $95 million of unrecognized tax benefit is indemnified by PayPal and a corresponding receivable would be reduced upon a future realization. As of December 31, 2018, our liabilities for unrecognized tax benefits were included in other liabilities on our consolidated balance sheet.


F-39
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


We recognize interest and/or penalties related to uncertain tax positions in income tax expense. In 2018, $14 million was included in tax expense for interest and penalties. The amount of interest and penalties accrued as of December 31, 2018 and 2017 was approximately $61 million and $43 million, respectively.
 
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 2008 to 2016 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these or other examinations. The material jurisdictions where we are subject to potential examination by tax authorities for tax years after 2007 include, among others, the U.S. (Federal and California), Germany, Korea, Israel, Switzerland, United Kingdom 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. 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. We do expect the gross amount of unrecognized tax benefits to be reduced within the next twelve months by at least $196 million.
 
On July 27, 2015, in Altera Corp. v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the Ninth Circuit Federal Court issued a decision that was subsequently withdrawn and a reconstituted panel has conferred on the appeal. No decision had been made at the time of the release of these financial statements. Due to the uncertainty surrounding the status of the current regulations, questions related to the scope of potential benefits or obligations, and the risk of the Tax Court’s decision being overturned upon appeal, we have not recorded any benefit or expense as of December 31, 2018. We will continue to monitor ongoing developments and potential impacts to our consolidated financial statements.

Note 15 – Interest and Other, Net

The components of interest and other, net for the years ended December 31, 2018, 2017 and 2016 are as follows (in millions):
 
Year Ended December 31,
 
2018
  
2017
  
2016
Interest income
$
176

  
$
177

  
$
125

Interest expense
(326
)
 
(292
)
 
(225
)
Gains on investments and sale of business (1)
663

 
115

 
1,343

Other
(17
)
  
11

  
83

Total interest and other, net
$
496

  
$
11

  
$
1,326


(1)
Gains on investments and sale of business includes: (i) a $313 million gain on the sale of our equity investment in Flipkart, a $266 million gain recognized upon the relinquishment of our equity investment in Giosis and a $104 million gain recognized due to the change in fair value of the warrant in 2018; (ii) a $167 million gain on disposal of our eBay India business in 2017; and (iii) $1.3 billion of pre-tax gains recognized from the sale of our equity holdings of MercadoLibre, Inc. in 2016.


F-40


Note 16 – Accumulated Other Comprehensive Income

The following tables summarize the changes in AOCI for the years ended December 31, 2018 and 2017 (in millions):
 
Unrealized Gains (Losses) on Derivative Instruments
 
Unrealized
Gains (Losses)
on Investments
 
Foreign
Currency
Translation
 
Estimated Tax (Expense) Benefit
 
Total
Balance as of December 31, 2017
$
(57
)
 
$
(15
)
 
$
748

 
$
41

 
$
717

Other comprehensive income (loss) before reclassifications
117

 
(42
)
 
(286
)
 
(15
)
 
(226
)
Less: Amount of gain (loss) reclassified from AOCI
(8
)
 
(1
)
 
—

 
2

 
(7
)
Net current period other comprehensive income (loss)
125

 
(41
)
 
(286
)
 
(17
)
 
(219
)
Balance as of December 31, 2018
$
68

 
$
(56
)
 
$
462

 
$
24

 
$
498



 
Unrealized Gains (Losses) on Derivative Instruments
 
Unrealized
Gains (Losses)
on Investments
 
Foreign
Currency
Translation
 
Estimated Tax (Expense) Benefit
 
Total
Balance as of December 31, 2016
$
54

 
$
51

 
$
(230
)
 
$
1

 
$
(124
)
Other comprehensive income before reclassifications
(104
)
 
(59
)
 
978

 
40

 
855

Less: Amount of gain (loss) reclassified from AOCI
7

 
7

 
—

 
—

 
14

Net current period other comprehensive income
(111
)
 
(66
)
 
978

 
40

 
841

Balance as of December 31, 2017
$
(57
)
 
$
(15
)
 
$
748

 
$
41

 
$
717




F-41


The following table provides a summary of reclassifications out of AOCI for the years ended December 31, 2018 and 2017 (in millions):
Details about AOCI Components
 
Affected Line Item in the Statement of Income
 
Amount of Gain (Loss)
Reclassified from AOCI
 
 
 
 
2018
 
2017
Gains (losses) on cash flow hedges - foreign exchange contracts
 
Net Revenues
 
$
(8
)
 
$
(28
)
 
 
Cost of net revenues
 
—

 
3

 
 
Sales and marketing
 
—

 
1

 
 
Product development
 
—

 
5

 
 
General and administrative
 
—

 
2

 
 
Interest and other, net
 
—

 
24

 
 
Total, from continuing operations before income taxes
 
(8
)
 
7

 
 
Income tax provision
 
2

 
—

 
 
Total, from continuing operations net of income taxes
 
(6
)
 
7

 
 
Total, from discontinued operations net of income taxes
 
—

 
—

 
 
Total, net of income taxes
 
(6
)
 
7

 
 
 
 
 
 
 
Unrealized gains (losses) on investments
 
Interest and other, net
 
(1
)
 
7

 
 
Total, before income taxes
 
(1
)
 
7

 
 
Income tax provision
 
—

 
—

 
 
Total, net of income taxes
 
(1
)
 
7

 
 
 
 
 
 
 
Total reclassifications for the period
 
Total, net of income taxes
 
$
(7
)
 
$
14



Note 17 — Restructuring

The following table summarizes restructuring reserve activity during 2018 (in millions):

 
Employee Severance and Benefits
Accrued liability as of January 1, 2018
$
—

Charges
86

Payments
(61
)
Other
(17
)
Accrued liability as of December 31, 2018
$
8



In June 2018, management approved a plan to implement a strategic reduction of our existing global workforce. The reduction was substantially completed in the second quarter of 2018. We incurred pre-tax restructuring charges of approximately $86 million. The restructuring charges, which primarily related to employee severance and benefits, were aggregated in general and administrative expenses in the consolidated statement of income. Other adjustments were primarily related to settlements of previous contractual commitments in the second quarter of 2018. No restructuring charges were recognized during 2017 and 2016.


F-42


Supplementary Data — Quarterly Financial Data — Unaudited
The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters in the two year period ended December 31, 2018. This quarterly information has been prepared on the same basis as the Consolidated Financial Statements and includes all adjustments necessary to state fairly the information for the periods presented. 2017 has been recast to reflect Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.
Quarterly Financial Data
(Unaudited, in millions, except per share amounts)
 
Quarter Ended
 
March 31
 
June 30
 
September 30
 
December 31
2018
 
 
 
 
 
 
 
Net revenues
$
2,580

 
$
2,640

 
$
2,649

 
$
2,877

Gross profit
$
2,021

 
$
2,043

 
$
2,041

 
$
2,259

Income from continuing operations
$
407

 
$
638

 
$
720

 
$
763

Income (loss) from discontinued operations, net of income taxes
—

 
4

 
1

 
(3
)
Net income (loss)
$
407

 
$
642

 
$
721

 
$
760

Income (loss) per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
0.40

 
$
0.64

 
$
0.74

 
$
0.81

Discontinued operations
—

 
—

 
—

 
—

Net income (loss) per share - basic
$
0.40

 
$
0.64

 
$
0.74

 
$
0.81

Income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.40

 
$
0.64

 
$
0.73

 
$
0.80

Discontinued operations
—

 
—

 
—

 
—

Net income (loss) per share - diluted
$
0.40

 
$
0.64

 
$
0.73

 
$
0.80

Weighted-average shares:
 
 
 
 
 
 
 
Basic
1,010

 
992

 
974

 
945

Diluted
1,029

 
1,004

 
983

 
950


 
Quarter Ended
 
March 31
 
June 30
 
September 30
 
December 31
2017
 
 
 
 
 
 
 
Net revenues
$
2,303

 
$
2,419

 
$
2,498

 
$
2,707

Gross profit
$
1,789

 
$
1,859

 
$
1,941

 
$
2,117

Income (loss) from continuing operations
$
1,035

 
$
29

 
$
520

 
$
(2,597
)
Income from discontinued operations, net of income taxes
—

 
—

 
—

 
(4
)
Net income
$
1,035

 
$
29

 
$
520

 
$
(2,601
)
Income per share - basic:
 
 
 
 
 
 
 
Continuing operations
$
0.96

 
$
0.03

 
$
0.49

 
$
(2.51
)
Discontinued operations
—

 
—

 
—

 
—

Net income (loss) per share - basic
$
0.96

 
$
0.03

 
$
0.49

 
$
(2.51
)
Income (loss) per share - diluted:
 
 
 
 
 
 
 
Continuing operations
$
0.94

 
$
0.03

 
$
0.48

 
$
(2.51
)
Discontinued operations
—

 
—

 
—

 
—

Net income (loss) per share - diluted
$
0.94

 
$
0.03

 
$
0.48

 
$
(2.51
)
Weighted-average shares:
 
 
 
 
 
 
 
Basic
1,083

 
1,076

 
1,062

 
1,035

Diluted
1,102

 
1,091

 
1,078

 
1,035



F-43


eBay Inc.
FINANCIAL STATEMENT SCHEDULE
The Financial Statement Schedule II — VALUATION AND QUALIFYING ACCOUNTS as of and for the years ended December 31, 2018, 2017 and 2016.
 
Balance at Beginning of Period
 
Charged/Credited to Net Income
 
Charged to Other Account
 
Charges Utilized/Write-offs
 
Balance at End of Period
 
(In millions)
Allowances for Doubtful Accounts and Authorized Credits
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
$
84

 
$
68

 
$
—

 
$
(71
)
 
$
81

Year Ended December 31, 2017
81

 
91

 
—

 
(70
)
 
102

Year Ended December 31, 2018
$
102

 
$
92

 
$
—

 
$
(88
)
 
$
106

 
 
 
 
 
 
 
 
 
 
Allowance for Transaction Losses
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
$
34

 
$
162

 
$
—

 
$
(173
)
 
$
23

Year Ended December 31, 2017
23

 
181

 
—

 
(179
)
 
25

Year Ended December 31, 2018
$
25

 
$
194

 
$
—

 
$
(191
)
 
$
28

 
 
 
 
 
 
 
 
 
 
Tax Valuation Allowance
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2016
$
41

 
$
(6
)
 
$
2

 
$
—

 
$
37

Year Ended December 31, 2017
37

 
(20
)
 
2

 
—

 
19

Year Ended December 31, 2018
$
19

 
$
33

 
$
13

 
$
—

 
$
65




F-44


INDEX TO EXHIBITS
No.
  
Exhibit Description
 
Filed or Furnished with
this 10-K
 
Incorporated by Reference
  
 
 
Form
 
File No.
 
Date Filed
 
 
 
 
 
 
2.01
 
 
 
 
8-K
 
000-24821
 
6/30/2015
 
 
 
 
 
 
 
 
 
 
 
3.01
  
 
 
 
8-K
 
000-24821
 
4/27/2012
 
 
 
 
 
 
 
3.02
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.01
  
 
 
 
S-1
 
333-59097
 
8/19/1998
 
 
 
 
 
 
 
 
 
 
 
4.02
 
 
 
 
8-K
 
000-24821
 
10/28/2010
 
 
 
 
 
 
 
 
 
 
 
4.03
 
 
 
 
8-K
 
000-24821
 
10/28/2010
 
 
 
 
 
 
 
 
 
 
 
4.04
 
 
 
 
8-K
 
000-24821
 
10/28/2010
 
 
 
 
 
 
 
 
 
 
 
4.05
 
 
 
 
8-K
 
000-24821
 
7/24/2012
 
 
 
 
 
 
 
 
 
 
 
4.06
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.07
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.08
 
 
 
 
8-K
 
000-24821
 
7/28/2014
 
 
 
 
 
 
 
 
 
 
 
4.09
 
 
 
 
8-K
 
000-24821
 
2/29/2016
 
 
 
 
 
 
 
 
 
 
 
4.10
 
 
 
 
8-K
 
001-37713
 
3/9/2016
 
 
 
 
 
 
 
 
 
 
 
4.11
 
 
 
 
8-K
 
001-37713
 
6/6/2017
 
 
 
 
 
 
 
 
 
 
 
4.12
 
 
 
 
8-K
 
001-37713
 
6/6/2017
 
 
 
 
 
 
 
 
 
 
 
4.13
 
 
 
 
8-K
 
001-37713
 
6/6/2017
 
 
 
 
 
 
 
 
 
 
 
4.14
 
 
 
 
8-K
 
001-37713
 
6/6/2017
 
 
 
 
 
 
 
 
 
 
 
4.15
 
 
 
 
8-K
 
001-37713
 
6/6/2017
 
 
 
 
 
 
 
 
 
 
 
10.01+
  
 
 
 
S-1
 
333-59097
 
7/15/1998
 
 
 
 
 
 
 
10.02+
  
 
 
 
10-Q
 
000-24821
 
7/27/2007
 
 
 
 
 
 
 
10.03+
  
 
 
 
10-Q
 
000-24821
 
7/27/2007
 
 
 
 
 
 
 
 
 
 
 
10.04+
  
 
 
 
10-Q
 
000-24821
 
10/27/2004
 
 
 
 
 
 
 
10.05+
  
 
 
 
10-K
 
000-24821
 
2/28/2007

F-45


No.
  
Exhibit Description
 
Filed or Furnished with
this 10-K
 
Incorporated by Reference
  
 
 
Form
 
File No.
 
Date Filed
 
 
 
 
 
 
 
10.06+
  
 
 
 
10-K
 
000-24821
 
2/28/2007
 
 
 
 
 
 
10.07+
  
 
 
 
10-Q
 
000-24821
 
10/27/2004
 
 
 
 
 
 
10.08+
  
 
 
 
10-K
 
000-24821
 
2/28/2007
 
 
 
 
 
 
 
 
 
 
 
10.09+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
10.10+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.11+
  
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
10.12+
  
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
10.13+
  
 
 
 
10-Q/A
 
000-24821
 
4/24/2008
 
 
 
 
 
 
 
10.14+
  
 
 
 
8-K
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
10.15+
  
 
 
 
10-Q
 
000-24821
 
7/29/2009
 
 
 
 
 
 
 
 
 
 
 
10.16+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.17+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.18+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.19+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.20+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.21+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.22+
  
 
 
 
8-K
 
000-24821
 
6/25/2008
 
 
 
 
 
 
 
10.23+
  
 
 
 
8-K
 
000-24821
 
5/5/2015
 
 
 
 
 
 
 
 
 
 
 
10.24+
  
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
10.25+
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
10.26+
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.27+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.28+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 

F-46


No.
  
Exhibit Description
 
Filed or Furnished with
this 10-K
 
Incorporated by Reference
  
 
 
Form
 
File No.
 
Date Filed
10.29+
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.30+
 
 
 
 
10-Q
 
000-24821
 
7/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.31+
 
 
 
 
10-Q
 
000-24821
 
7/22/2011
 
 
 
 
 
 
 
 
 
 
 
10.32+
 
 
 
 
DEF 14A
 
000-24821
 
3/19/2012
 
 
 
 
 
 
 
 
 
 
 
10.33+
 
 
 
 
8-K
 
000-24821
 
9/6/2011
 
 
 
 
 
 
 
 
 
 
 
10.34
 
 
 
 
8-K
 
000-24821
 
11/12/2015
 
 
 
 
 
 
 
 
 
 
 
10.35+
 
 
 
 
10-Q
 
000-24821
 
4/19/2013
 
 
 
 
 
 
 
 
 
 
 
10.36+
 
 
 
 
10-Q
 
000-24821
 
4/19/2013
 
 
 
 
 
 
 
 
 
 
 
10.37+
 
 
 
 
10-Q
 
000-24821
 
4/19/2013
 
 
 
 
 
 
 
 
 
 
 
10.38+
 
 
 
 
10-Q
 
000-24821
 
4/19/2013
 
 
 
 
 
 
 
10.39+
 
 
 
 
10-Q
 
000-24821
 
7/18/2014
 
 
 
 
 
 
 
 
 
 
 
10.40+
 
 
 
 
10-Q
 
000-24821
 
7/18/2014
 
 
 
 
 
 
 
 
 
 
 
10.41+
 
 
 
 
10-Q
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
 
 
 
 
10.42+
 
 
 
 
10-Q
 
001-37713
 
7/21/2016
 
 
 
 
 
 
 
 
 
 
 
10.43+
 
 
 
 
10-Q
 
001-37713
 
7/21/2016
 
 
 
 
 
 
 
 
 
 
 
10.44+
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.45+
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.46+
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.47+
 
 
 
 
10-Q
 
000-24821
 
10/16/2014
 
 
 
 
 
 
 
 
 
 
 
10.48+
 
 
 
 
10-K
 
000-24821
 
2/6/2015
 
 
 
 
 
 
 
 
 
 
 

F-47


No.
  
Exhibit Description
 
Filed or Furnished with
this 10-K
 
Incorporated by Reference
  
 
 
Form
 
File No.
 
Date Filed
10.49
 
 
 
 
8-K
 
000-24821
 
1/23/2015
 
 
 
 
 
 
 
 
 
 
 
10.5
 
 
 
 
10-Q
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
 
 
 
 
10.51
 
 
 
 
10-Q
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
 
 
 
 
10.52
 
 
 
 
10-Q
 
001-37713
 
7/21/2016
 
 
 
 
 
 
 
 
 
 
 
10.53+
 
 
 
 
8-K
 
000-24821
 
7/20/2015
 
 
 
 
 
 
 
 
 
 
 
10.54
 
 
 
 
8-K
 
000-24821
 
7/20/2015
 
 
 
 
 
 
 
 
 
 
 
10.55+
 
 
 
 
8-K
 
000-24821
 
7/20/2015
 
 
 
 
 
 
 
 
 
 
 
10.56+
 
 
 
 
8-K
 
000-24821
 
7/20/2015
 
 
 
 
 
 
 
 
 
 
 
10.57+
 
 
 
 
8-K
 
000-24821
 
7/20/2015
 
 
 
 
 
 
 
 
 
 
 
10.58+
 
 
 
 
10-Q
 
000-24821
 
7/21/2015
 
 
 
 
 
 
 
 
 
 
 
10.59+
 
 
 
 
10-Q
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
 
 
 
 
10.60+
 
 
 
 
10-Q
 
001-37713
 
4/27/2016
 
 
 
 
 
 
 
 
 
 
 
10.61+
 
 
 
 
10-Q
 
001-37713
 
4/20/2017
 
 
 
 
 
 
 
 
 
 
 
10.62+
 
 
 
 
10-Q
 
001-37713
 
4/26/2018
 
 
 
 
 
 
 
 
 
 
 
10.63+
 
 
 
 
10-Q
 
001-37713
 
4/26/2018
 
 
 
 
 
 
 
 
 
 
 
10.64+
 
 
 
 
10-Q
 
001-37713
 
7/19/2018
 
 
 
 
 
 
 
 
 
 
 
21.01
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
23.01
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
24.01
  
Power of Attorney (see signature page).
 
X
 
 
 
 
 
 
 
 
 
 
 
 
31.01
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
31.02
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
32.01
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 

F-48


No.
  
Exhibit Description
 
Filed or Furnished with
this 10-K
 
Incorporated by Reference
  
 
 
Form
 
File No.
 
Date Filed
32.02
  
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
  
XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.SCH
  
XBRL Taxonomy Extension Schema Document
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase Document
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101.LAB
  
XBRL Taxonomy Extension Label Linkbase Document
 
X
 
 
 
 
 
 
 
 
 
 
 
 
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase Document
 
X
 
 
 
 
 
 
*
Omitted schedules will be furnished supplementally to the SEC upon request.
+
Indicates a management contract or compensatory plan or arrangement.


F-49


SIGNATURES
Pursuant 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 on January 30, 2019.
 
eBay Inc.
 
 
 
 
By:
/s/ Devin N. Wenig
 
 
Devin N. Wenig
 
 
President and Chief Executive Officer

POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Devin N. Wenig, Scott F. Schenkel, Brian J. Doerger and Marie Oh Huber and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on January 30, 2019.
Principal Executive Officer and Director:
 
Principal Financial Officer:
 
 
 
 
 
By:
/s/ Devin N. Wenig
 
By:
/s/ Scott F. Schenkel
 
Devin N. Wenig
 
 
Scott F. Schenkel
 
President and Chief Executive Officer
 
 
Senior Vice President, Chief Financial Officer
 
 
 
 
 
 
 
 
Principal Accounting Officer:
 
 
 
 
 
 
 
 
By:
/s/ Brian J. Doerger
 
 
 
 
Brian J. Doerger
 
 
 
 
Vice President, Chief Accounting Officer


F-50


Additional Directors
By:
/s/ Pierre M. Omidyar
 
By:
/s/ Thomas J. Tierney
 
Pierre M. Omidyar
 
 
Thomas J. Tierney
 
Founder and Director
 
 
Chairman of the Board and Director
 
 
 
 
 
By:
/s/ Fred D. Anderson
 
By:
/s/ Anthony J. Bates
 
Fred D. Anderson
 
 
Anthony J. Bates
 
Director
 
 
Director
 
 
 
 
 
By:
/s/ Adriane Brown
 
By:
/s/ Diana Farrell
 
Adriane Brown
 
 
Diana Farrell
 
Director
 
 
Director
 
 
 
 
 
By:
/s/ Logan D. Green
 
By:
/s/ Bonnie S. Hammer
 
Logan D. Green
 
 
Bonnie S. Hammer
 
Director
 
 
Director
 
 
 
 
 
By:
/s/ Kathleen C. Mitic
 
By:
/s/ Paul S. Pressler
 
Kathleen C. Mitic
 
 
Paul S. Pressler
 
Director
 
 
Director
 
 
 
 
 
By:
/s/ Robert H. Swan
 
By:
/s/ Perry M. Traquina
 
Robert H. Swan
 
 
Perry M. Traquina
 
Director
 
 
Director
 
 
 
 
 





F-51

Exhibit 3.02


Exhibit 3.02
AMENDED AND RESTATED BYLAWS
OF
EBAY INC.
(a Delaware corporation)
eBay Inc. (the “ Corporation ”), pursuant to the provisions of Section 109 of the Delaware General Corporation Law, hereby adopts these Amended and Restated Bylaws, which restate, amend and supersede the bylaws of the Corporation, as previously amended and restated, in their entirety as described below:
ARTICLE I.

STOCKHOLDERS
Section 1.1: Place of Meetings. Meetings of the stockholders of the Corporation may be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law.
Section 1.2: Annual Meetings. If required by applicable law, an annual meeting of stockholders shall be held for the election of directors at such date and time, as the Board of Directors shall each year fix. Any other proper business may be transacted at the annual meeting.
Section 1.3: Special Meetings.
(a) General. Special meetings of the stockholders, for any purpose or purposes described in the notice of the meeting, may be called by (i) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), (ii) the Chairman of the Board or (iii) the Chief Executive Officer of the Corporation, and shall be held at such place, if any, on such date, and at such time as they shall fix. Subject to the provisions of Section 1.3(b) and other applicable provisions of these bylaws, a special meeting of stockholders shall be called by the Secretary of the Corporation upon the written request (a “ Stockholder Requested Special Meeting ”) of one or more stockholders of record of the Corporation that together have continuously held, for their own account or on behalf of others, beneficial ownership of at least a twenty-five percent (25%) aggregate “net long position” of the outstanding common stock of the Corporation (the “ Requisite Percent ”) for at least thirty (30) days as of the date such request is delivered to the Corporation. For purposes of determining the Requisite Percent, “net long position” shall be determined with respect to each requesting holder in accordance with the definition thereof set forth in Rule 14e-4 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations, the “ Exchange Act ”); provided that (x) for purposes of such definition, (A) “the date that a tender offer is first publicly announced or otherwise made known by the bidder to the holders of the security to be acquired” shall be the date of the relevant Special Meeting Request, (B) the “highest tender offer price or stated amount of the consideration offered for the subject security” shall refer to the closing sales price of the Corporation’s common stock on the NASDAQ Global Select Market (or any successor thereto) on such date (or, if such date is not a trading day, the next succeeding trading day), (C) the “person whose securities are the subject of the offer” shall refer to the Corporation, and (D) a “subject security” shall refer to the outstanding common stock of the Corporation; and (y) the net long position of such holder shall be reduced by the number of shares of common stock of the Corporation as to which such holder does not, or will not, have the right to vote or direct the vote at the special meeting or as to which such holder has entered into any derivative or other agreement, arrangement or understanding that hedges or transfers, in whole or in part, directly or indirectly, any of the economic consequences of ownership of such shares. Whether the requesting holders have complied with the requirements of this Article I and related provisions of the Bylaws shall be determined in good faith by the Board of Directors, which determination shall be conclusive and binding on the Corporation and the stockholders.
(b) Stockholder Requested Special Meetings. In order for a Stockholder Requested Special Meeting to be called, one or more requests for a special meeting (each, a “ Special Meeting Request ,” and collectively, the “ Special Meeting Requests ”) must be signed by the Requisite Percent of stockholders submitting such request and by each of the beneficial




owners, if any, on whose behalf the Special Meeting Request is being made and must be delivered to the Secretary of the Corporation. The Special Meeting Request(s) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation by overnight express courier or registered mail, return receipt requested. Each Special Meeting Request shall (i) set forth a statement of the specific purpose(s) of the meeting and the matters proposed to be acted on at it, (ii) bear the date of signature of each such stockholder signing the Special Meeting Request, (iii) set forth (A) the name and address, as they appear in the Corporation’s books, of each stockholder signing such request and the beneficial owners, if any, on whose behalf such request is made, and (B) the class, if applicable, and the number of shares of common stock of the Corporation that are owned of record and beneficially (within the meaning of Rule 13d-3 under the Exchange Act) by each such stockholder and the beneficial owners, if any, on whose behalf such request is made, (iv) include documentary evidence that the stockholders requesting the special meeting own the Requisite Percent as of the date on which the Special Meeting Request is delivered to the Secretary of the Corporation; provided, however , that if the stockholders are not the beneficial owners of the shares constituting all or part of the Requisite Percent, then to be valid, the Special Meeting Request must also include documentary evidence (or, if not simultaneously provided with the Special Meeting Request, such documentary evidence must be delivered to the Secretary of the Corporation within ten (10) days after the date on which the Special Meeting Request is delivered to the Secretary of the Corporation) that the beneficial owners on whose behalf the Special Meeting Request is made beneficially own such shares as of the date on which such Special Meeting Request is delivered to the Secretary of the Corporation, (v) an agreement by each of the stockholders requesting the special meeting and each beneficial owner, if any, on whose behalf the Special Meeting Request is being made to notify the Corporation promptly in the event of any decrease in the net long position held by such stockholder or beneficial owner following the delivery of such Special Meeting Request and prior to the special meeting and an acknowledgement that any such decrease shall be deemed to be a revocation of such Special Meeting Request by such stockholder or beneficial owner to the extent of such reduction, and (vi) contain the information required by Section 1.14 and Section 1.15, as applicable, provided that all references to “Proposing Person” in Section 1.14 and all references to “Nominating Person” in Section 1.15 shall, for purposes of this Section 1.3(b), mean (i) the stockholders of record making the Special Meeting Request, (ii) any beneficial owner or beneficial owners, if different, on whose behalf the Special Meeting Request is being made, and (iii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owner. Each stockholder making a Special Meeting Request and each beneficial owner, if any, on whose behalf the Special Meeting Request is being made is required to update the notice delivered pursuant to this Section 1.3(b) in accordance with Section 1.14(d) or Section 1.15(d), as applicable. Any requesting stockholder may revoke his, her or its Special Meeting Request at any time prior to the special meeting by written revocation delivered to the Secretary of the Corporation at the principal executive offices of the Corporation. If at any time after sixty (60) days following the earliest dated Special Meeting Request, the unrevoked (whether by specific written revocation by the stockholder or pursuant to clause (b)(v) of this Section 1.3) valid Special Meeting Requests represent in the aggregate less than the Requisite Percent, then the requesting stockholder(s) or beneficial owner(s) shall be deemed to have withdrawn such request (in connection with which the Board may cancel the meeting).
In determining whether a special meeting of stockholders has been requested by stockholders holding in the aggregate at least the Requisite Percent, multiple Special Meeting Requests delivered to the Secretary of the Corporation will be considered together only if (i) each Special Meeting Request identifies substantially the same purpose or purposes of the special meeting and substantially the same matters proposed to be acted on at the special meeting (in each case as determined in good faith by the Board of Directors), and (ii) such Special Meeting Requests have been delivered to the Secretary of the Corporation within sixty (60) days of the earliest dated Special Meeting Request.
(c) Calling of a Special Meeting. Except as provided in the next sentence, a special meeting requested by stockholders shall be held at such date, time and place within or without the State of Delaware as may be fixed by the Board of Directors; provided, however, that the date of any such special meeting shall be not more than ninety (90) days after the date on which valid Special Meeting Request(s) constituting the Requisite Percent are delivered to the Secretary of the Corporation (such date of delivery being the “ Delivery Date ”). Notwithstanding the foregoing, the Secretary of the Corporation shall not be required to call a special meeting of stockholders if (i) the Board of Directors has already called an annual meeting of stockholders, or a special meeting of stockholders, which has not yet been held at which a Similar Item (as defined in this Section 1.3(c)) is to be presented pursuant to the notice of such meeting, in either case to be held not later than sixty (60) days after the Delivery Date; (ii) the Delivery Date is during the period commencing sixty (60) days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting; or (iii) the Special Meeting Request(s) (A) contain an identical or substantially similar item (as determined in good faith by the Board of Directors, a “ Similar Item ”) to an item that was presented at any meeting of stockholders held not more than seventy-five (75) days before the Delivery Date (and, for purposes of this clause (iii) the election of directors shall be deemed a “Similar Item” with respect to all items of business involving the election or removal of directors); (B) relate to an item of business that is not a proper subject for action by the stockholders under applicable law; (C) were made in a manner that involved a violation of Regulation 14A under the Exchange Act or other applicable law; or (D) do not comply with the provisions of this Section 1.3.




(d) Business Transacted at a Special Meeting. Business transacted at any Stockholder Requested Special Meeting shall be limited to the purpose or purposes stated in the Special Meeting Request(s) for such special meeting; provided, however , that nothing herein shall prohibit the Board of Directors from submitting additional matters to stockholders at any such special meeting pursuant to the Corporation’s notice of meeting. If none of the stockholders who submitted a Special Meeting Request appears at or sends a duly authorized representative to the Stockholder Requested Special Meeting to present the matters to be presented for consideration that were specified in the Special Meeting Request, the corporation need not present such matters for a vote at such meeting.
Section 1.4: Notice of Meetings. Notice of all meetings of stockholders shall be given that shall state the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation as currently in effect (the “ Certificate of Incorporation ”), such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting.
Section 1.5: Manner of Giving Notice; Affidavit of Notice.
(a) Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his, her or its address as it appears on the records of the Corporation.
(b) Except as otherwise prohibited by the Delaware General Corporation Law and without limiting the foregoing, any notice to stockholders given by the Corporation under any provision of the Delaware General Corporation Law, the Certificate of Incorporation or these Bylaws shall be effective if given by a form of electronic transmission consented to (and not properly revoked by written notice to the Corporation) by the stockholder to whom the notice is given, to the extent such consent is required by the Delaware General Corporation Law. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent of the Corporation, or other person responsible for the giving of notice; provided, however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Any such notice shall be deemed given (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.
(c) For the purposes of these Bylaws, an “ electronic transmission ” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
(d) Except as otherwise prohibited under the Delaware General Corporation Law and without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders given by the Corporation under any provision of the Delaware General Corporation Law, the Certificate of Incorporation or these Bylaws may be given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if a stockholder fails to object in writing to the Corporation within sixty (60) days of having been given written notice by the Corporation of its intention to send the single notice in accordance with this Section 1.5(d). Any such consent shall be revocable by the stockholders by written notice to the Corporation.
(e) An affidavit of the Secretary or an Assistant Secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Section 1.6: Adjournments. Any meeting of stockholders may adjourn from time to time to reconvene at the same or another place, if any, or by means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and notice need not be given of any such adjourned meeting if the place, if any, time and date thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided, however , that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at




the meeting. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting.
Section 1.7: Quorum. At each meeting of stockholders the holders of a majority of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except if otherwise required by applicable law. Where a separate vote by a class or classes or series is required, a majority of the shares of such class or classes or series then outstanding and entitled to vote present in person or by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting. Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided, however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity.
Section 1.8: Conduct of Business. Meetings of stockholders shall be presided over by such person as the Board of Directors may designate as chairman of the meeting, or, in the absence of such a person, the Chairman of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting. The Secretary of the Corporation shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, adjourning the meeting if the chairman determines in his or her sole discretion that an adjournment is advisable, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot.
Section 1.9: Voting; Proxies. Unless otherwise provided by law or the Certificate of Incorporation, each stockholder shall be entitled to one (1) vote for each share of stock held by such stockholder of record according to the records of the Corporation. The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 1.11 of these Bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the Delaware General Corporation Law. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy. Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law. Unless otherwise provided in the Certificate of Incorporation or a Certificate of Designation relating to a series of Preferred Stock, directors shall be elected as provided in Section 2.2 of these Bylaws. Unless otherwise provided by applicable law, the rules or regulations of any stock exchange applicable to the Corporation, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock entitled to vote thereon that are present in person or represented by proxy at the meeting.
Section 1.10: [ Intentionally Omitted.]

Section 1.11: Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which (i) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting, and (ii) in the case of any other action, shall not be more than sixty (60) days prior to any such other action. If no record date is fixed by the Board of Directors, then the record date shall be as provided by applicable law. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however , that the Board of Directors may fix a new record date for the adjourned meeting.




Section 1.12: List of Stockholders Entitled to Vote. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting, (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to the stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, such list shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 1.12 or to vote in person or by proxy at any meeting of the stockholders. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list.
Section 1.13: Inspectors of Elections.
(a)  Applicability. Unless otherwise provided in the Corporation’s Certificate of Incorporation or required by the Delaware General Corporation Law, the following provisions of this Section 1.13 shall apply only if and when the Corporation has a class of voting stock that is:
(i) listed on a national securities exchange;
(ii) authorized for quotation on an interdealer quotation system of a registered national securities association; or
(iii) held of record by more than 2,000 stockholders; in all other cases, observance of the provisions of this Section 1.13 shall be optional, and at the discretion of the Corporation.
(b)  Appointment. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.
(c)  Inspector’s Oath. Each inspector of election, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability.
(d)  Duties of Inspectors. At a meeting of stockholders, the inspectors of election shall
(i) ascertain the number of shares outstanding and the voting power of each share;
(ii) determine the shares represented at a meeting and the validity of proxies and ballots;
(iii) count all votes and ballots;
(iv) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors; and
(v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
(e)  Opening and Closing of Polls. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced by the inspectors at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
(f)  Determinations. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with Section 211(e) or Section 212(c)(2) of the Delaware General Corporation Law, or any information provided pursuant to Section 211(a)(2)(B)(i) or (iii) of the Delaware General Corporation Law, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent




more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.13 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
Section 1.14: Notice of Stockholder Business to be Brought Before an Annual or Special Meeting .
(a)  Business Properly Brought Before an Annual or Special Meeting . At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) brought before the meeting by the Corporation and specified in the notice of meeting given by or at the direction of the Board of Directors, (ii) brought before the meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the meeting by a stockholder who (A) was a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 1.14 and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 1.14 as to such business. Except for proposals properly made in accordance with Rule 14a-8 under the Exchange Act, and included in the notice of meeting given by or at the direction of the Board of Directors, the foregoing clause (iii) shall be the exclusive means for a stockholder to propose business to be brought before an annual meeting of the stockholders. Stockholders shall not be permitted to propose business to be brought before a special meeting of the stockholders (other than pursuant to a Special Meeting Request in accordance with the requirements set forth in Section 1.3), and the only matters that may be brought before a special meeting are the matters specified in the Corporation’s notice of meeting. Stockholders seeking to nominate persons for election to the Board must comply with Section 1.15 of these Bylaws, and this Section 1.14 shall not be applicable to nominations except as expressly provided in Section 1.15 of these Bylaws.
(b)  Requirement of Timely Notice of Stockholder Business. Without qualification, for business to be properly brought before an annual meeting by a stockholder, the stockholder must (i) provide Timely Notice (as defined below) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 1.14. To be timely, a stockholder’s notice with respect to an annual meeting of stockholders must be delivered by overnight express courier or registered mail, return receipt requested, and received at, the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the one year anniversary of the preceding year’s annual meeting; provided, however , that if the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered, or mailed and received, not earlier than the one hundred twentieth (120th) day prior to such annual meeting and not later than the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public disclosure of the date of such annual meeting was first made (such notice within such time periods, “ Timely Notice ”). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of Timely Notice as described above.

(c)  Requirements for Proper Form of Stockholder Notice of Proposed Business. To be in proper form for purposes of this Section 1.14, a stockholder’s notice to the Secretary shall set forth:
(i)  Stockholder Information. As to each Proposing Person (as defined below), (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records), (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person, except that such Proposing Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future and (C) a representation whether such Proposing Person intends or is part of a group that intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding stock required to approve or adopt the proposal or (y) otherwise to solicit proxies from stockholders in support of such proposal;
(ii)  Information Regarding Disclosable Interests. As to each Proposing Person, (A) any derivative, swap or other transaction or series of transactions engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to give such Proposing Person economic risk similar to ownership of shares of any class or series of the Corporation, including due to the fact that the value of such derivative, swap or other transactions are determined by reference to the price, value or volatility of any shares of any class or series of the Corporation, or which derivative, swap or other transactions provide, directly or indirectly, the opportunity to profit from any increase in the price or value of shares of any class or series of the Corporation (“ Synthetic Equity Interests ”), which such Synthetic Equity Interests shall be disclosed without regard to whether




(x) such derivative, swap or other transactions convey any voting rights in such shares to such Proposing Person, (y) the derivative, swap or other transactions are required to be, or are capable of being, settled through delivery of such shares or (z) such Proposing Person may have entered into other transactions that hedge or mitigate the economic effect of such derivative, swap or other transactions, (B) any proxy (other than a revocable proxy or consent given in response to a solicitation made pursuant to, and in accordance with, Section 14(a) of the Exchange Act by way of a solicitation statement filed on Schedule 14A), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to vote any shares of any class or series of the Corporation, (C) any agreement, arrangement, understanding or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of shares of any class or series of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Proposing Person with respect to the shares of any class or series of the Corporation, or which provides, directly or indirectly, the opportunity to profit from any decrease in the price or value of the shares of any class or series of the Corporation (“ Short Interests ”), (D) any rights to dividends on the shares of any class or series of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (E) any performance related fees (other than an asset based fee) that such Proposing Person is entitled to based on any increase or decrease in the price or value of shares of any class or series of the Corporation, or any Synthetic Equity Interests or Short Interests, if any, and (F) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the business proposed to be brought before the meeting pursuant to Section 14(a) of the Exchange Act (the disclosures to be made pursuant to the foregoing clauses (A) through (F) are referred to as “ Disclosable Interests ”); provided, however , that Disclosable Interests shall not include any such disclosures with respect to the ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these Bylaws on behalf of a beneficial owner; and
(iii)  Description of Proposed Business. As to each item of business the stockholder proposes to bring before the annual or special meeting, (A) a reasonably brief description of the business desired to be brought before the annual or special meeting, the reasons for conducting such business at the annual or special meeting and any material interest in such business of each Proposing Person, (B) the text of the proposal or business (including the text of any resolutions proposed for consideration), and (C) a reasonably detailed description of all agreements, arrangements and understandings (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder.
(iv)  Definition of Proposing Person. For purposes of this Section 1.14, the term “ Proposing Person ” shall mean (i) the stockholder providing the notice of business proposed to be brought before an annual or special meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the business proposed to be brought before the annual or special meeting is made, and (iii) any affiliate or associate of such stockholder or beneficial owner.
(d)  Update and Supplement of Stockholder Notice of Proposed Business. A stockholder providing notice of business proposed to be brought before an annual or special meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 1.14 or in any Special Meeting Request delivered pursuant to Section 1.3(b) shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date of the meeting, or in the case of any adjournment or postponement thereof, eight (8) business days prior to the date of such adjournment or postponement. For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not be deemed to extend any applicable deadlines under these Bylaws, cure deficiencies in any notice of business or permit a change in the proposal, business or resolution proposed to be brought before a meeting of the stockholders.
(e)  Business Not Properly Brought Before a Meeting. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at an annual or special meeting except in accordance with this Section 1.14. The presiding officer of the meeting shall, if the facts warrant, determine that the business was not properly brought before the meeting in accordance with this Section 1.14, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
(f)  Exchange Act Compliance. This Section 1.14 is expressly intended to apply to any business proposed to be brought before an annual or special meeting of stockholders other than any proposal made pursuant to Rule 14a-8 under the Exchange Act. In addition to the requirements of this Section 1.14 with respect to any business proposed to be brought before an annual or special meeting, each Proposing Person shall comply with all applicable requirements of the Exchange Act




with respect to any such business. Nothing in this Section 1.14 shall be deemed to affect the rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(g)  Definition of Public Disclosure. For purposes of these Bylaws, “ public disclosure ” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
Section 1.15: Nominations.
(a)  Who May Make Nominations. Nominations of any person for election to the Board of Directors at an annual meeting or at a special meeting (but only if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting) may be made at such meeting only (i) by or at the direction of the Board of Directors, including by any committee or persons appointed by the Board of Directors, or (ii) by a stockholder who (A) was a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such nomination is proposed to be made, only if such beneficial owner was the beneficial owner of shares of the Corporation) both at the time of giving the notice provided for in this Section 1.15 and at the time of the meeting, (B) is entitled to vote at the meeting, and (C) has complied with this Section 1.15 as to such nomination. The foregoing clause (ii) shall be the exclusive means for a stockholder to make any nomination of a person or persons for election to the Board of Directors at an annual meeting or special meeting (other than pursuant to a Special Meeting Request in accordance with the requirements set forth in Section 1.3).
(b)  Requirement of Timely Notice of Stockholder Nominations. Without qualification, for a stockholder to make any nomination of a person or persons for election to the Board of Directors at an annual meeting, the stockholder must (i) provide Timely Notice (as defined in Section 1.14 of these Bylaws) thereof in writing and in proper form to the Secretary of the Corporation and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 1.15. Without qualification, if the election of directors is a matter specified in the notice of meeting given by or at the direction of the person calling such special meeting, then for a stockholder to make any nomination of a person or persons for election to the Board of Directors at a special meeting, the stockholder must (i) provide timely notice thereof in writing and in proper form to the Secretary of the Corporation at the principal executive offices of the Corporation, and (ii) provide any updates or supplements to such notice at the times and in the forms required by this Section 1.15. To be timely, a stockholder’s notice for nominations to be made at a special meeting (other than pursuant to a Special Meeting Request in accordance with the requirements set forth in Section 1.3) must be delivered to, or mailed and received at, the principal executive offices of the Corporation not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the ninetieth (90th) day prior to such special meeting or, if later, the tenth (10th) day following the day on which public disclosure (as defined in Section 1.14 of these Bylaws) of the date of such special meeting was first made. In no event shall any adjournment or postponement of an annual meeting or special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.
(c)  Requirements for Proper Form of Notice of Stockholder Nominations. To be in proper form for purposes of this Section 1.15, a stockholder’s notice to the Secretary shall set forth:
(i)  Stockholder Information. As to each Nominating Person (as defined below), (A) the name and address of such Nominating Person (including, if applicable, the name and address that appear on the Corporation’s books and records), (B) the class or series and number of shares of the Corporation that are, directly or indirectly, owned of record or beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by such Nominating Person, except that such Nominating Person shall in all events be deemed to beneficially own any shares of any class or series of the Corporation as to which such Nominating Person has a right to acquire beneficial ownership at any time in the future and (C) a representation whether such Nominating Person intends or is part of a group that intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding stock reasonably believed by the Nominating Person to be sufficient to elect the nominee or nominees proposed to be nominated by the Nominating Person;
(ii)  Information Regarding Disclosable Interests. As to each Nominating Person, any Disclosable Interests (as defined in Section 1.14(c)(ii), except that for purposes of this Section 1.15 the term “Nominating Person” shall be substituted for the term “Proposing Person” in all places it appears in Section 1.14(c)(ii)), and the disclosure in clause (F) of Section 1.14(c)(ii) shall be made with respect to the election of directors at the meeting;
(iii)  Information Regarding Proposed Nominees. As to each person whom a Nominating Person proposes to nominate for election as a director, (A) all information with respect to such proposed nominee that would be required to be set forth in a stockholder’s notice pursuant to this Section 1.15 if such proposed nominee were a Nominating Person, (B) all information relating to such proposed nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14(a) under the Exchange Act (including such proposed nominee’s written consent to being named in the proxy statement as a nominee and to




serving as a director if elected), (C) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among any Nominating Person, on the one hand, and each proposed nominee, his or her respective affiliates and associates, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Item 404 under Regulation S-K if such Nominating Person were the “registrant” for purposes of such rule and the proposed nominee were a director or executive officer of such registrant, and (D) a statement as to whether the proposed nominee, if elected, intends to tender, promptly following
such person’s election or re-election, an irrevocable resignation effective upon the occurrence of both (1) such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and (2) acceptance of such resignation in accordance with Section 2.2 of these Bylaws and the Corporation’s Governance Guidelines for the Board of Directors; and
(iv)  Other Information to be Furnished by Proposed Nominees. The Corporation may require any proposed nominee to furnish such other information (A) as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation in accordance with the Corporation’s Governance Guidelines or (B) that could be material to a reasonable stockholder’s understanding of the independence or lack of independence of such proposed nominee.
(v)  Definition of Nominating Person . For purposes of this Section 1.15, the term “Nominating Person” shall mean (i) the stockholder providing the notice of the nomination proposed to be made at the meeting, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of the nomination proposed to be made at the meeting is made, and (iii) any affiliate or associate of such stockholder or beneficial owner.
(d)  Update and Supplement of Stockholder Notice of Nominations. A stockholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 1.15 or in any Special Meeting Request delivered pursuant to Section 1.3(b) shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date), and not later than eight (8) business days prior to the date of the meeting, or in the case of any adjournment or postponement thereof, eight (8) business days prior to the date of such adjournment or postponement. For the avoidance of doubt, the obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not be deemed to extend any applicable deadlines under these Bylaws, cure deficiencies in any notice of nominations or permit a change in the nominees or nominations proposed to be made at a meeting of the stockholders.
(e)  Defective Nominations. Notwithstanding anything in these Bylaws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with this Section 1.15. The presiding officer at the meeting shall, if the facts warrant, determine that a nomination was not properly made in accordance with this Section 1.15, and if he or she should so determine, he or she shall so declare such determination to the meeting and the defective nomination shall be disregarded.
(f)  Compliance with Exchange Act. In addition to the requirements of this Section 1.15 with respect to any nomination proposed to be made at a meeting, each Nominating Person shall comply with all applicable requirements of the Exchange Act with respect to any such nominations.
Section 1.16: Inclusion of Stockholder Director Nominations in the Corporation’s Proxy Materials.
(a)    Subject to the terms and conditions set forth in these Bylaws, the Corporation shall include in its proxy materials for an annual meeting of stockholders the name, together with the Required Information (defined below), of any person nominated for election (the “Stockholder Nominee”) to the Board of Directors by a stockholder or group of stockholders that satisfy the requirements of this Section 1.16, including qualifying as an Eligible Stockholder (as defined in paragraph (e) below), and that expressly elects at the time of providing the written no-tice required by this Section 1.16 (a “Proxy Access Notice”) to have its nominee included in the Corporation’s proxy materials pursuant to this Section 1.16. For the purposes of this Section 1.16:
(i) “Voting Stock” shall mean outstanding shares of capital stock of the Corporation entitled to vote generally for the election of directors;
(ii) “Constituent Holder” shall mean any stockholder, collective investment fund included within a Qualifying Fund (as defined in paragraph (e) below) or beneficial holder whose stock ownership is counted for the purposes of




qualifying as holding the Proxy Access Request Required Shares (as defined in paragraph (e) below) or qualifying as an Eligible Stockholder (as defined in paragraph (e) below);
(iii) “affiliate” and “associate” shall have the meanings ascribed thereto in Rule 405 under the Securities Act of 1933, as amended, and the rules and regulations thereunder; pro-vided, however, that the term “partner” as used in the definition of “associate” shall not include any limited partner that is a passive investor in, and not involved in the management of, the relevant partnership; and
(iv) a stockholder (including any Constituent Holder) shall be deemed to “own” only those outstanding shares of Voting Stock as to which the stockholder itself (or any Constituent Holder itself) possesses both (A) the full voting and investment rights pertaining to the shares and (B) the full economic interest in (including the opportunity for profit and risk of loss on) such shares. The number of shares calculated in accordance with the foregoing clauses (A) and (B) shall be deemed not to include (and to the extent any of the following arrangements have been entered into by affiliates of the stockholder (or of any Constituent Holder), shall be reduced by) any shares (x) sold by such stockholder or Constituent Holder (or any of either’s affiliates) in any transaction that has not been settled or closed, including any short sale, (y) borrowed by such stockholder or Constituent Holder (or any of either’s affiliates) for any purposes or purchased by such stockholder or Constituent Holder (or any of either’s affiliates) pursuant to an agreement to resell or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by such stockholder or Constituent Holder (or any of either’s affiliates), whether any such instrument or agreement is to be settled with shares or with cash based on the notional amount or value of Voting Stock, in any such case which instrument or agreement has, or is intended to have, or if exercised by either party thereto would have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder’s or Constituent Holder’s (or either’s affiliate’s) full right to vote or direct the voting of any such shares, and/or (2) hedging, offsetting or altering to any degree gain or loss arising from the full economic ownership of such shares by such stockholder or Constituent Holder (or either’s affiliate), other than any such arrangements solely involving an exchange listed multi-industry market index fund in which Voting Stock represents at the time of entry into such arrangement less than 10% of the proportionate value of such index. A stockholder (including any Constituent Holder) shall “own” shares held in the name of a nominee or other intermediary so long as the stockholder itself (or such Constituent Holder itself) retains the right to instruct how the shares are voted with respect to the election of directors and the right to direct the disposition thereof and possesses the full economic interest in the shares. A stockholder’s (including any Constituent Holder’s) ownership of shares shall be deemed to continue during any period in which such person has loaned such shares in the ordinary course of its business or delegated any voting power over such shares by means of a proxy, power of attorney or other instrument or arrangement which loan or delegation in all such cases is revocable at any time by the stockholder (and, with respect to any such loans of shares, as long as such shares can be recalled within five (5) days). The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings.
(b)    For purposes of this Section 1.16, the “Required Information” that the Corporation will include in its proxy statement is (i) the information concerning the Stockholder Nominee and the Eligible Stockholder that the Corporation determines is required to be disclosed in the Corporation’s proxy statement by the regulations promulgated under the Exchange Act; and (ii) if the Eligible Stockholder so elects, a Statement (as defined in paragraph (g) below). The Corporation shall also include the name of the Stockholder Nominee in its proxy card. For the avoidance of doubt, and any other provision of these Bylaws notwithstanding, the Corporation may in its sole discretion solicit against, and include in the proxy statement its own statements or other information relating to, any Eligible Stockholder and/or Stockholder Nomi-nee, including any information provided to the Corporation with respect to the foregoing.
(c)    To be timely, a stockholder’s Proxy Access Notice must be delivered to the principal executive offices of the Corporation within the time periods applicable to stockholder notices of nominations pursuant to Section 1.14 of these Bylaws. In no event shall any adjournment or postponement of an annual meeting, the date of which has been announced by the Corporation, commence a new time period for the giving of a Proxy Access Notice.
(d)    The number of Stockholder Nominees (including Stockholder Nominees that were submitted by an Eligible Stockholder for inclusion in the Corporation’s proxy materials pursuant to this Section 1.16 but either are subsequently withdrawn or that the Board of Directors decides to nominate as Board of Directors’ nominees) appearing in the Corporation’s proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (x) two (2) and (y) the largest whole number that does not exceed 20% of the number of directors in office as of the last day on which a Proxy Access Notice may be delivered in accordance with the procedures set forth in this Section 1.16 (such greater number, the “Permitted Number”); provided, however, that the Permitted Number shall be reduced by:
(i)    the number of directors in office or director candidates that in either case will be included in the Corporation’s proxy materials with respect to such annual meeting as an unopposed (by the Corporation) nominee pursuant to an agreement, arrangement or other understanding with a stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into in connection with an acquisition of Voting Stock, by such stockholder or group of




stockholders, from the Corporation), other than any such director referred to in this clause (i) who at the time of such annual meeting will have served as a director continuously, as a nominee of the Board of Directors, for at least two annual terms, but only to the extent the Permitted Number after such reduction with respect to this clause (i) equals or exceeds one; and
(ii)    the number of directors in office that will be included in the Corporation’s proxy materials with respect to such annual meeting for whom access to the Corporation’s proxy materials was previously provided or requested pursuant to this Section 1.16, other than any such director referred to in this clause (ii) who at the time of such annual meeting will have served as a director continuously, as a nominee of the Board of Directors, for at least two annual terms; provided, further, that in the event the Board of Directors resolves to reduce the size of the Board of Directors effective on or prior to the date of the annual meeting, the Permitted Number shall be calculated based on the number of directors in office as so reduced. In the event that the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 1.16 exceeds the Permitted Number, each Eligible Stockholder will promptly select one Stockholder Nominee for inclusion in the Corporation’s proxy materials until the Permitted Number is reached, going in order of the amount (largest to smallest) of shares of Voting Stock each Eligible Stockholder disclosed as owned in its Proxy Access Notice submitted to the Corporation. If the Permitted Number is not reached after each Eligible Stockholder has selected one Stockholder Nominee, this selection process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached.
(e)    An “Eligible Stockholder” is one or more stockholders of record who own and have owned, or are acting on behalf of one or more beneficial owners who own and have owned (in each case as defined above), in each case continuously for at least three (3) years as of both the date that the Proxy Access Notice is received by the Corporation pursuant to this Section 1.16, and as of the record date for determining stockholders eligible to vote at the annual meeting, at least 3% of the aggregate voting power of the Voting Stock (the “Proxy Access Request Required Shares”), and who continue to own the Proxy Access Request Required Shares at all times between the date such Proxy Access Notice is received by the Corporation and the date of the applicable annual meeting, provided that the aggregate number of stock-holders, and, if and to the extent that a stockholder is acting on behalf of one or more beneficial owners, of such beneficial owners, whose stock ownership is counted for the purpose of satisfying the foregoing ownership requirement shall not exceed twenty (20). Two or more funds that are (i) under common management and investment control, (ii) under common management and funded primarily by a single employer or (iii) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940 (such funds together under each of (i), (ii) or (iii), a “Qualifying Fund”) shall be treated as one stockholder for the purpose of determining the aggregate number of stockholders referred to in the preceding sentence of this paragraph, provided that each fund included within a Qualifying Fund otherwise meets the requirements set forth in this Section 1.16. No shares may be attributed to more than one group constituting an Eligible Stockholder under this Section 1.16 (and, for the avoidance of doubt, no stockholder may be a member of more than one group constituting an Eligible Stock-holder). A record holder acting on behalf of one or more beneficial owners will not be counted separately as a stockholder with respect to the shares owned by beneficial owners on whose behalf such record holder has been directed in writing to act, but each such beneficial owner will be counted separately, subject to the other provisions of this paragraph (e), for purposes of determining the number of stockholders whose holdings may be considered as part of an Eligible Stockholder’s holdings. For the avoidance of doubt, Proxy Access Request Required Shares will qualify as such if and only if the beneficial owner of such shares as of the date of the Proxy Access Notice has itself individually beneficially owned such shares continuously for the three-year (3 year) period ending on that date and through the other applicable dates referred to above (in addition to the other applicable requirements being met).
(f)    No later than the final date when a Proxy Access Notice pursuant to this Section 1.16 may be timely delivered to the Corporation, an Eligible Stockholder (including each Constituent Holder) must provide the following information in writing to the Secretary of the Corporation:
(i)    with respect to each Constituent Holder, the name and address of, and number of shares of Voting Stock owned by, such person;
(ii)    one or more written statements from the record holder of the shares (and from each intermediary through which the shares are or have been held during the requisite three-year (3 year) holding period) verifying that, as of a date within seven (7) calendar days prior to the date the Proxy Access Notice is timely delivered to the Corporation, such per-son owns, and has owned continuously for the preceding three (3) years, the Proxy Access Re-quest Required Shares, and such person’s agreement to provide:
(A)    within ten (10) days after the record date for the annual meeting, written statements from the record holder and intermediaries verifying such person’s continuous ownership of the Proxy Access Request Required Shares through the record date, together with any additional information reasonably requested to verify such person’s ownership of the Proxy Access Request Required Shares; and
(B)    immediate notice if the Eligible Stockholder ceases to own any of the Proxy Access Request Required Shares prior to the date of the applicable annual meeting of stockholders;




(iii)    any information relating to such Eligible Stockholder (including any Constituent Holder) and their respective affiliates or associates or others acting in concert therewith, and any information relating to such Eligible Stockholder’s Stockholder Nominee(s), in each case that would be required to be disclosed in a proxy statement and form of proxy or other filings required to be made in connection with solicitations of proxies for the election of such Stockholder Nominee(s) in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder or that would be required to be dis-closed by Section 1.15 of these Bylaws in connection with submitting a notice nominating a Nominating Person;
(iv)    a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among the Eligible Stockholder (including any Constituent Holder) and its or their respective affiliates and associates, or others acting in con-cert therewith, on the one hand, and each of such Eligible Stockholder’s Stockholder Nomi-nee(s), and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be dis-closed pursuant to Rule 404 promulgated under Regulation S-K if the Eligible Stockholder (including any Constituent Holder), or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Stockholder Nominee were a director or executive officer of such registrant;
(v)    a representation that such person:
(A)    acquired the Proxy Access Request Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent;
(B)    has not nominated and will not nominate for election to the Board of Directors at the annual meeting any person other than the Stockholder Nominee(s) being nominated pursuant to this Section 1.16;
(C)    has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors;
(D)    will not distribute to any stockholder any form of proxy for the annual meeting other than the form distributed by the Corporation; and
(E)    will provide facts, statements and other information in all communications with the Corporation and its stockholders that are and will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and will otherwise comply with all applicable laws, rules and regulations in connection with any actions taken pursuant to this Section 1.16;
(vi) in the case of a nomination by a group of stockholders that together is such an Eligible Stockholder, the designation by all group members of one group member that is authorized to act on behalf of all members of the nominating stockholder group with respect to the nomination and matters related thereto, including withdrawal of the nomination; and
(vii) an undertaking that such person agrees to:
(A)    assume all liability stemming from, and indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its di-rectors, officers or employees arising out of any legal or regulatory violation arising out of the Eligible Stockholder’s communications with the stockholders of the Corporation or out of the in-formation that the Eligible Stockholder (including such person) provided to the Corporation; and
(B)    file with the Securities and Exchange Commission any solicitation by the Eligible Stockholder of stockholders of the Corporation relating to the annual meeting at which the Stockholder Nominee will be nominated.
In addition, no later than the final date on which a Proxy Access Notice may be submitted under this Section 1.16, a Qualifying Fund whose stock ownership is counted for purposes of qualifying as an Eligible Stockholder must provide to the Secretary of the Corporation documentation reasonably satisfactory to the Board of Directors that demonstrates that the funds included within the Qualifying Fund satisfy the definition of Qualifying Fund as defined by this Section 1.16. In order to be considered timely, any information required by this Section 1.16 to be provided to the Corporation must be supplemented (by delivery to the Secretary of the Corporation) (1) no later than ten (10) days following the record date for the applicable annual meeting, to disclose the foregoing information as of such record date, and (2) no later than the fifth day before the annual meeting, to disclose the foregoing information as of the date that is no earlier than ten (10) days prior to such annual meeting. For the avoidance of doubt, the requirement to update and supplement such information shall not permit any Eligible Stockholder or other




person to change or add any proposed Stockholder Nominee or be deemed to cure any defects or limit the remedies (including without limitation under these Bylaws) available to the Corporation relating to any defect.
(g)    The Eligible Stockholder may provide to the Secretary of the Corporation, at the time the information required by this Section 1.16 is originally provided, a written statement for inclusion in the Corporation’s proxy statement for the annual meeting, not to exceed five hundred (500) words for each Stockholder Nominee, in support of the candidacy of such Eligible Stockholder’s Stockholder Nominee(s) (the “Statement”). Notwithstanding anything to the contrary contained in this Section 1.16, the Corporation may omit from its proxy materials any information or Statement that it, in good faith, believes is materially false or misleading, omits to state any material fact, or would violate any applicable law or regulation.
(h) No later than the final date when a Proxy Access Notice pursuant to this Section 1.16 may be timely delivered to the Corporation, each Stockholder Nominee must:
(i) provide an executed agreement, in a form deemed satisfactory by the Board of Directors or its designee (which form shall be provided by the Corporation reason-ably promptly upon written request of a stockholder), that such Stockholder Nominee:
(A)    consents to being named in the Corporation’s proxy statement and form of proxy card (and will not agree to be named in any other person’s proxy statement or form of proxy card) as a nominee and to serving as a director of the Corporation if elected;
(B)    agrees, if elected, to adhere to the Corporation’s Corporate Governance Guidelines and Code of Conduct and any other publicly available or publicly dis-closed Corporation policies and guidelines applicable to directors; and
(C)    is not and will not become a party to any compensatory, payment or other financial agreement, arrangement or understanding with any person or entity in connection with his or her nomination, service or action as a director of the Corporation, or any agreement, arrangement or understanding with any person or entity as to how the Stockholder Nominee would vote or act on any issue or question as a director, in each case that has not been disclosed to the Corporation;
(ii)    complete, sign and submit all questionnaires, representations and agreements required by these Bylaws or of the Corporation’s directors generally; and
(iii)    provide such additional information as necessary to permit the Board of Directors to determine if such Stockholder Nominee:
(A)    is independent under the listing standards of each principal U.S. exchange upon which the common stock of the Corporation is listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the Corporation’s directors;
(B)    has any direct or indirect relationship with the Corporation other than those relationships that have been deemed categorically immaterial pursuant to the Corporation’s Corporate Governance Guidelines;
(C)    would, by serving on the Board of Directors, violate or cause the Corporation to be in violation of the Corporation’s Certificate of Incorporation or By-laws, the rules and listing standards of the principal U.S. exchange upon which the common stock of the Corporation is listed or any applicable law, rule or regulation; and
(D)    is or has been subject to any event specified in Item 401(f) of Regulation S-K (or successor rule) of the Securities and Exchange Commission.
In the event that any information or communications provided by the Eligible Stockholder (or any Constituent Holder) or the Stockholder Nominee to the Corporation or its stockholders ceases to be true and correct in all material respects or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, each Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the Corporation of any defect in such previously provided information and of the information that is required to correct any such defect; it being understood for the avoidance of doubt that providing any such notification shall not be deemed to cure any such defect or limit the remedies (including without limitation under these Bylaws) available to the Corporation relating to any such defect.
(i)    Any Stockholder Nominee who is included in the Corporation’s proxy statement for a particular annual meeting of stockholders, but subsequently is determined not to satisfy the eligibility requirements of this Section 1.16 or any other provision of the Corporation’s Certificate of Incorporation or Bylaws or other applicable regulation any time before the annual meeting of stockholders, will not be eligible for election at the relevant annual meeting of stock-holders.
(j)    The Corporation shall not be required to include, pursuant to this Section 1.16, a Stockholder Nominee in its proxy materials for any annual meeting of stockholders, or, if the proxy statement already has been filed, to allow




the nomination of a Stockholder Nominee, notwithstanding that proxies in respect of such vote may have been received by the Corporation:
(i)    who is not independent under the listing standards of the principal U.S. exchange upon which the common stock of the Corporation is listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the Board of Directors in determining and disclosing independence of the Corporation’s directors, in each case as determined by the Board of Directors;
(ii)    whose service as a member of the Board of Directors would violate or cause the Corporation to be in violation of the Corporation’s Certificate of Incorporation or Bylaws, the rules and listing standards of the principal U.S. exchange upon which the common stock of the Corporation is traded, or any applicable law, rule or regulation;
(iii)    if the Eligible Stockholder (or any Constituent Holder) or applicable Stockholder Nominee otherwise breaches or fails to comply in any material respect with its obligations pursuant to this Section 1.16 or any agreement, representation or undertaking required by this Section; or
(iv)    if the Eligible Stockholder ceases to be an Eligible Stockholder for any reason, including but not limited to not owning the Proxy Access Request Required Shares through the date of the applicable annual meeting;
(v)     if the Corporation receives one or more stockholder notices nominating director candidates pursuant to Section 1.15 of these Bylaws.










ARTICLE II.

BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist of one or more members. The initial number of directors shall be five (5), and thereafter shall be fixed from time to time by resolution of the Board of Directors. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2: Election.
(a) The directors shall be elected as provided in the Certificate of Incorporation.
(b) Each director to be elected by the stockholders of the Corporation shall be elected by the affirmative vote of a majority of the votes cast with respect to such director by the shares represented and entitled to vote therefor at a meeting of the stockholders for the election of directors at which a quorum is present (an “ Election Meeting ”); provided, however , that if the Board of Directors determines that the number of nominees exceeds the number of directors to be elected at such meeting (a “ Contested Election ”), and the Board of Directors has not rescinded such determination by the date that is twenty (20) days prior to the date of the Election Meeting as initially announced, each of the directors to be elected at the Election Meeting shall be elected by the affirmative vote of a plurality of the votes cast by the shares represented and entitled to vote at such meeting with respect to the election of such director. For purposes of this Section 2.2, a “majority of the votes cast” means that the number of votes cast “for” a candidate for director exceeds the number of votes cast “against” that director. In an election other than a Contested Election, stockholders will be given the choice to cast votes “for” or “against” the election of directors or to “abstain” from such vote and shall not have the ability to cast any other vote with respect to such election of directors. In a Contested Election, stockholders will be given the choice to cast “for” or “withhold” votes for the election of directors and shall not have the ability to cast any other vote with respect to such election of directors. In the event an Election Meeting involves the election of directors by separate votes by class or classes or series, the determination as to whether an election constitutes a Contested Election shall be made on a class by class or series by series basis, as applicable.
(c) In the event one or more incumbent directors (each, a “ Subject Director ”) fails to receive the affirmative vote of a majority of the votes cast at an Election Meeting at which there was no Contested Election, either (i) the Corporate Governance and Nominating Committee or (ii) if one or more of the members of the Corporate Governance and Nominating Committee is a Subject Director or the Board of Directors determines that any decision to be made with respect to a Subject Director should be made by a committee other than the Corporate Governance and Nominating Committee, a committee consisting solely of independent directors (as determined in accordance with any stock exchange rules and regulations applicable to the Corporation and any additional criteria set forth in the Corporation’s Governance Guidelines for the Board of Directors or Corporate Governance and Nominating Committee Charter, as applicable) who are not Subject Directors (the committee described in clause (i) or (ii) of this sentence, the “ Committee ”) will make a determination as to whether to accept or reject any previously tendered Resignations (as defined below), or whether other action should be taken (including whether to request that a Subject Director resign from the Board of Directors if no Resignation had been tendered prior to the relevant Election Meeting). The Committee will act with respect to any Subject Directors within ninety (90) days from the date of the certification of the election results and shall notify the Subject Directors of its decision. The Committee may consider all factors it considers relevant, including any stated reasons for “against” votes, whether the underlying cause or causes of the “against” votes are curable, the relationship between such causes and the actions of such Subject Director, the factors, if any, set forth in the Corporation’s Governance Guidelines for the Board of Directors or other policies that are to be considered by the Corporate Governance and Nominating Committee in evaluating potential candidates for the Board of Directors as such criteria relate to such Subject Director, the length of service of such Subject Director, the size and holding period of such Subject Director’s stock ownership in the Corporation, and such Subject Director’s contributions to the Corporation. Subject Directors shall not participate in the deliberation or decision(s) of the Committee. The Corporation shall publicly disclose the decision(s) of the Committee in a Current Report on Form 8-K filed with the Securities and Exchange Commission. Notwithstanding the foregoing, if the result of accepting all tendered Resignations then pending and requesting resignations from incumbent directors who did not submit a Resignation prior to the relevant Election Meeting, would be that the Corporation would have fewer than three (3) directors who were in office before the election of directors, the Committee may determine to extend such ninety (90)-day period by an additional ninety (90) days if it determines that such an extension is in the best interests of the Corporation and its stockholders. For purposes of this Section 2.2, a “Resignation” is an irrevocable resignation submitted by an incumbent director nominated for re-election prior to the relevant Election Meeting that will become effective upon the occurrence of both (i) the failure to receive




the affirmative vote of a majority of the votes cast at an Election Meeting at which there was no Contested Election and (ii) acceptance of such resignation by the Committee.
(d) If a Subject Director’s tendered Resignation is not accepted by the Committee or such Subject Director does not otherwise submit his or her resignation to the Board of Directors, such director shall continue to serve until his or her successor is duly elected, or his or her earlier resignation or removal pursuant to Section 2.3. If a Subject Director’s Resignation is accepted by the Committee pursuant to this Section 2.2, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Section 2.3 or decrease the size of the Board of Directors pursuant to the provisions of Section 2.1 of these Bylaws.
Section 2.3: Resignation; Removal; Vacancies. Subject to the provisions of the Certificate of Incorporation, each director shall serve until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, retirement or removal from service as a director. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Subject to the rights of any holders of Preferred Stock then outstanding and the Certificate of Incorporation:
(i) (A) prior to the third annual meeting of stockholders following the effectiveness of the Amended and Restated Certificate of Incorporation that declassifies the Board of Directors (the “Declassification Amendment”), any director or the entire Board of Directors may be

removed, only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors and (B) after the third annual meeting of stockholders following the effectiveness of the Declassification Amendment, the holders of a majority of the shares entitled to vote in an election of directors may remove any director or the entire Board of Directors with or without cause, and
(ii) any vacancy occurring in the Board of Directors for any reason, and any newly created directorship resulting from any increase in the authorized number of directors to be elected by all stockholders having the right to vote as a single class, shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
Section 2.4: Regular Meetings. Regular meetings of the Board of Directors may be held at such places, within or without the State of Delaware, and at such times as the Board of Directors may from time to time determine. Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board of Directors.
Section 2.5: Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or a majority of the members of the Board of Directors then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix. Notice of the time, date and place of such meeting shall be given, orally or in writing, by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, overnight express courier, facsimile, electronic mail or other electronic transmission. Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting. The notice shall be deemed given
(i) in the case of hand delivery or notice by telephone, when received by the director to whom notice is to be given or by any person accepting such notice on behalf of such director,
(ii) in the case of delivery by mail, upon deposit in the United States mail, postage prepaid, directed to the director to whom notice is being given at such director’s address as it appears on the records of the Corporation,
(iii) in the case of delivery by overnight express courier, on the first business day after such notice is dispatched, and
(iv) in the case of delivery via facsimile, electronic mail or other electronic transmission, when sent to the director to whom notice is to be given or by any person accepting such notice on behalf of such director at such director’s facsimile number or electronic mail address, as the case may be, as it appears on the Corporation’s records.
Section 2.6: Telephonic Meetings Permitted. Members of the Board of Directors, or any committee of the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or similar communications equipment shall constitute presence in person at such meeting.





Section 2.7: Quorum; Vote Required for Action. At all meetings of the Board of Directors a majority of the total number of authorized directors shall constitute a quorum for the transaction of business. Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
Section 2.8: Chairman of the Board. The Board of Directors shall have the power to elect the Chairman of the Board from among the members of the Board of Directors. The Chairman of the Board shall have the power to preside at all meetings of the Board of Directors and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe.
Section 2.9: Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his or her absence by the Chief Executive Officer, or in his or her absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
Section 2.10: Written Action by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 2.11: Powers. The Board of Directors may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
Section 2.12: Compensation of Directors. Directors, as such, may receive, pursuant to a resolution of the Board of Directors, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board of Directors.
ARTICLE III.

COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in a resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any Bylaw of the Corporation.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV.

OFFICERS




Section 4.1: Generally. The officers of the Corporation shall consist of a Chief Executive Officer and/or a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers, including a Chief Financial Officer, as may from time to time be appointed by the Board of Directors. All officers shall be elected by the Board of Directors; provided, however , that the Board of Directors may empower the Chief Executive Officer of the Corporation to appoint officers other than the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person. Any officer may resign at any time upon written notice to the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are:
(a) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing

which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall designate another officer to be the Chief Executive Officer. If there is no President, and the Board of Directors has not designated any other officer to be the Chief Executive Officer, then the Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: President. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall have designated another officer as the Chief Executive Officer of the Corporation. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board of Directors to the Chairman of the Board, and/or to any other officer, the President shall have the responsibility for the general management and the control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board of Directors.
Section 4.4: Vice President. Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board of Directors or the Chief Executive Officer. A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer’s absence or disability.
Section 4.5: Chief Financial Officer. Subject to the direction of the Board of Directors and the President, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of chief financial officer.
Section 4.6: Treasurer. The Treasurer shall have custody of all monies and securities of the Corporation. The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions. The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board of Directors or the President may from time to time prescribe.
Section 4.7: Secretary. The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board of Directors. The Secretary shall have charge of the




corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board of Directors or the President may from time to time prescribe.

Section 4.8: Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.
Section 4.9: Removal. Any officer of the Corporation shall serve at the pleasure of the Board of Directors and may be removed at any time, with or without cause, by the Board of Directors. Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.
ARTICLE V.

STOCK
Section 5.1: Certificates. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation’s stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates or Uncertificated Shares . The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Section 5.3: Other Regulations. The issue, transfer, conversion and registration of stock certificates or uncertificated shares shall be governed by such other regulations as the Board of Directors may establish.
ARTICLE VI.

INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ proceeding ”), by reason of the fact that he or she (or a person of whom he or she is the legal representative), is or was a director or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor (as defined below) as a director, officer or employee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (each such director, officer or employee, a “ Covered Person ”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Delaware General Corporation Law, against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however , that the Corporation shall indemnify any such Covered Person seeking indemnity in connection with a proceeding (or part thereof) initiated by such Covered Person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. As used herein, the term “Reincorporated Predecessor” means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses (including attorneys’ fees) incurred by a Covered Person in defending any such proceeding as they are incurred in advance of its final disposition; provided, however , that if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a Covered Person in advance of the final disposition of such proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Covered Person, to repay all amounts so advanced if it should be determined ultimately that such Covered Person is not entitled to be indemnified under this Article VI or otherwise; and provided, further, that the Corporation shall not be




required to advance any expenses to a Covered Person against whom the Corporation directly brings a claim, in a proceeding, alleging that such person has breached his or her duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise. Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI. The Board of Directors of the Corporation shall have the power to delegate to such officer or other person as the Board of Directors shall specify the determination of whether indemnification shall be given to any person pursuant to this Section 6.3.
Section 6.4: Indemnification Contracts. The Board of Directors is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification rights to such person. Such rights may be greater than those provided in this Article VI.

Section 6.5: Continuation of Indemnification. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article VI shall continue notwithstanding that the person has ceased to be a Covered Person and shall inure to the benefit of his or her estate, heirs, executors, administrators, legatees and distributees; provided, however , that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
Section 6.6: Effect of Amendment or Repeal. The provisions of this Article VI shall constitute a contract between the Corporation, on the one hand, and, on the other hand, each individual who serves or has served as a Covered Person (whether before or after the adoption of these Bylaws), in consideration of such person’s performance of such services, and pursuant to this Article VI, the Corporation intends to be legally bound to each such current or former Covered Person. With respect to current and former Covered Persons, the rights conferred under this Article VI are present contractual rights and such rights are fully vested, and shall be deemed to have vested fully, immediately upon adoption of these Bylaws. With respect to any Covered Persons who commence service following adoption of these bylaws, the rights conferred under this Article VI shall be present contractual rights, and such rights shall fully vest, and be deemed to have vested fully, immediately upon such Covered Person’s service in the capacity which is subject to the benefits of this Article VI.
ARTICLE VII.

NOTICES
Section 7.1: Notice.
(a)  General. Except as otherwise specifically provided herein or required by law, all notices required to be given pursuant to these Bylaws shall be in writing and may in every instance be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid overnight express courier or facsimile. Any such notice shall be addressed to the person to whom notice is to be given at such person’s address or facsimile number, as the case may be, as it appears on the records of the Corporation. The notice shall be deemed given
(i) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person;
(ii) in the case of delivery by mail, upon deposit in the United States mail, postage prepaid, directed to the person to whom notice is being given at such person’s address as it appears on the records of the Corporation;
(iii) in the case of delivery by overnight express courier, on the first business day after such notice is dispatched; and




(iv) in the case of delivery via facsimile, when directed to the person to whom notice is to be given or by any person accepting such notice on behalf of such person.

Section 7.2: Waiver of Notice. Whenever notice is required to be given under any provision of these Bylaws, a written waiver of notice, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice or any waiver by electronic transmission.
ARTICLE VIII.

INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if:
(i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum;
(ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE IX.

MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate seal, which shall have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board of Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the Delaware General Corporation Law.
Section 9.4: Reliance Upon Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.




Section 9.5: Certificate of Incorporation Governs. In the event of any conflict between the provisions of the Corporation’s Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Corporation’s Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.
ARTICLE X.

AMENDMENT
Section 10.1: Amendments. Subject to Section 6.6 of these Bylaws, stockholders of the Corporation holding at least a majority of the Corporation’s outstanding voting stock shall have the power to adopt, amend or repeal Bylaws. To the extent provided in the Corporation’s Certificate of Incorporation, the Board of Directors of the Corporation shall also have the power to adopt, amend or repeal Bylaws of the Corporation.






CERTIFICATION OF BYLAWS
OF
EBAY INC.
(a Delaware Corporation)
KNOW ALL BY THESE PRESENTS:
I, Marie Oh Huber, certify that I am Secretary of eBay Inc., a Delaware corporation (the “Company”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and correct copy of the Bylaws of the Company in effect as of the date of this certificate.
 

 
 
 
Dated: May 14, 2018
 
 
/s/ Marie Oh Huber
Marie Oh Huber, Secretary
 


 


Exhibit 10.25
EBAY INC.
DEFERRED COMPENSATION PLAN

(As amended and restated, effective April 1, 2018)





    
 
eBay Inc. Deferred Compensation Plan



TABLE OF CONTENTS
Page
ARTICLE I. TITLE AND DEFINITIONS..............................................................................................1
1.1
Title...............................................................................................................1
1.2
Definitions................................................................................................................1
ARTICLE II. PARTICIPATION............................................................................................................6
ARTICLE III. CONTRIBUTIONS........................................................................................................6
3.1
Elections to Defer Compensation............................................................................6
3.2
Distribution Elections...............................................................................................7
3.3
Company Contributions.........................................................................................10
3.4
FICA and Other Taxes...........................................................................................10
ARTICLE IV. INVESTMENTS..........................................................................................................11
4.1
Measurement Funds..............................................................................................11
4.2
Investment Elections..............................................................................................11
4.3
Compliance with Section 16 of the Exchange Act.................................................12
ARTICLE V. ACCOUNTS.................................................................................................................12
5.1
Accounts................................................................................................................12
5.2
Subaccounts..........................................................................................................13
ARTICLE VI. VESTING....................................................................................................................13
ARTICLE VII. DISTRIBUTIONS.......................................................................................................14
7.1
Distribution of Accounts.........................................................................................14
7.2
Hardship Distribution.............................................................................................15
7.3
Effect of a Change in Control.................................................................................16
7.4
Inability to Locate Participant.................................................................................16
7.5
Prohibition on Acceleration of Distributions...........................................................16
ARTICLE VIII. ADMINISTRATION...................................................................................................17
8.1
Committee.............................................................................................................17
8.2
Administrator.........................................................................................................17
8.3
Committee Action..................................................................................................17

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8.4
Powers and Duties of the Committee....................................................................17
8.5
Delegation of Authority...........................................................................................18
8.6
Construction and Interpretation.............................................................................18
8.7
Information.............................................................................................................18
8.8
Compensation, Expenses and Indemnity..............................................................18
8.9
Quarterly Statements.............................................................................................19
8.10
Disputes.................................................................................................................19
8.11
Compliance with Section 409A of the Code...........................................................21
ARTICLE IX. MISCELLANEOUS.....................................................................................................21
9.1
Unsecured General Creditor..................................................................................21
9.2
Restriction Against Assignment.............................................................................21
9.3
Withholding............................................................................................................22
9.4
Amendment, Modification, Suspension or Termination..........................................22
9.5
Designation of Beneficiary.....................................................................................22
9.6
Governing Law.......................................................................................................23
9.7
Compliance with Code Section 162(m).................................................................23
9.8
Payments on Behalf of Persons Under Incapacity.................................................23
9.9
Limitation of Rights................................................................................................24
9.10
Exempt ERISA Plan...............................................................................................24
9.11
Notice....................................................................................................................24
9.12
Errors and Misstatements......................................................................................24
9.13
Pronouns and Plurality...........................................................................................24
9.14
Severability............................................................................................................24
9.15
Status....................................................................................................................25
9.16
Headings...............................................................................................................25



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eBay Inc., a Delaware corporation (the “Company”), and its direct and indirect subsidiaries hereby establish and maintain this eBay Inc. Deferred Compensation Plan (the “Plan”) which is designed to provide certain benefits for a select group of management and highly compensated employees through deferrals of salary and incentive compensation. This Plan was initially effective as of January 1, 2008, and is amended and restated, as set forth herein, effective April 1, 2018.
The Plan is intended to comply with the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations and other guidance issued by the Secretary of the Treasury thereunder. To the extent permitted by such Treasury Regulations or other guidance, the Plan may be amended to conform to the requirements of Section 409A of the Code.
ARTICLE I.
TITLE AND DEFINITIONS
1.1    Title.
This Plan shall be known as the eBay Inc. Deferred Compensation Plan.
1.2    Definitions.
Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below.
(a)    “Account” or “Accounts” shall mean a Participant’s Deferral Account and/or Company Account.
(b)    “Administrator” shall mean the individuals designated by the Committee (who need not be a member of the Committee) to handle the day-to-day Plan administration. If the Committee does not make such a designation, the Administrator shall be the Vice-President of Human Resources Operations of the Company, or any successor position.
(c)     “Affiliate” has the meaning ascribed to such term in Rule 12b-2 promulgated under the Exchange Act.
(d)     “Base Salary” shall mean a Participant’s annual base salary, excluding bonus, incentive and all other remuneration for services rendered to the Company, prior to reduction for any salary contributions to a plan established pursuant to Section 125 or 423 of the Code or intended to be qualified pursuant to Section 401(k) of the Code and prior to reduction for deferrals under this Plan.
(e)    “Beneficial Owner” has the meaning set forth in Rule 13d-3 under the Exchange Act.
(f)    “Beneficiary” or “Beneficiaries” shall mean the person or persons, including a trustee, personal representative or other fiduciary, last designated in writing by a Participant to receive the benefits specified hereunder in the event of the Participant’s death in accordance with Section 9.5.
(g)    “Board of Directors” or “Board” shall mean the Board of Directors of the Company.


    
eBay Inc. Deferred Compensation Plan



(h)    “Bonus” shall mean an incentive award earned by a Participant under the Company’s short-term incentive plan.
(i)    “Change in Control” shall be deemed to have occurred when any event or transaction described in paragraph (1), (2), (3) or (4) occurs, subject to paragraph (5):
(1)    Any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or
(2)    The following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including, but not limited to, a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(3)    There is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, at least a majority of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates other than in connection with the acquisition by the Company or its affiliates of a business) representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities; or
(4)    The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least a majority of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.
(5)    An event or transaction described in paragraph (1), (2), (3), or (4) shall be a “Change in Control” only if such event or transaction is a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation,” within the meaning of Section 409A(a)(2)(A)(v) of the Code, to the extent provided by the Secretary of the Treasury.

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(j)     “Code” shall mean the Internal Revenue Code of 1986, as amended.
(k)    “Committee” shall mean the Compensation Committee of the Board of Directors.
(l)    “Company” shall mean eBay Inc. and any successor corporations. Company shall also include each corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which eBay Inc. is a component member.
(m)    “Company Account” shall mean the bookkeeping account maintained by the Company for each Participant that is credited with an amount equal to the Company Contribution, if any, debited by amounts equal to all distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.
(n)    “Company Contributions” shall mean any discretionary employer contribution, if any, made to the Plan on behalf of Eligible Individuals.
(o)    “Compensation” shall mean Base Salary and Bonus, and at the Committee’s discretion, Restricted Stock Units that the Participant who is an employee is entitled to receive for services rendered to the Company.
(p)    “Deferral Account” shall mean the bookkeeping account maintained by the Company for each Participant that is credited with amounts equal to the portion of the Participant’s Compensation that he elects to defer pursuant to Section 3.1, debited by amounts equal to all distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V. The Deferral Account may be further subdivided into subaccounts as determined by the Committee.
(q)    “Deferral Election Form” shall mean the form designated by the Committee for purposes of making deferrals under Section 3.1.
(r)    “Disability” or “Disabled” means, with respect to a Participant, that the Participant:
(1)    is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or
(2)    is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three months under an accident or health plan covering employees of such Participant’s Employer,
as determined in accordance with Section 409A(a)(2)(C) of the Code and the Treasury Regulations thereunder.
(s)     “Distributable Amount” of a Participant’s subaccounts with respect to a Plan Year shall mean the sum of the vested balance of the subaccount in a Participant’s Deferral Account and Company Account with respect to such Plan Year.


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(t)    “Effective Date” shall mean January 1, 2008.
(u)    “Election Period” with respect to a Plan Year shall mean the period designated by the Committee; provided, however, that such period shall be no less than ten business days. The Election Period with respect to a Plan Year shall end not later than the last day of the prior Plan Year; provided, however, that, in the case of an Eligible Individual who first becomes eligible to participate in the Plan during a Plan Year, the Election Period may be the thirty (30) day period commencing on the date such Eligible Individual first becomes eligible to participate in accordance with Section 409A(a)(4)(B)(ii) of the Code and the Treasury Regulations thereunder; and provided, further, in the case of an Eligible Individual’s election to defer a Bonus (or portion thereof) for a Plan Year that is performance-based compensation based on services over a period of at least twelve (12) months, within the meaning of Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder, the Election Period may be a period designated by the Committee during such Plan Year that satisfies the requirements of Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder.
(v)    “Eligible Individual” shall mean those Executives selected by the Committee. The Committee may, in its sole discretion, select such other individuals to participate in the Plan who do not otherwise meet the foregoing designation.
(w)    “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
(x)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder.
(y)    “Executive” shall mean an executive of the Company who is on the U.S. payroll and who holds a position as Vice President or who holds a position with a more senior grade level than Vice President, or is otherwise designated by the Committee.
(z)    “401(k) Plan” shall mean the eBay Inc. 401(k) Savings Plan maintained by the Company under Code Section 401(k), as in effect from time to time or as applicable for any Participant, a plan maintained by a direct or indirect subsidiary of the Company under Code Section 401(k).
(aa)    “Measurement Fund” shall mean one or more of the investment funds selected by the Committee pursuant to Section 4.1.
(bb)    “Participant” shall mean any Eligible Individual who becomes a Participant in accordance with Article II and who has not received a complete distribution of the amounts credited to his Accounts.
(cc)    “Payroll Date” shall mean, with respect to any Participant, the date on which he would otherwise be paid Compensation.
(dd)    “Payment Date” shall mean the time as soon as practicable after one of the following dates as designated by the Participant in his distribution form election with respect to a Plan Year:
(1)    the first business day of the seventh calendar month following the date of the Participant's Separation from Service or Disability, or

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(2)    the earlier of: (i) the first business day of June of a calendar year specified by the Participant that is no earlier than the year after the year in which the Compensation would have been paid but for the Participant’s election to defer such Compensation, or (ii) the first business day of the seventh calendar month following the date of the Participant's Separation from Service or Disability.
“Payment Date” shall also mean the Scheduled In-Service Withdrawal Date elected in accordance with the provisions of Section 7.1(b).
(ee)    “Person” means any person, entity or “group” within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, except that such term shall not include (1) the Company or any of its Affiliates, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or (5) a person or group as used in Rule 13d-1(b) under the Exchange Act.
(ff)    “Plan” shall mean the eBay Inc. Deferred Compensation Plan set forth herein, as amended from time to time.
(gg)    “Plan Year” shall mean the twelve (12) consecutive month period beginning on each January 1 and ending on each December 31.
(hh)    “Restricted Stock Units” shall mean restricted stock units granted to Executives under the eBay Inc. 2008 Incentive Award Plan, eBay Inc. 1999 Global Equity Incentive Plan and eBay Inc. 1998 Equity Incentive Plan, or any other equity compensation plans approved by the Company’s Stockholders.
(ii)    “Rule 16b-3” shall mean that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.
(jj)    “Scheduled In-Service Withdrawal Date” shall mean the earlier of: (i) the first business day of June of a calendar year specified by the Participant that is no earlier than the year after the year in which the Compensation would have been paid but for the Participant’s election to defer such Compensation, or (ii) the first business day of the seventh calendar month following the date of the Participant's Separation from Service or Disability.
(kk)     “Separation from Service” shall mean with respect to a Participant, such Participant’s Termination, if such Termination is a “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code, as determined by the Secretary of the Treasury (or such Participant’s other “separation from service,” as so defined).
(ll)    “Subaccount” or “Subaccounts” shall mean the subaccount or subaccounts maintained with respect to a Participant’s Deferral Account or Company Account.
(mm)    “Termination” shall mean for any Participant who is an employee, ceasing to be an employee of the Company for reasons other than death or Disability. If a Participant is both an employee of


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eBay Inc. Deferred Compensation Plan



the Company and a member of the Board of Directors, he shall not have a Termination until he resigns from both positions.
(nn)     “Valuation Date”, with respect to the Measurement Funds that are available under the 401(k) Plan, shall have the same meaning as under the 401(k) Plan. For purposes of other Measurement Funds, “Valuation Date” shall be as determined by the Committee.
ARTICLE II.    
PARTICIPATION
(a)    An Eligible Individual shall become a Participant in the Plan by (1) electing to make deferrals in accordance with Section 3.1 or receiving a Company Contribution and (2) filing with the Company such other forms as the Committee may reasonably require for participation hereunder.
(b)    An Eligible Individual who completes the requirements of the preceding subsection of this Article II shall commence participation in this Plan as of the first day of the Plan Year with respect to which Compensation is elected to be deferred.
ARTICLE III.    
CONTRIBUTIONS
3.1    Elections to Defer Compensation
(a)    General Rule. Each Eligible Individual may defer Compensation for a Plan Year by filing with the Administrator a Deferral Election Form for such Plan Year that conforms to the requirements of this Section 3.1, no later than the last day of the applicable Election Period for such Plan Year. The Committee may permit an Eligible Individual who first becomes eligible to participate in the Plan during a Plan Year to have his first Election Period during such Plan Year. An election to defer Compensation for a Plan Year must be filed during the Election Period prior to the effective date of such election and shall be effective only for Compensation that constitutes compensation for services performed during periods during the Plan Year beginning after the effective date of such election. Notwithstanding the previous sentence, if an Eligible Individual’s Bonus (or portion thereof) is a performance-based compensation based on services performed over a period of at least twelve (12) months, within the meaning of Section 409A(a)(4)(B)(iii) and the Treasury Regulations thereunder, the Committee may permit such Eligible Individual to file an election to defer such Bonus (or such portion thereof), or change such Eligible Individual’s prior election to defer such Bonus (or such portion thereof), no later than six months before the end of the period over which such services are to be performed, under the terms and conditions specified by the Committee, in accordance with Section 409A(a)(4)(B)(iii) of the Code and the Treasury Regulations thereunder. A Participant shall make a separate election to defer Compensation for each Plan Year.
(b)    Special Rules. Notwithstanding the above, the following restrictions apply to deferrals of Restricted Stock Units.
(1)    Restricted Stock Units. A Participant may elect to defer Restricted Stock Units (or a portion thereof), to the extent permitted by the Committee. In order to defer Restricted Stock Units (or a portion thereof), an eligible Participant must file the appropriate Deferral Election Form no later than the

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election date required under Section 409A of the Code and the Treasury Regulations thereunder. A Participant’s election to defer Restricted Stock Units shall be effective only for the Restricted Stock Units (or a portion thereof) that constitute compensation for services performed during periods during the Plan Year (or a subsequent Plan Year) after the effective date of the Participant’s deferral election, or as otherwise permitted under Section 409A of the Code and the Treasury Regulations thereunder.
(2)    Limitation on Deferrals. A Participant may elect to defer Restricted Stock Units or any portion thereof, only to the extent such deferral satisfies the requirements of Section 409A of the Code and the Treasury Regulations thereunder.
(c)    Deferral Amounts.
(1)    The amount of Compensation which a Participant may elect to defer for a Plan Year is such Compensation earned on or after the time at which the Participant elects to defer each Plan Year in accordance with Section 3.1(a), and which is earned during such Plan Year. The applicable limitations for any Participant shall be determined by the Committee, determined as of the first day of the Election Period for such Plan Year.
(2)    Each Participant shall be permitted to defer, in any whole percentage: (A) from 5% to 50% of Base Salary, (B) from 5% to 100% of his Bonus and (C) from 5% to 100% of his Restricted Stock Units, subject to Section 3.1(b), rounded down to the nearest whole share.
(c)    Notwithstanding the limitations established above, the total amount deferred by a Participant shall be limited in any calendar year, if necessary, to satisfy the Participant’s income and employment tax withholding obligations (including Social Security, unemployment and Medicare), and the Participant’s employee benefit plan contribution requirements, determined on the first day of the Election Period for such Plan Year, as determined by the Committee.
(d)    Duration of Deferral Election.
(1)    A Participant shall not modify or suspend his election to defer Compensation during a Plan Year.
(2)    A Participant must file a new deferral election for each subsequent Plan Year. In the event a Participant fails to file a timely deferral election for the next Plan Year, he shall be deemed to have elected not to defer any Compensation for such Plan Year.
(e)    Elections. Subject to the limitations of subsection (b), any Eligible Individual who does not elect to defer Compensation during his Election Period for a Plan Year may subsequently become a Participant.
3.2    Distribution Elections.
(a)    General Rule. Each Participant shall make a separate distribution election with respect to each Plan Year for which such Participant elects to defer Compensation in accordance with Section 3.1. A Participant’s distribution election with respect to a Plan Year shall apply to: (1) the subaccount in his

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Deferral Account to which shall be credited the amount equal to the portion of his Compensation earned during such Plan Year that he elects to defer pursuant to Section 3.1; and (2) the subaccount in his Company Account to which shall be credited the amount equal to the Company Contribution for such Plan Year, if any. A Participant’s distribution election with respect to a Plan Year shall elect the Payment Date and the form of distribution of his Distributable Amount with respect to such Plan Year for purposes of distributions under subsection 7.1(a) in the event of such Participant’s Separation from Service or Disability. Such Payment Date and distribution form elections shall be made on such Participant’s Deferral Election Form during the Election Period for which such Participant elects to defer Compensation under Section 3.1 for such Plan Year, and such Payment Date and distribution form elections with respect to such Plan Year shall be irrevocable, except as provided in subsection (b). A Participant may elect any Payment Date described in Section 1.2(dd), and may elect distribution in the normal form, as described in paragraph 7.1(a)(1), or an optional form described in subparagraphs 7.1(a)(2)(A), (B) or (C). In the event a Participant fails to elect a Payment Date for his Distributable Amount with respect to a Plan Year, his Payment Date for his Distributable Amount with respect to such Plan Year shall be the date described in Section 1.2(dd)(1). In the event a Participant fails to make a distribution form election for his Distributable Amount with respect to a Plan Year, his Distributable Amount with respect to such Plan Year shall be distributed in the normal form, as described in paragraph 7.1(a)(1) in the event of his Separation from Service or Disability, except as provided in subsection (b). Except as provided in subsection (b), a Participant’s distribution for his Distributable Amount with respect to a Plan Year shall be made or commence as soon as administratively practicable after such Participant’s Payment Date.

(b)    Changes to Distribution Form Election. Subject to subsection (e), a Participant may change his distribution form election for his Distributable Amount with respect to a Plan Year in accordance with this subsection (b) as follows:

(1)    Change from Lump Sum. If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in the normal form, as described in paragraph 7.1(a)(1) ( i.e., a lump sum), such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution made or commencing on the fifth anniversary of his initially elected Payment Date:

(A)    a lump sum, or

(B)    annual installments (calculated as set forth at Section 7.1(a)(6)) over a period of from two (2) up to fifteen (15) years.

(2)    Change from Installments. If such Participant elected to receive the distribution of his Distributable Amount with respect to a Plan Year in the event of his Separation from Service or Disability in an optional form, as provided in subparagraph 7.1(a)(2) (i.e., annual installments over a period of years), such Participant may change such distribution form election by making a new distribution form election for his Distributable Amount with respect to such Plan Year providing for distribution in one of the following forms, with such distribution commencing on the fifth anniversary of his initially elected Payment Date:


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(i)    a lump sum, provided that no installments have commenced with respect to such Plan Year,

(ii)    annual installments (calculated as set forth at Section 7.1(a)(6)) over the period of years specified in such Participant’s initial distribution form election, provided that no installments have commenced with respect to such Plan Year, or

(iii)    annual installments (calculated as set forth at Section 7.1(a)(6)) over a period of from two (2) up to fifteen (15) years, provided that such period exceeds the period of years specified in such Participant’s initial distribution form election, and provided, further, that no installments have commenced with respect to such Plan Year.

(3)    A Participant may make only one change to his distribution form election with respect to a Plan Year under this subsection (b).

(c)    Election of Scheduled In-Service Withdrawal Date. A Participant may elect a Scheduled In-Service Withdrawal Date with respect to his deferrals of Compensation (including any investment earnings on such amounts) plus any Company Contributions to the extent vested, if any, (the “Withdrawal Amount”) with respect to a Plan Year. Such election of a Scheduled In-Service Withdrawal Date for such Participant’s Withdrawal Amount with respect to a Plan Year shall be made by such Participant during the Election Period for which such Participant elects to defer Compensation under Section 3.1 for such Plan Year, and such election of a Scheduled In-Service Withdrawal Date shall be irrevocable, except as provided in subsection (d). A Participant may make separate Scheduled In-Service Withdrawal Date elections for his deferrals of Compensation (including any investment earnings on such amounts) with respect to different Plan Years. A Participant’s Withdrawal Amount with respect to a Plan Year shall be credited to subaccounts under such Participant’s Accounts for such Plan Year. A Participant shall not be required to elect a Scheduled In-Service Withdrawal Date with respect to his deferrals of Compensation for a Plan Year and, if a Participant fails to make an election of a Scheduled In-Service Withdrawal Date for a Plan Year, no Scheduled In-Service Withdrawal Date shall apply with respect to his deferrals of Compensation for such Plan Year.

(d)    Change of Scheduled In-Service Withdrawal Date. Subject to subsection (e), if a Participant elected a Scheduled In-Service Withdrawal Date with respect to his deferrals of Compensation (including any investment earnings on such amounts) with respect to a Plan Year, such Participant may change such Scheduled In-Service Withdrawal Date for the Withdrawal Amount with respect to such Plan Year by electing a new Scheduled In-Service Withdrawal Date for the Withdrawal Amount with respect to such Plan Year that is not less than five years later than the Scheduled In-Service Withdrawal Date previously elected by such Participant for such Plan Year. A Participant who has not elected a Scheduled In-Service Withdrawal Date for his deferrals of Compensation (including any investment earnings on such amounts) for a Plan Year may not subsequently elect a Scheduled In-Service Withdrawal Date for his deferrals of Compensation (including any investment earnings on such amounts) for such Plan Year. A Participant may make only one change to the Scheduled In-Service Withdrawal Date with respect to each Plan Year under this subsection (d).


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(e)    Limitation on Distribution Changes. A Participant’s election to change his distribution form election with respect to a Plan Year under subsection (b), or change of a Scheduled In-Service Withdrawal Date with respect to a Plan Year under subsection (d), shall be subject to the following limitations:

(1)    The Participant’s election to change his distribution election form with respect to a Plan Year, or change his Scheduled In-Service Withdrawal Date with respect to a Plan Year, shall not take effect until at least twelve (12) months after his election to change the distribution form election, or Scheduled In-Service Withdrawal Date, is made. If the distribution of such Participant’s Distributable Amount with respect to a Plan Year (in the case of a change in his distribution election form), or the distribution of the Withdrawal Amount with respect to such Plan Year (in the case of a change in his Scheduled In-Service Withdrawal Date), is made or commenced before the election to change his distribution form election or Scheduled In-Service Withdrawal Date, as the case may be, becomes effective, the election to change his distribution form election or Scheduled In-Service Withdrawal Date shall not thereafter become effective, and distributions shall be made in accordance with the distribution form election, and Scheduled In-Service Withdrawal Date (if any), as applicable, in effect prior to the Participant’s election to change.

(2)    The Participant’s election to change his distribution election form with respect to a Plan Year, or change his Scheduled In-Service Withdrawal Date with respect to a Plan Year, shall provide that each payment with respect to such new distribution form election, or new Scheduled In-Service Withdrawal Date, shall be deferred for a period of not less than five years from the date such payment would otherwise have been made.

(3)    The Participant’s election to change his Scheduled In-Service Withdrawal Date with respect to a Plan Year shall not be made less than twelve (12) months prior to the date of the first scheduled payment under the Participant’s initial election of the Scheduled In-Service Withdrawal Date with respect to such Plan Year.

The limitations under this subsection (e) shall be applied in accordance with Section 409A(a)(4)(C) of the Code and the Treasury Regulations thereunder.

3.3    Company Contributions
(a)    For any Plan Year, the Company may, but is under no obligation to, make contributions on behalf of a Participant in addition to the Participant’s elective deferrals. Such contributions may be in any amount or form (for example, matching or profit sharing contributions) and subject to any conditions or terms as the Company, in its sole discretion, deems appropriate.
(b)    The Company Contribution for a Plan Year shall be credited to a Participant’s Company Account in the manner determined by the Committee.
3.4    FICA and Other Taxes.
(a)    Annual Deferral Amounts. For each Plan Year in which a Participant who is an employee makes a deferral under Section 3.1, the Company shall withhold from that portion of the Participant’s Compensation that is not being deferred, in a manner determined by the Company, the Participant’s share

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of FICA and other employment taxes on such amount. If necessary, the Committee may reduce the Participant's deferrals under Section 3.1 or make deductions from his Deferral Account in order to comply with this Section, to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.
(b)    Company Amounts. For each Plan Year in which a Participant is credited with a contribution to his Company Account under Section 3.3, the Company shall withhold from the Participant’s Compensation that is not deferred, in a manner determined by the Company, the Participant’s share of FICA and other employment taxes. If necessary, the Committee may reduce the Participant’s Company Account in order to comply with this Section, to the extent permitted under Section 409A of the Code and the Treasury Regulations thereunder.
ARTICLE IV.    
INVESTMENTS
4.1    Measurement Funds.
(a)    In the manner designated by the Committee, Participants may elect one or more Measurement Funds to be used to determine the additional amounts to be credited to their Accounts. Although the Participant may designate the Measurement Funds, the Committee shall not be bound by such designation. The Committee shall select from time to time, in its sole discretion, the Measurement Funds to be available under the Plan.
(b)    No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation to his Accounts thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Accounts shall not be considered or construed in any manner as an actual investment of his Accounts in any such Measurement Fund. In the event that the Company, in its own discretion, decides to invest funds in any or all of the Measurement Funds, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Accounts shall at all times be a bookkeeping entry only and shall not represent any investment made on his behalf by the Company. The Participant shall at all times remain an unsecured creditor of the Company.
4.2    Investment Elections.
(a)    Deferral Accounts and Company Accounts. Except as provided in Section 4.3, Participants may designate how their Deferral Accounts and Company Accounts, if any, shall be deemed to be invested under the Plan.
(1)    Such Participants may make separate investment elections for (i) their future deferrals of Compensation, (ii) future Company Contributions and (iii) the existing balances of their Accounts.

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(2)    Such Participants may make and change their investment elections by choosing from the Measurement Funds designated by the Committee in accordance with the procedures established by the Committee.
(3)    Except as otherwise designated by the Committee, the available Measurement Funds under this Section 4.2(a)(1) shall generally be the investment funds under the 401(k) Plan (excluding any brokerage account option).
(4)    If a Participant fails to elect a Measurement Fund under this Section, he shall be deemed to have elected the default Measurement Fund (as designated by the Committee) for all of his Accounts.
(b)    Continuing Investment Elections. Participants who have had a Termination but not yet commenced distributions under Article VII or Participants or Beneficiaries who are receiving installment payments may continue to make investment elections pursuant to subsection (a) and (b) above, as applicable, except as otherwise determined by the Committee.
(c)    Certain Deferral Subaccounts. A Participant may not direct the investment of the Restricted Stock Unit subaccounts of the Deferral Accounts.
4.3    Compliance with Section 16 of the Exchange Act.
(a)    Any Participant or Beneficiary who is subject to Section 16 of the Exchange Act shall have his Measurement Fund elections under the Plan subject to the requirements of the Exchange Act, as interpreted by the Committee.
(b)    Notwithstanding any other provision of the Plan or any rule, instruction, election form or other form, the Plan and any such rule, instruction or form shall be subject to any additional conditions or limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b‑3) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, such Plan provision, rule, instruction or form shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
ARTICLE V.    
ACCOUNTS
5.1    Accounts.
(a)    The Committee shall establish and maintain a Deferral Account, and a Company Account for each Participant under the Plan. Each Participant’s Accounts shall be divided into separate subaccounts in accordance with Section 5.2. Each such subaccount shall be further divided into separate investment fund subaccounts, each of which corresponds to a Measurement Fund elected by the Participant pursuant to Section 4.2. In addition, participants’ Deferral Accounts may be further divided into subaccounts consisting of deferred Restricted Stock Units.

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(b)    The performance of each elected Measurement Fund (either positive or negative) shall be determined by the Committee, in its reasonable discretion, based on the performance of the Measurement Funds themselves. A Participant’s Accounts shall be credited or debited on each Valuation Date based on the performance of each Measurement Fund selected by the Participant, as determined by the Committee in its sole discretion, as though (i) a Participant’s Accounts were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such period, as of the close of business on the first business day of such period, at the closing price on such date; (ii) the portion of the Participant's Compensation that was actually deferred pursuant to Section 3.1 during any period were invested in the Measurement Fund(s) selected by the Participant, in the percentages applicable to such period, no later than the close of business on the first business day after the day on which such amounts are actually deferred from the Participant’s Compensation, at the closing price on such date; and (iii) any withdrawal or distribution made to a Participant that decreases such Participant’s Accounts ceased being invested in the Measurement Fund(s), in the percentages applicable to such period, no earlier than one business day prior to the distribution, at the closing price on such date. The Participant’s Company Contributions, if any, shall be credited to his Company Account for purposes of this Section, in the manner determined by the Committee.
5.2
Subaccounts.
(a)    The Committee shall establish and maintain, with respect to a Participant’s Deferral Account, a subaccount with respect to each Plan Year, to which shall be credited the amount equal to the portion of the Participant’s Compensation earned during such Plan Year that he elects to defer pursuant to Section 3.1, debited by amounts equal to distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.
(b)    The Committee shall establish and maintain, with respect to a Participant’s Company Account, a subaccount with respect to each Plan Year, to which shall be credited the amount equal to the Company Contributions, if any, made pursuant to Section 3.3 on behalf of such Participant during such Plan Year, debited by amounts equal to distributions to and withdrawals made by the Participant and/or his Beneficiary and adjusted for investment earnings and losses pursuant to Article V.
ARTICLE VI.    
VESTING
Each Participant shall be 100% vested in his Deferral Account at all times, provided, however, that any Restricted Stock Units a Participant elects to defer shall remain subject to the conditions for vesting specified in any applicable award notice or agreement. The Company will set conditions for the vesting of any Company Contributions on or before the date they are contributed to the Plan.





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ARTICLE VII.    
DISTRIBUTIONS
7.1    Distribution of Accounts.
(a)    Distribution of Accounts.
(1)    Normal Form. Except as provided in paragraph (2), paragraph (3) or Section 7.3, a Participant’s Distributable Amount with respect to each Plan Year shall be paid to the Participant in a single lump sum in cash on the Participant’s Payment Date.
(2)    Optional Forms. Instead of receiving his Distributable Amount with respect to each Plan Year as described at Section 7.1(a)(1), the Participant may elect in accordance with Section 3.2 an optional form of payment (on the form provided by Company) at the time of his deferral election for such Plan Year to receive his Distributable Amount in equal annual installments in cash (calculated as set forth in Section 7.1(a)(6)) over a period of from two (2) up to fifteen (15) years beginning on the Participant’s Payment Date. The payment of such Participant’s Distributable Amount with respect each Plan Year shall be made or commence on such Participant’s Payment Date.
(3)    Distribution Election Changes. In the event that a Participant changes his distribution form election with respect to a Plan Year in accordance with Section 3.2(b), and such new distribution form election becomes effective upon the Separation from Service or Disability of such Participant, the Distributable Amount with respect to such Plan Year shall be paid to the Participant in accordance with such new distribution form election.
(4)    Small Accounts. Notwithstanding any provision to the contrary, in the event the total of a Participant’s Distributable Amounts with respect to all Plan Years is equal to or less than $50,000 on the Participant’s Payment Date, such Distributable Amounts shall be distributed to the Participant (or his Beneficiary, as applicable) in a lump sum.
(5)    Investment Adjustments. The Participant’s Accounts shall continue to be adjusted for investment earnings and losses pursuant to Section 4.2 and Section 4.3 of the Plan until all amounts credited to his Accounts under the Plan have been distributed.
(6)    Calculating Installments. All installment payments made under the Plan shall be determined in accordance with the annual fractional payment method, calculated as follows: the balance of subaccounts in the Participant’s Accounts with respect to a Plan Year shall be calculated as of the close of business on the last business day of the year. The annual installment shall be calculated by multiplying this balance by a fraction, the numerator of which is one, and the denominator of which is the remaining number of annual payments due the Participant. By way of example, if the Participant elects 10 year installments for the distribution of the subaccounts in his Accounts with respect to a Plan Year, the first payment shall be 1/10 of the balance of such subaccounts in his Accounts calculated as described in this definition. The following year, the payment shall be 1/9 of such subaccounts in the balance of the Participant’s Accounts, calculated as described in this definition. Each annual installment shall be paid on or as soon as practicable after the last business day of the applicable year.

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(b)    Distribution on a Scheduled In-Service Withdrawal Date.
(1)    In the case of a Participant who has elected a Scheduled In-Service Withdrawal Date for a distribution to be made while still in the employ of the Company, such Participant shall receive his Withdrawal Amount as shall have been elected by the Participant to be subject to the Scheduled In-Service Withdrawal Date. A Participant’s Scheduled In-Service Withdrawal Date with respect to amounts of Compensation deferred in a given Plan Year must be at least one year from the last day of the Plan Year for which such deferrals are made.

(2)    The Participant may elect, in accordance with Section 3.2, to have the Withdrawal Amount paid in a lump sum in cash or in equal annual installments in cash (calculated as set forth in Section 7.1(a)(6)) over a period of from two (2) up to fifteen (15) years beginning on the Participant’s Payment Date.

(3)    A Participant may elect to change the Scheduled In-Service Withdrawal Date for the Withdrawal Amount for any Plan Year in accordance with Section 3.2(d).

(4)    In the event of Participant’s Separation from Service or Disability prior to a Scheduled In-Service Withdrawal Date, the Participant’s entire Withdrawal Amount shall be paid in accordance with the Participant’s election with respect to such Plan Year under Section 7.1(a).

(c)    Distribution upon Death. In the event a Participant dies, any remaining balance in his Accounts shall be paid to his Beneficiary in a lump sum in cash on the first business day of the seventh calendar month following the date of the Participant’s death.
7.2    Hardship Distribution.
A Participant shall be permitted to elect a Hardship Distribution of all or a portion of his Accounts under the Plan prior to the Payment Date, subject to the following restrictions:
(a)    The election to take a Hardship Distribution shall be made by filing the form provided by the Committee before the date established by the Committee.
(b)    The Committee shall have made a determination that the requested distribution constitutes a Hardship Distribution in accordance with subsection (d).
(c)    The amount determined by the Committee as a Hardship Distribution shall be paid in a single lump sum in cash as soon as practicable after the end of the calendar month in which the Hardship Distribution election is made and approved by the Committee. The Hardship Distribution shall be distributed proportionately from the subaccounts in the Participant’s Accounts.
(d)    If a Participant receives a Hardship Distribution, the Participant shall be ineligible to contribute deferrals to the Plan for the following Plan Year. “Hardship Distribution” shall mean a severe financial hardship to the Participant resulting from (i) an illness or accident of the Participant, the Participant’s spouse or of his dependent (as defined in Section 152(a) of the Code), (ii) loss of a Participant’s property due to casualty, or (iii) other similar extraordinary and unforeseeable circumstances

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arising as a result of events beyond the control of the Participant, as determined by the Committee in accordance with Section 409A(a)(2)(B)(ii)(I) of the Code and the Treasury Regulations thereunder. The amount of the Hardship Distribution with respect to a severe financial hardship shall not exceed the amounts necessary to satisfy such hardship, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), as determined by the Committee in accordance with Section 409A(a)(2)(B)(ii)(II) of the Code and the Treasury Regulations thereunder.
7.3    Effect of a Change in Control.
(a)    In the event there is a Change in Control, the person who is the chief executive officer (or, if not so identified, the Company’s highest ranking officer) shall name a third-party fiduciary as the sole member of the Committee immediately prior to such Change in Control. The appointed fiduciary, shall oversee the administration of the Plan and provide for the distributions of the accounts under the Plan in accordance with the terms of the Plan and the elections of the Participants.
(b)    Upon and after the occurrence of a Change in Control, the Company must (i) pay all reasonable administrative fees and expenses of the appointed fiduciary, (ii) indemnify the appointed fiduciary against any costs, expenses and liabilities including, without limitation, attorney’s fees and expenses arising in connection with the appointed fiduciary's duties hereunder, other than with respect to matters resulting from the gross negligence of the appointed fiduciary or its agents or employees and (iii) timely provide the appointed fiduciary with all necessary information related to the Plan, the Participants and Beneficiaries.
(c)    Notwithstanding Section 9.4, in the event there is a Change in Control no amendment may be made to this Plan except as approved by the third-party fiduciary. Upon a Change in Control, the Company shall establish an irrevocable trust and contribute assets to such trust in an amount equal to the aggregate amount credited to the Participants’ Accounts, as determined by the appointed fiduciary, plus any deferred payments as they are deferred by the Participants. Such trust shall conform to the model “rabbi trust” agreement provided by the Internal Revenue Service in Revenue Procedure 92-64, as revised from time to time, and shall be structured as an unfunded arrangement.
7.4    Inability to Locate Participant.
In the event that the Committee is unable to locate a Participant or Beneficiary within two years following the required Payment Date, the amount allocated to the Participant’s Accounts shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date of forfeiture, subject to applicable escheat laws.
7.5     Prohibition on Acceleration of Distributions.
The time or schedule of payment of any withdrawal or distribution under the Plan shall not be subject to acceleration, except as provided under Treasury Regulations promulgated in accordance with Section 409A(a)(3) of the Code.

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ARTICLE VIII.    
ADMINISTRATION
8.1    Committee.
The Committee shall administer the Plan in accordance with this Article.
8.2    Administrator.
The Administrator, unless restricted by the Committee, shall exercise the powers under Sections 8.4 and 8.5 except when the exercise of such authority would materially affect the cost of the Plan to the Company or materially increase benefits to Participants.
8.3    Committee Action.
The Committee shall act at meetings by affirmative vote of a majority of the members of the Committee. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Committee and such written consent is filed with the minutes of the proceedings of the Committee. A member of the Committee shall not vote or act upon any matter which relates solely to himself or herself as a Participant. The chairman or any other member or members of the Committee designated by the chairman may execute any certificate or other written direction of behalf of the Committee.
8.4    Powers and Duties of the Committee.
(a)    The Committee, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes as set forth herein, including, but not by way of limitation, the following:
(1)    To select the Measurement Funds in accordance with Section 4.1 hereof;
(2)    To construe and interpret the terms and provisions of the Plan and to remedy any inconsistencies or ambiguities hereunder;
(3)    To select employees eligible to participate in the Plan;
(4)    To compute and certify to the amount and kind of benefits payable to Participants and their Beneficiaries;
(5)    To maintain all records that may be necessary for the administration of the Plan;
(6)    To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law;
(7)    To make and publish such rules for the regulation of the Plan and procedures for the administration of the Plan as are not inconsistent with the terms hereof;

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(8)    To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Committee may from time to time prescribe; and
(9)    To take all actions necessary for the administration of the Plan.
8.5    Delegation of Authority. To the extent permitted by applicable law, the Committee may from time to time delegate to a committee of one or more members of the Board or one or more executives or employees of the Company its powers and duties under the Plan, including its power and authority under Section 9.4. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation, and the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 8.5 shall serve in such capacity at the pleasure of the Committee.
8.6    Construction and Interpretation.
The Committee shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretations or construction shall be final and binding on all parties, including but not limited to the Company and any Participant or Beneficiary. The Committee shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan.
8.7    Information.
To enable the Committee to perform its functions, the Company shall supply full and timely information to the Committee on all matters relating to the Compensation of all Participants, their death or other events which cause termination of their participation in this Plan, and such other pertinent facts as the Committee may require.
8.8    Compensation, Expenses and Indemnity.
(a)    The members of the Committee shall serve without compensation for their services hereunder.
(b)    The Committee is authorized at the expense of the Company to employ such legal counsel and other advisors as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of the Plan shall be paid by the Company.
(c)    To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Committee and each member thereof, the Board of Directors and any delegate of the Committee who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law.

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8.9    Quarterly Statements.
Under procedures established by the Committee, a Participant shall receive a statement with respect to such Participant’s Accounts on a quarterly basis as of each March 31, June 30, September 30 and December 31.
8.10    Disputes.
(a)    Claim.
A person who believes that he is being denied a benefit to which he is entitled under this Plan (a “Claimant”) may file a written request for such benefit with the Administrator, setting forth his claim. The request must be addressed to the Administrator at the Company at its then principal place of business.
(b)    Claim Decision.
Upon receipt of a claim, the Administrator shall advise the Claimant that a reply shall be forthcoming within 90 days (or in the case of a claim for disability benefits (a “Disability Claim”), 45 days) and shall, in fact, deliver such reply within such applicable period. The Administrator may, however, extend the reply period for an additional 90 days (or in the case of a Disability Claim, 30 days) for special circumstances (or in the case of a Disability Claim, only if such extension is necessary due to matters beyond the Plan’s control). The extension notice must indicate the special circumstances requiring an extension of time and the date by which the claim reviewer expects to render a decision.
If a Disability Claim cannot be processed within the first 30-day extension period due to matters beyond the Plan’s control, the Plan’s deadline for responding to the claim may be extended for up to an additional 30 days, provided that the Claimant is so advised in writing or by electronic means within the first extension period. In addition to indicating the special circumstances requiring an extension of time and the date by which the claim reviewer expects to render a decision, each extension notice for a Disability Claim also must specifically explain the standards on which the entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues. The Claimant must be afforded at least 45 days to provide the specified information.
If the claim is denied in whole or in part, the Administrator shall inform the Claimant in writing, using language calculated to be understood by the Claimant, setting forth: (i) the specified reason or reasons for such denial; (ii) the specific reference to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his claim and an explanation of why such material or such information is necessary; (iv) appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and (v) the time limits for requesting a review under subsection (c).
In the case of a Disability Claim denial, the denial notice must be provided in a culturally and linguistically appropriate manner (to the extent required by the regulations under Section 503 of ERISA) and, in addition to the information required by the preceding paragraph, must include: (A) a discussion of the decision, including an explanation of the basis for disagreeing with or not following (1) the views of health care professionals treating the Claimant and vocational professionals who evaluated the

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Claimant, in each case as presented by the Claimant to the Plan; (2) the views of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the denial, without regard to whether the advice was relied upon in making the benefit determination; and (3) a Social Security disability determination presented by the Claimant to the Plan; (B) if the denial is based on medical necessity, experimental treatment, or a similar exclusion or limit, an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s medical circumstances, or a statement that such an explanation will be provided upon request and free of charge; (C) any specific internal rules, guidelines, protocols, standards, or other similar criteria of the Plan relied upon in the denial (or if none, a statement to that effect); and (D) a statement that, upon request and free of charge, the Claimant is entitled to reasonable access to, and copies of, all documents, records, and other information relevant to the claim.
(c)    Request for Review.
Within 60 days (or in the case of a Disability Claim, 180 days) after the receipt by the Claimant of the written decision described above, the Claimant may request in writing a review of the determination of the Administrator. Such review shall be completed by the Committee. Such request must be addressed to the Secretary of the Company, at its then principal place of business. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration by the Committee. If the Claimant does not request a review within such 60-day (or in the case of a Disability Claim, 180-day) period, he shall be barred and estopped from challenging the Administrator’s determination.
In the case of a Disability Claim denial, the Claimant (or his authorized representative) also has the right to: (i) receive a review that does not defer to the initial claim denial and that is conducted by someone other than the individual who made the denial and who is not such person’s subordinate; (ii) be given the identity of any medical or vocational experts whose advice was obtained in connection with the benefit determination, regardless of whether the advice was relied upon in making the decision; (iii) receive (in instances when the benefit determination was based in whole or part on medical judgment) a review in which the Committee consults with a health care professional with appropriate training and experience (and which professional did not consult on the initial denial and who is not such person’s subordinate); (iv) automatically be provided as soon as possible and sufficiently in advance of the appeal determination, free of charge, any new or additional evidence considered, relied upon or generated by the Committee or other person making the benefit determination (or at the direction of the Committee or such person) in connection with the claim; and (v) automatically be provided as soon as possible and sufficiently in advance of the appeal determination, free of charge, any new or additional rationale for the appeal determination.
(d)    Review of Decision.
Within 60 days (or in the case of a Disability Claim, 45 days) after the receipt of a request for review by the Committee, after considering all materials presented by the Claimant, the Committee shall inform the Claimant in writing, in a manner calculated to be understood by the Claimant, of its decision, setting forth the specific reasons for its decision and specific references to the pertinent provisions of this Plan on which the decision is based. If special circumstances require that the review period be extended, the Committee shall so notify the Claimant and shall render the decision as soon as possible, but no later than 120 days (or in the case of a Disability Claim, 90 days) after receipt of the request for review. The


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extension notice must indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render a decision.
If the appeal of the claim is wholly or partially denied, the notice of the Committee’s final decision must include specific reasons for the denial, specific references to the pertinent Plan provisions on which the denial is based, and a statement that the Claimant is entitled, upon request and free of charge, to reasonable access to, and copies of, all documents, records and other information relevant to the claim. The notice must be written in a manner calculated to be understood by the Claimant and must notify the Claimant of his right to bring a civil action under Section 502(a) of ERISA. In the case of a Disability Claim denial, the notice must be provided in a culturally and linguistically appropriate manner (to the extent required by the regulations under Section 503 of ERISA), and in addition to the above, must include (i) a statement of the applicable contractual limitations period, including the calendar date that such period will expire with respect to the claim; and (ii) the information set forth in items (A)-(C) in the final paragraph of Section 8.10(b), regarding claim denials, above.
8.11
Compliance with Section 409A of the Code.
The Plan shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder.
ARTICLE IX.    
MISCELLANEOUS
9.1    Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Company. No assets of the Company shall be held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Company’s assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The Company’s obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors. It is the intention of the Company that this Plan be unfunded for purposes of the Code and Title I of ERISA.
9.2    Restriction Against Assignment.
(a)    The Company shall pay all amounts payable hereunder only to the person or persons designated by the Plan and not to any other person or entity. No right, title or interest in the Plan or in any account may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution. No right, title or interest in the Plan or in any Account shall be liable for the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

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(b)    Notwithstanding the provisions of subsection (a), a Participant’s interest in his Account may be transferred by the Participant pursuant to a domestic relations order that constitutes a “qualified domestic relations order” as defined by the Code or Title I of ERISA.
9.3    Withholding.
There shall be deducted from each payment made under the Plan or any other Compensation payable to the Participant (or Beneficiary) all taxes which are required to be withheld by the Company in respect to such payment or this Plan. The Company shall have the right to reduce any payment (or compensation) by the amount of such of cash sufficient to provide the amount of said taxes.
9.4    Amendment, Modification, Suspension or Termination.
(a)    Subject to Section 7.3, the Committee may amend, modify, suspend or terminate the Plan in whole or in part, except that no amendment, modification, suspension or termination shall have any retroactive effect to reduce any vested amounts allocated to a Participant’s Accounts. In the event of Plan termination, distributions shall continue to be made in accordance with the terms of the Plan.
(b)    Notwithstanding anything to the contrary in the Plan, if and to the extent the Company shall determine that the terms of the Plan may result in the failure of the Plan, or amounts deferred by or for any Participant under the Plan, to comply with the requirements of Section 409A of the Code, or any applicable regulations or guidance promulgated by the Secretary of the Treasury in connection therewith, the Company shall have authority to take such action to amend, modify, cancel or terminate the Plan or distribute any or all of the amounts deferred by or for a Participate, as it deems necessary or advisable, including without limitation:
(1)    Any amendment or modification of the Plan to conform the Plan to the requirements of Section 409A of the Code or any regulations or other guidance thereunder (including, without limitation, any amendment or modification of the terms of any applicable to any Participant’s Accounts regarding the timing or form of payment).
(2)    Any cancellation or termination of any unvested interest in a Participant’s Accounts without any payment to the Participant.
(3)    Any cancellation or termination of any vested interest in any Participant’s Accounts, with immediate payment to the Participant of the amount otherwise payable to such Participant.
Any such amendment, modification, cancellation, or termination of the Plan may adversely affect the rights of a Participant without the Participant’s consent.
9.5    Designation of Beneficiary.
(a)    Each Participant shall have the right to designate, revoke and redesignate Beneficiaries hereunder and to direct payment of his Distributable Amount to such Beneficiaries upon his death.

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eBay Inc. Deferred Compensation Plan



(b)    Designation, revocation and redesignation of Beneficiaries must be made in writing in accordance with the procedures established by the Committee and shall be effective upon delivery to the Committee.
(c)    No designation of a Beneficiary other than the Participant’s spouse shall be valid unless consented in writing by such spouse. If there is no Beneficiary designation in effect, or the designated beneficiary does not survive the Participant, then the Participant’s spouse shall be the Beneficiary. If there is no surviving spouse, the duly appointed and currently acting personal representative of the Participant’s estate (which shall include either the Participant’s probate estate or living trust) shall be the Beneficiary.
(d)    After the Participant’s death, any Beneficiary (other than the Participant’s estate) who is to receive installment payments may designate a secondary beneficiary to receive amounts due under this Plan to the Beneficiary in the event of the Beneficiary’s death prior to receiving full payment from the Plan. If no secondary beneficiary is designated, it shall be the Beneficiary’s estate.
9.6    Governing Law.
Subject to ERISA, this Plan shall be construed, governed and administered in accordance with the laws of the State of California.
9.7    Compliance with Code Section 162(m)
It is the intent of the Company that any Compensation which is deferred under the Plan by a person who is, with respect to the year of distribution, deemed by the Committee to be a “covered employee” within the meaning of Code Section 162(m) and regulations thereunder, which Compensation constitutes either “qualified performance-based compensation” within the meaning of Code Section 162(m) and regulations thereunder or compensation not otherwise subject to the limitation on deductibility under Section 162(m) and regulations thereunder, shall not, as a result of deferral hereunder, become compensation with respect to which the Company in fact would not be entitled to a tax deduction under Code Section 162(m). If the Company determines in good faith prior to a Change in Control that there is a reasonable likelihood that any compensation paid to a Participant for a taxable year of the Company would not be deductible by the Company solely by reason of the limitation under Code Section 162(m), then to the extent deemed necessary by the Committee to ensure that the entire amount of any distribution to the Participant pursuant to this Plan prior to the Change in Control is deductible, the Company may defer all or any portion of a distribution under this Plan. Any amounts deferred pursuant to this limitation shall continue to be credited/debited with additional amounts in accordance with Article IV, even if such amount is being paid out in installments. The amounts so deferred and amounts credited thereon shall be distributed to the Participant or his Beneficiary (in the event of the Participant’s death) commencing as soon as reasonably practicable following the Plan Year in which such Participant’s Separation from Service, Disability or Death occurs, or if earlier, the effective date of a Change in Control. Notwithstanding anything to the contrary in this Plan, this Section shall not apply to any distributions made after a Change in Control.
9.8    Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a person who, in the sole judgment of the Committee, is considered by reason of physical or mental condition to be unable to give a

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eBay Inc. Deferred Compensation Plan



valid receipt therefore, the Committee may direct that such payment be made to any person found by the Committee, in its sole judgment, to have assumed the care of such person. Any payment made pursuant to such termination shall constitute a full release and discharge of the Committee and the Company.
9.9    Limitation of Rights
Neither the establishment of the Plan nor any modification thereof, nor the creating of any fund or account, nor the payment of any benefits shall be construed as giving to any Participant or other person any legal or equitable right against the Company except as provided in the Plan. In no event shall the terms of employment of, or membership on the Board by, any Participant be modified or in any way be effected by the provisions of the Plan.
9.10    Exempt ERISA Plan
The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of Title I of ERISA.
9.11    Notice
Any notice or filing required or permitted to be given to the Committee under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to the principal office of the Company, directed to the attention of the General Counsel and Secretary of the Company. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.
9.12    Errors and Misstatements
In the event of any misstatement or omission of fact by a Participant to the Committee or any clerical error resulting in payment of benefits in an incorrect amount, the Committee shall promptly cause the amount of future payments to be corrected upon discovery of the facts and shall pay or, if applicable, cause the Plan to pay, the Participant or any other person entitled to payment under the Plan any underpayment in a lump sum or to recoup any overpayment from future payments to the Participant or any other person entitled to payment under the Plan in such amounts as the Committee shall direct or to proceed against the Participant or any other person entitled to payment under the Plan for recovery of any such overpayment.
9.13    Pronouns and Plurality
The masculine pronoun shall include the feminine pronoun, and the singular the plural where the context so indicates.
9.14    Severability
In the event that any provision of the Plan shall be declared unenforceable or invalid for any reason, such unenforceability or invalidity shall not affect the remaining provisions of the Plan but shall

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eBay Inc. Deferred Compensation Plan



be fully severable, and the Plan shall be construed and enforced as if such unenforceable or invalid provision had never been included herein.
9.15    Status
The establishment and maintenance of, or allocations and credits to, the Accounts of any Participant shall not vest in any Participant any right, title or interest in and to any Plan assets or benefits except at the time or times and upon the terms and conditions and to the extent expressly set forth in the Plan.
9.16    Headings.
Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.
Executed at San Jose, California this 8 day of January, 2019.
eBay Inc.

By:    s// Robin Colman
Title:    VP, Total Global Rewards
Date:    January 8, 2019


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Exhibit 10.44


eBay Inc.
2065 Hamilton Ave.
San Jose, CA 95125 U.S.A.
Company Tax ID: 77-0430924
EBAYNOTMA03.JPG

Performance Based Restricted Stock Unit Award Grant Notice (“Grant Notice”)
and Performance Based Restricted Stock Unit Award Agreement


%%FIRST_NAME%-% %%LAST_NAME%-%        Award Number: %%AWARD_NUMBER%-%
%%ADDRESS_LINE_1%-%                Plan:          2008
%%ADDRESS_LINE_2%-%                Type:          PBRSU
%%ADDRESS_LINE_3%-%
%%CITY%-%, %%STATE%-% %%ZIPCODE%-%
%%COUNTRY%-%

Effective as of %%GRANT_DATE%-% (the “Grant Date”), eBay Inc., a Delaware corporation (the “Company”), pursuant to its 2008 Equity Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the individual named above (“Participant”) an award of Performance Based Restricted Stock Units (“PBRSUs”) with respect to %%TARGET_NUMBER%-% shares of Stock at the target level of performance (the “Target Shares”) specified in Appendix A hereto (“Appendix A”). This Performance Based Restricted Stock Unit Award (the “Award”) is subject to all of the terms and conditions set forth in this Grant Notice, the Performance Based Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”) (including without limitation the performance-based vesting conditions set forth in Appendix A), the special provisions for Participant’s country, if any, attached hereto as Exhibit B and the Plan, all of which are incorporated herein by reference. The number of shares of Stock (“Shares”) Participant will be eligible to receive pursuant to the Award, if any, may increase or decrease from the Target Shares based on the Company’s actual performance and Participant’s continued service, as set forth in Appendix A. Any capitalized terms used in this Grant Notice without definition shall have the meanings ascribed to such terms in the Plan.
Subject to Participant’s continuous service with the Company or a Subsidiary and Section 16 of the Agreement, Participant will vest in a number of PBRSUs on the vesting date(s) set forth in Appendix A (the “Vesting Date(s)”), if any, determined based on the extent to which the performance goals set forth in Appendix A (the “Performance Goals”) are achieved during the performance period beginning and ending on the dates set forth in Appendix A (the “Performance Period”). Any portion of the Shares subject to the Award that do not vest based on the achievement of the Performance Goals and Participant’s continued service shall be forfeited by Participant and cancelled by the Company. Achievement of the Performance Goals shall be determined and certified by the Compensation Committee of the Board of Directors of the Company (the “Committee”) in writing prior to the settlement of the Award. For the avoidance of doubt, all vesting is subject to Participant’s continued service with the Company or a Subsidiary through the Vesting Date(s).
By Participant’s signature and the Company’s signature below, Participant agrees to be bound by the terms and conditions of the Plan and this Grant Notice which includes Exhibit A (the Agreement) and Exhibit B (the special provisions for Participant’s country, if any). Participant has reviewed and fully understands all provisions of the Plan and this Grant Notice in their entirety, including Exhibits A and B, and has had an opportunity to obtain the advice of counsel prior to executing




this Grant Notice. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions arising under the Plan and this Grant Notice, including Exhibits A and B.
%%GRANT_DATE%-%

eBay Inc.                                                        Date



%%FIRST_NAME%-% %%LAST_NAME%-%, the Participant                Date





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EXHIBIT A
TO PERFORMANCE BASED RESTRICTED STOCK UNIT AWARD GRANT NOTICE
EBAY INC. PERFORMANCE BASED RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Performance Based Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Performance Based Restricted Stock Unit Award Agreement (the “Agreement”) is attached, eBay Inc., a Delaware corporation (the “Company”) has granted to Participant an award of Performance Based Restricted Stock Units (“PBRSUs”) under the Company’s 2008 Equity Incentive Award Plan, as amended from time to time (the “Plan”), with respect to a number of Shares as set forth in the Grant Notice.
GENERAL
1.Definitions. Any capitalized terms used in this Agreement without definition shall have the meanings ascribed to such terms in the Plan or the Grant Notice, as applicable.
2.Incorporation of Terms of Plan. The Award is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
AGREEMENT
1.Grant of the PBRSUs. As set forth in the Grant Notice, as of the Grant Date (as defined in the Grant Notice), the Company hereby grants to Participant the number of PBRSUs based on the shares of Stock (“Shares”) set forth in the Grant Notice, subject to all the terms and conditions in the Grant Notice (including Appendix A, this Exhibit A and Exhibit B) and the Plan. The number of PBRSUs specified in the Grant Notice reflects the target number of Shares (the “Target Shares”) that may be earned by Participant. The number of Shares Participant will be eligible to receive pursuant to the Award, if any, may increase or decrease from the Target Shares based on the Company’s actual performance and Participant’s continued service. No Shares shall be issued to Participant until the time set forth in Section 2. Prior to actual issuance of any Shares, such PBRSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company. Unless otherwise determined by the Committee, the PBRSUs include a right to Dividend Equivalents equal to the value of any dividends paid on the Stock for which the dividend record date occurs between the Grant Date and the date the PBRSUs are settled or forfeited. Subject to vesting and the amount of Earned PBRSUs (as defined in Appendix A), each Dividend Equivalent entitles Participant to receive the equivalent cash value of any such dividends paid on the number of Shares underlying the PBRSUs that are earned during such period. Dividend Equivalents will be accrued (without interest) and will be subject to the same conditions as the PBRSUs to which they are attributable, including, without limitation, the vesting conditions, the provisions governing the time and form of settlement of the PBRSUs, and any special provisions for Participant’s country in Exhibit B.

2.Settlement of the PBRSUs. Shares shall be issued, and unless otherwise determined by the Committee, any accrued Dividend Equivalents with respect to such Shares shall be paid, to Participant on or as soon as administratively practicable following each vesting date as set forth in the Grant Notice (each, a “Vesting Date”) (and in no event later than 2½ months following the calendar year of the applicable Vesting Date), subject to Section 3 hereof; provided, that Participant has not experienced a Termination of Service on or prior to each such Vesting Date. After each such Vesting Date, the Company shall promptly cause to be issued (either in book-entry form or otherwise) to Participant or Participant’s beneficiaries, as the case may be, Shares with respect to PBRSUs that become vested on such Vesting Date. No fractional Shares shall be issued under this Agreement. The vesting of the PBRSUs shall cease immediately upon a Termination of Service, as further

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described in Section 8(j) below, and any unvested PBRSUs awarded by this Agreement and the Grant Notice shall be forfeited upon such Termination of Service.
3.Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company and/or Participant’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan and legally applicable to Participant as a result of participation in the Plan (“Tax-Related Items”), is and remains Participant’s responsibility and may exceed the amount (if any) withheld by the Company or the Employer. Participant further acknowledges that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including, but not limited to, the grant, vesting, settlement, release or cancellation of the PBRSUs or any related Dividend Equivalents, the issuance of Shares upon settlement of the PBRSUs, the subsequent sale of Shares acquired pursuant such issuance and the receipt of any dividends, and (b) do not commit to and are under no obligation to structure the terms of the Award or any aspect of the PBRSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy the Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer (or their respective agents), at their discretion and pursuant to such procedures as they may specify from time to time, to satisfy the obligations with regard to the Tax-Related Items by one or a combination of the following:
(i)
withholding a net number of otherwise issuable vested Shares having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company and/or the Employer pursuant to the terms and conditions of the Plan or other applicable withholding rates; and/or
(ii)
arranging for the Company-designated broker to sell on the market a portion of the otherwise issuable vested Shares that have an aggregate market value sufficient to pay the Tax-Related Items (a “Sell to Cover”), on Participant’s behalf and at Participant’s direction pursuant to this authorization; and/or
(iii)
withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer (including from any Dividend Equivalents); and/or
(iv)
requiring Participant to make a payment in cash (or cash equivalent) to the Company or the Employer;
provided, however, that if Participant is an executive officer, within the meaning of Section 16 of the Exchange Act, then the obligations with regard to the Tax-Related Items shall be satisfied by first withholding any otherwise payable Dividend Equivalents upon the relevant taxable or tax withholding event, as applicable, and then withholding a net number of otherwise issuable vested Shares as described in clause (i) above, unless the use of such Share withholding method would result in adverse consequences under applicable tax or securities law or accounting principles, in which case the obligations with regard to the Tax-Related Items in excess of the amount of otherwise payable Dividend Equivalents shall be satisfied by the method described in clause (ii) above.

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No fractional Shares will be sold to cover or withheld to cover Tax-Related Items. The Company may withhold or account for Tax-Related Items by considering maximum applicable rates in which case Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding a number of Shares as described in (ii) above, for tax purposes Participant will be deemed to have been issued the full number of Shares subject to the vested PBRSUs, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse to issue or deliver the Shares or refuse to deliver the proceeds of the sale of Shares if Participant fails to comply with Participant’s obligations in connection with the Tax-Related Items.
4.Rights as Stockholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
5.Conditions to Issuance of Certificates. Notwithstanding any other provision of this Agreement, the Company shall not be required to issue or deliver any certificate or certificates for any Shares prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any U.S. state or federal or non-U.S. law or under rulings or regulations of the U.S. Securities and Exchange Commission or other governmental regulatory body (including any applicable non-U.S. governmental regulatory body), which the Company shall, in its sole and absolute discretion, deem necessary and advisable, (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency that the Company shall, in its absolute discretion, determine to be necessary or advisable and (d) the lapse of any such reasonable period of time following the date the PBRSUs vest as the Company may from time to time establish for reasons of administrative convenience.
6.Plan Governs. This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.
7.Award Not Transferable. This Award and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this Award, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this Award and the rights and privileges conferred hereby immediately will become null and void.
8.Nature of Grant. In accepting the Award, Participant acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended or terminated by the Company at any time, to the extent permitted by the Plan;

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(b)the grant of the PBRSUs is voluntary and occasional and does not create any contractual or other right to receive future grants of PBRSUs, or benefits in lieu of PBRSUs, even if PBRSUs have been granted in the past;
(c)all decisions with respect to future grants of PBRSUs, if any, will be at the sole discretion of the Company;
(d)Participant is voluntarily participating in the Plan;
(e)the grant of the PBRSUs and Participant’s participation in the Plan shall not create a right to employment or service or be interpreted as forming an employment or service contract with the Company, the Employer or any Subsidiary and shall not interfere with the ability of the Company, the Employer or any Subsidiary to terminate Participant’s employment or service relationship (if any);
(f)the PBRSUs and any Shares subject to the PBRSUs are not intended to replace any pension rights or compensation;
(g)the PBRSUs and any Shares subject to the PBRSUs, and the income and value of same, are not part of normal or expected compensation or salary for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar mandatory payments;
(h)the future value of the Shares subject to the PBRSUs is unknown, indeterminable and cannot be predicted with certainty;
(i)no claim or entitlement to compensation or damages shall arise from forfeiture of the PBRSUs resulting from Participant ceasing to provide services to the Company, the Employer or any Subsidiary (for any reason whatsoever and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any) and in consideration of the grant of the PBRSUs to which Participant is otherwise not entitled, Participant irrevocably agrees never to institute any claim against the Company, the Employer or any Subsidiary, waives his or her ability, if any, to bring any such claim, and releases the Company, the Employer and any Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, Participant shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims;
(j)in the event of Participant’s Termination of Service (whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any), unless otherwise determined by the Company, Participant’s right to vest in the PBRSUs, if any, will terminate effective as of the date that Participant is no longer actively providing services and will not be extended by any notice period (e.g., active service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any); the Committee shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the PBRSUs; and
(k)neither the Company, the Employer nor any Subsidiary will be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States dollar that may affect the

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value of the PBRSUs or any amounts due to Participant pursuant to the vesting of the PBRSUs or the subsequent sale of any Shares acquired under the Plan.
9.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or Participant’s acquisition or sale of Shares. Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.
10.Insider Trading Restrictions/Market Abuse Laws.  Participant acknowledges that he or she is subject to any applicable Company insider trading policy. In addition, depending on his or her country of residence, Participant may be subject to additional insider trading restrictions and/or market abuse laws, which may affect his or her ability to acquire or sell Shares or rights to Shares (e.g., PBRSUs) under the Plan during such times as Participant is considered to have “inside information” regarding the Company (as defined by the laws in Participant's country).  Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy.  Participant acknowledges that it is Participant’s responsibility to comply with any applicable Company insider trading policy and any additional restrictions that may apply due to local insider trading restrictions or market abuse laws. Participant is advised to speak to his or her personal legal advisor regarding any applicable local insider trading restrictions or market abuse laws.
11.Data Privacy. Participant hereby voluntarily consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement and any other PBRSU grant materials by and among, as applicable, the Employer, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company, the Employer and any Subsidiary may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all PBRSUs or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Personal Data”).
Participant understands that Personal Data will be transferred to E*Trade Corporate Financial Services, Inc. and/or its affiliates (“E*Trade”) or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of Personal Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, E*Trade and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer Personal Data, in electronic or other form, for the purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom Participant may elect to deposit any Shares received upon vesting of the PBRSUs. Participant understands that he or she may request a list with the names and addresses of any potential recipients of Personal Data by contacting Participant’s regional human resources (“MyHR”) representative. Participant understands that Personal Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that he or she may, at any time, request access to Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, in any case without cost,

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by contacting in writing his or her MyHR representative. Further, Participant understands that Participant is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, Participant’s employment status or service with the Employer will not be adversely affected; the only consequence of refusing or withdrawing consent is that the Company would not be able to grant PBRSUs or other equity awards to Participant or administer or maintain such awards. Therefore, Participant understands that refusal or withdrawal of consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her MyHR representative.
12.Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to the PBRSUs or future PBRSUs granted under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
13.Language. If Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
14.Governing Law and Choice of Venue. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of the Grant Notice (including this Agreement and the special provisions for Participants outside the U.S. attached hereto as Exhibit B), regardless of the law that might be applied under such state’s conflict of laws principles.
For purposes of litigating any dispute that arises directly or indirectly in respect of this Award, the parties hereby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted in the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
15.Conformity to U.S. Securities Laws. Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated thereunder by the U.S. Securities and Exchange Commission, including without limitation Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
16.Award Subject to Clawback. The Award and any cash payment or Shares delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.
17.Amendment, Modification and Termination. To the extent permitted by the Plan, the Grant Notice (including this Agreement and Exhibit B) may be wholly or partially amended or otherwise modified or terminated at any time or from time to time by the Committee or the Board, provided, that, except as may otherwise be provided by the Plan, no amendment, modification or termination of this Agreement shall adversely effect the Award in any material way without the prior written consent of Participant.

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18.Notices. Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the post by certified mail, or its non-U.S. equivalent, with postage and fees prepaid, addressed to Participant at his or her address shown in the Company records, and to the Company at its principal executive office.
19.Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, and to the extent permissible under local law, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
20.Compliance in Form and Operation. This Agreement and the PBRSUs are intended to comply with Section 409A of the Code and the Treasury Regulations thereunder (“Section 409A”) and shall be interpreted in a manner consistent with that intention, to the extent Participant is or becomes subject to U.S. federal income taxation. Notwithstanding any other provisions of this Agreement or the Grant Notice, the Company reserves the right, to the extent the Company deems necessary or advisable, if Participant is or becomes subject to U.S. federal income taxation, and without any obligation to do so or to indemnify Participant for any failure to do so, to unilaterally amend the Plan and/or this Agreement to ensure that all PBRSUs are awarded in a manner that qualifies for exemption from or complies with Section 409A, provided, however, that the Company makes no representation that the PBRSUs will comply with or be exempt from Section 409A and makes no undertaking to preclude Section 409A from applying to the PBRSUs.
21.Exhibit B. The Award shall be subject to any special provisions set forth in Exhibit B of the Grant Notice for Participant’s country, if any. If Participant relocates to one of the countries included in Exhibit B of the Grant Notice prior to any Vesting Date or while holding Shares issued upon vesting of the PBRSUs, the special provisions for such country shall apply to Participant, to the extent the Company determines that the application of such provisions is advisable or necessary for legal or administrative reasons. Exhibit B of the Grant Notice constitutes part of this Agreement.
22.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the PBRSUs and on any Shares issued upon vesting of the PBRSUs, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
23.Entire Agreement: Severability. The Plan and the Grant Notice (including Exhibit B) are incorporated herein by reference. The Plan and the Grant Notice (including this Agreement and Exhibit B) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. If any provision of the Plan or the Grant Notice (including this Agreement and Exhibit B) is determined to be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
24.Waiver. Participant acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Participant or any other participant.

A-7
 




Exhibit 10.45
EBAYNOTMA03.JPG
 
 
eBay Inc.
2025 Hamilton Ave.
San Jose, Ca 95125

Company Tax ID: 77-0430924

Restricted Stock Unit Award Grant Notice(“Grant Notice”)
and Restricted Stock Unit Award Agreement

%%FIRST_NAME%-% %%LAST_NAME%-%
 
Award Number:
 
%%OPTION_NUMBER%-%
%%ADDRESS_LINE_1%-%
 
Plan:
 
2008
%%ADDRESS_LINE_2%-%
 
Type:
 
RSU
%%ADDRESS_LINE_3%-%
 
 
 
 
%%CITY%-%, %%STATE%-% %%ZIPCODE%-%
 
 
 
 
%%COUNTRY%-%
 
 
 
 


Effective as of %%OPTION_DATE,'Month DD, YYYY'%-% (the “Grant Date”), eBay Inc., a Delaware corporation, (the “Company”), pursuant to its 2008 Equity Incentive Award Plan, as amended from time to time, (the “Plan”), hereby grants to the individual listed below (“Participant”), a Restricted Stock Unit (“RSU”) with respect to %%TOTAL_SHARES_GRANTED,'999,999,999'%-% (the “Shares”). This Restricted Stock Unit Award (the “Award”) is subject to all of the terms and conditions set forth in this Grant Notice, the Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”) (including without limitation the restrictions on the Shares set forth in the Agreement), the special provisions for Participant’s country, if any, attached hereto as Exhibit B and the Plan, all of which are incorporated herein by reference. Any capitalized terms used in this Grant Notice without definition shall have the meanings ascribed to such terms in the Plan.

Your award will vest %%SHARES_PERIOD1,'999,999,999'%-% shares on %%VEST_DATE_PERIOD1,'Month DD, YYYY'%-% with an additional 1/16th of the award vesting at the end of each three month period thereafter

All vesting is subject to Participant’s continued service with the Company or a Subsidiary through the applicable vesting date. With respect to Participants who are subject to taxation in the U.S. under the Code, in no event shall any Restricted Stock Units vest following Participant’s separation from service (within the meaning of Section 409A(a)(2)(A)(i) of the Code).

By Participant’s signature and the Company’s signature below, Participant agrees to be bound by the terms and conditions of the Plan and this Grant Notice which includes Exhibit A (the Agreement) and Exhibit B (the special provisions for Participant’s country, if any). Participant has reviewed and fully understands all provisions of the Plan and this Grant Notice in their entirety, including Exhibits A and B, and has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions arising under the Plan and this Grant Notice, including Exhibits A and B.

 
 
 
/s/ Devin N. Wenig
 
%%OPTION_DATE,'Month DD, YYYY'%-%
eBay Inc.
 
Date
 
 
 
 
 
 
 
 
 
%%FIRST_NAME%-% %%LAST_NAME%-%
 
Date


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EXHIBIT A
TO RESTRICTED STOCK UNIT AWARD GRANT NOTICE
EBAY INC. RESTRICTED STOCK UNIT AWARD AGREEMENT

Pursuant to the Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Restricted Stock Unit Award Agreement (the “Agreement”) is attached, eBay Inc., a Delaware corporation (the “Company”) has granted to Participant the right to receive the number of Restricted Stock Units (“RSUs”) under the 2008 Equity Incentive Award Plan, as amended from time to time (the “Plan”), as set forth in the Grant Notice.
GENERAL
1.Definitions. Any capitalized terms used in this Agreement without definition shall have the meanings ascribed to such terms in the Plan or the Grant Notice, as applicable.
2.Incorporation of Terms of Plan. The Award is subject to the terms and conditions of the Plan which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

AGREEMENT
1.Grant of the RSUs. As set forth in the Grant Notice, the Company hereby grants to Participant the RSUs, subject to all the terms and conditions in the Grant Notice, including this Exhibit A and Exhibit B, and the Plan. However, no shares of Stock (“Shares”) shall be issued to Participant until the time set forth in Section 2. Prior to actual issuance of any Shares, such RSUs will represent an unsecured obligation of the Company, payable only from the general assets of the Company. Unless otherwise determined by the Committee, the RSUs include a right to Dividend Equivalents equal to the value of any dividends paid on the Stock for which the dividend record date occurs between the Grant Date and the date the RSUs are settled or forfeited. Subject to vesting, each Dividend Equivalent entitles Participant to receive the equivalent cash value of any such dividends paid on the number of Shares underlying the RSUs that are outstanding during such period. Dividend Equivalents will be accrued (without interest) and will be subject to the same conditions as the RSUs to which they are attributable, including, without limitation, the vesting conditions, the provisions governing the time and form of settlement of the RSUs, and any special provisions for Participant’s country in Exhibit B.
2.Settlement of the RSUs. Shares shall be issued, and unless otherwise determined by the Committee, any accrued Dividend Equivalents with respect to such Shares shall be paid, to Participant on or as soon as administratively practicable following each vesting date as set forth in the Grant Notice (the “Vesting Date”) (and in no event later than 2-1/2 months following each such Vesting Date), provided that Participant has not experienced a Termination of Service on or prior to such Vesting Date. After each such Vesting Date, the Company shall promptly cause to be issued (either in book-entry form or otherwise) to Participant or Participant’s beneficiaries, as the case may be, Shares with respect to RSUs that become vested on such Vesting Date. No fractional Shares shall be issued under this Agreement. In the event Participant experiences a Termination of Service, the RSUs shall cease vesting immediately upon such Termination of Service, as further described in Section 8(j) below, and the unvested RSUs awarded by this Agreement and the Grant Notice shall be forfeited.

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3.Responsibility for Taxes. Participant acknowledges that, regardless of any action taken by the Company and/or Participant’s employer (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Participant’s participation in the Plan and legally applicable to Participant as a result of participation in the Plan (“Tax-Related Items”), is and remains Participant’s responsibility and may exceed the amount (if any) withheld by the Company or the Employer. Participant further acknowledges that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including, but not limited to, the grant, vesting, settlement, release or cancellation of the RSUs or any related Dividend Equivalents, the issuance of Shares upon settlement of the RSUs, the subsequent sale of Shares acquired pursuant such issuance and the receipt of any dividends, and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if Participant has become subject to Tax-Related Items in more than one jurisdiction, Participant acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the relevant taxable or tax withholding event, as applicable, Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy the Tax-Related Items. In this regard, Participant authorizes the Company and/or the Employer (or their respective agents), at their discretion and pursuant to such procedures as they may specify from time to time, to satisfy the obligations with regard to the Tax-Related Items by one or a combination of the following:

(i)
withholding a net number of otherwise issuable vested Shares having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company and/or the Employer based on the applicable minimum statutory withholding amounts or other applicable withholding rates; and/or

(ii)
arranging for the Company-designated broker to sell on the market a portion of the otherwise issuable vested Shares that have an aggregate market value sufficient to pay the Tax-Related Items (a “Sell to Cover”), on Participant’s behalf and at Participant’s direction pursuant to this authorization; and/or

(iii)
withholding from Participant’s wages or other cash compensation paid to Participant by the Company and/or the Employer (including from any Dividend Equivalents); and/or

(iv)
requiring Participant to make a payment in cash (or cash equivalent) to the Company or the Employer;

provided, however, that if Participant is an executive officer, within the meaning of Section 16 of the Exchange Act, then the obligations with regard to the Tax-Related Items shall be satisfied by first withholding any otherwise payable Dividend Equivalents upon the relevant taxable or tax withholding event, as applicable, and then withholding a net number of otherwise issuable vested Shares as described in clause (i) above, unless the use of such Share withholding method would result in adverse consequences under applicable tax or securities law or accounting principles, in which case the obligations with regard to the Tax-Related Items in excess of the amount of otherwise payable Dividend Equivalents shall be satisfied by the method described in clause (ii) above.
No fractional Shares will be sold to cover or withheld to cover Tax-Related Items. The Company may withhold or account for Tax-Related Items by considering applicable withholding rates,

3



including maximum applicable rates in Participant’s jurisdiction, in which case Participant may receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent amount in Shares. If the obligation for Tax-Related Items is satisfied by withholding a number of Shares as described in (ii) above, for tax purposes Participant will be deemed to have been issued the full number of Shares subject to the vested RSUs, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse to issue or deliver the Shares or refuse to deliver the proceeds of the sale of Shares if Participant fails to comply with Participant’s obligations in connection with the Tax-Related Items.
4.Rights as Stockholder. Neither Participant nor any person claiming under or through Participant will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued and recorded on the records of the Company or its transfer agents or registrars, and delivered to Participant (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, Participant will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
5.Conditions to Issuance of Certificates. Notwithstanding any other provision of this Agreement, the Company shall not be required to issue or deliver any certificate or certificates for any Shares prior to the fulfillment of all of the following conditions: (a) the admission of the Shares to listing on all stock exchanges on which such Shares are then listed, (b) the completion of any registration or other qualification of the Shares under any U.S. state or federal or non-U.S. law or under rulings or regulations of the U.S. Securities and Exchange Commission or other governmental regulatory body (including any applicable non-U.S. governmental regulatory body), which the Company shall, in its sole and absolute discretion, deem necessary and advisable, (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency that the Company shall, in its absolute discretion, determine to be necessary or advisable and (d) the lapse of any such reasonable period of time following the date the RSUs vest as the Company may from time to time establish for reasons of administrative convenience.
6.Plan Governs. This Agreement is subject to all terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.
7.Award Not Transferable. This Award and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this Award, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this Award and the rights and privileges conferred hereby immediately will become null and void.
8.Nature of Grant. In accepting the Award, Participant acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature, and it may be modified, amended or terminated by the Company at any time, to the extent permitted by the Plan;
(b)the grant of the RSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past;

4



(c)all decisions with respect to future grants of RSUs, if any, will be at the sole discretion of the Company;
(d)Participant is voluntarily participating in the Plan;
(e)the grant of the RSUs and Participant’s participation in the Plan shall not create a right to employment or service or be interpreted as forming an employment or service contract with the Company, the Employer or any Subsidiary and shall not interfere with the ability of the Company, the Employer or any Subsidiary to terminate Participant’s employment or service relationship (if any);
(f)the RSUs and any Shares subject to the RSUs, and the income and value of same, are not intended to replace any pension rights or compensation;
(g)the RSUs and any Shares subject to the RSUs, and the income and value of same, are not part of normal or expected compensation or salary for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, holiday pay, pension or retirement or welfare benefits or similar payments;
(h)the future value of the Shares subject to the RSUs is unknown, indeterminable and cannot be predicted with certainty;
(i)    no claim or entitlement to compensation or damages shall arise from forfeiture of the RSUs resulting from Participant ceasing to provide services to the Company, the Employer or any Subsidiary (for any reason whatsoever and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any);
(j)in the event of Participant’s Termination of Service (whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any), unless otherwise provided by this Agreement or determined by the Company, Participant’s right to vest in the RSUs, if any, will terminate effective as of the date that Participant is no longer actively providing services and will not be extended by any notice period (e.g., active service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Participant is employed or providing services or the terms of Participant’s employment agreement or service contract, if any); the Committee shall have the exclusive discretion to determine when Participant is no longer actively providing services for purposes of the RSUs; and
(k)neither the Company, the Employer nor any Subsidiary will be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States dollar that may affect the value of the RSUs or any amounts due to Participant pursuant to the vesting of the RSUs or the subsequent sale of any Shares acquired under the Plan.
9.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding participation in the Plan, or Participant’s acquisition or sale of Shares. Participant understands and agrees that Participant should consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

5



10.Insider Trading Restrictions/Market Abuse Laws. Participant acknowledges that he or she is subject to any applicable Company insider trading policy. In addition, Participant may be subject to additional insider trading restrictions and/or market abuse laws in applicable jurisdictions, which may affect his or her ability to, directly or indirectly, acquire, sell, or attempt to sell Shares or rights to Shares (e.g., RSUs) under the Plan during such times as Participant is considered to have “inside information” regarding the Company (as defined by the laws in the applicable jurisdictions or Participant’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Participant acknowledges that it is Participant’s responsibility to comply with any applicable Company insider trading policy and any additional restrictions that may apply due to local insider trading restrictions or market abuse laws. Participant should speak to his or her personal legal advisor regarding any applicable local insider trading restrictions or market abuse laws.
11.Foreign Asset/Account Reporting; Exchange Controls. Participant’s country may have certain foreign asset and/or account reporting requirements and/or exchange controls that may affect Participant’s ability to acquire or hold Shares under the Plan or cash received from participating in the Plan (including from any dividends or Dividend Equivalents received or sale proceeds arising from the sale of Shares) in a brokerage or bank account outside Participant’s country. Participant may be required to report such accounts, assets, or transactions to the tax or other authorities in Participant’s country. Participant may also be required to repatriate sale proceeds or other funds received as a result of Participant’s participation in the Plan to Participant’s country through a designated broker or bank and/or within a certain time after receipt. Participant acknowledges that it is Participant’s responsibility to be compliant with such regulations and Participant understands and agrees that Participant should consult his or her personal legal advisor for any details.
12.Data Privacy. Participant hereby voluntarily consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Agreement and any other RSU grant materials by and among, as applicable, the Employer, the Company and any Subsidiary for the purpose of implementing, administering and managing Participant’s participation in the Plan.
Participant understands that the Company, the Employer and any Subsidiary may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address, email address and telephone number, date of birth, social insurance, passport number or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all RSUs or any other entitlement to Shares or equivalent benefits awarded, purchased, canceled, exercised, vested, unvested or outstanding in Participant’s favor (“Personal Data”), for the exclusive purpose of implementing, administering and managing the Plan).

Participant understands that Personal Data will be transferred to E*Trade Corporate Financial Services, Inc. and/or its affiliates (“E*Trade”) or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of Personal Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, E*Trade and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer Personal Data, in electronic or other form, for the purpose of implementing, administering and managing his or her participation in the Plan, including any requisite transfer of such Personal Data as may be required to a broker or other third party with whom Participant may elect to deposit any Shares received upon

6



vesting of the RSUs. Participant understands that he or she may request a list with the names and addresses of any potential recipients of Personal Data by contacting Participant’s regional human resources (“MyHR”) representative. Participant understands that Personal Data will be held only as long as is necessary to implement, administer and manage Participant’s participation in the Plan. Participant understands that he or she may, at any time, request access to Personal Data, request additional information about the storage and processing of Personal Data, require any necessary amendments to Personal Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her MyHR representative. Further, Participant understands that Participant is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, Participant’s employment service and career with the Employer will not be affected; the only consequence of refusing or withdrawing consent is that the Company would not be able to grant RSUs or other equity awards to Participant or administer or maintain such awards. Therefore, Participant understands that refusal or withdrawal of consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her MyHR representative.
13.Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to the RSUs or future RSUs granted under the Plan by electronic means or request Participant’s consent to participate in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
14.Language. Participant acknowledges that Participant is sufficiently proficient in English to understand the terms and conditions of this Agreement. Furthermore, if Participant has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
15.Governing Law and Choice of Venue. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of the Grant Notice, this Agreement and the special provisions for Participants outside the U.S. attached hereto as Exhibit B, regardless of the law that might be applied under such state’s conflict of laws principles.

For purposes of litigating any dispute that arises directly or indirectly in respect of this Award, the parties hereby submit to and consent to the jurisdiction of the State of California and agree that such litigation shall be conducted in the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
16.Conformity to U.S. Securities Laws. Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the U.S. Securities Act and the U.S. Exchange Act, and any and all regulations and rules promulgated thereunder by the U.S. Securities and Exchange Commission, including without limitation Rule 16b-3 under the Exchange Act. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Awards are granted, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
17.Award Subject to Clawback. The Award and any cash payment or Shares delivered pursuant to the Award are subject to forfeiture, recovery by the Company or other action pursuant to any clawback

7



or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.
18.Amendment, Modification and Termination. To the extent permitted by the Plan, this Agreement (and the Grant Notice and Exhibit B) may be wholly or partially amended or otherwise modified or terminated at any time or from time to time by the Committee or the Board, provided, that, except as may otherwise be provided by the Plan, no amendment, modification or termination of this Agreement shall adversely effect the Award in any material way without the prior written consent of Participant.
19.Notices. Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the post by certified mail, or its non-U.S. equivalent, with postage and fees prepaid, addressed to Participant at his or her address shown in the Company records, and to the Company at its principal executive office.
20.Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, and to the extent permissible under local law, this Agreement shall be binding upon Participant and his or her heirs, executors, administrators, successors and assigns.
21.Compliance in Form and Operation. This Agreement and the RSUs are intended to comply with Section 409A of the Code and the Treasury Regulations thereunder (“Section 409A”) and shall be interpreted in a manner consistent with that intention, to the extent Participant is or becomes subject to U.S. federal income taxation. Notwithstanding any other provisions of this Agreement or the Grant Notice, the Company reserves the right, to the extent the Company deems necessary or advisable, if Participant is or becomes subject to U.S. federal income taxation, and without any obligation to do so or to indemnify Participant for any failure to do so, to unilaterally amend the Plan and/or this Agreement to ensure that all RSUs are awarded in a manner that qualifies for exemption from or complies with Section 409A, provided, however, that the Company makes no representation that the RSUs will comply with or be exempt from Section 409A and makes no undertaking to preclude Section 409A from applying to the RSUs.
22.Exhibit B. The Award shall be subject to any special provisions set forth in Exhibit B for Participant’s country, if any. If Participant relocates to one of the countries included in Exhibit B during the vesting period or while holding Shares issued upon vesting of the RSUs, the special provisions for such country shall apply to Participant, to the extent the Company determines that the application of such provisions is advisable or necessary for legal or administrative reasons. Exhibit B constitutes part of this Agreement.
23.Imposition of Other Requirements. The Company reserves the right to impose other requirements on the RSUs and on any Shares issued upon vesting of the RSUs, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
24.Entire Agreement: Severability. The Plan and the Grant Notice (including Exhibit B) are incorporated herein by reference. The Plan, the Grant Notice (including this Agreement and Exhibit B) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof. If any provision of this Agreement, the Grant Notice, Exhibit B or the Plan is determined to

8



be illegal or unenforceable, then such provision will be enforced to the maximum extent possible and the other provisions will remain fully effective and enforceable.
25.Waiver. Participant acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Participant or any other participant.

* * * * *


9



Exhibit 10.46
EBAYNOTMA03.JPG
Notice Regarding Payment of Dividend Equivalents on Restricted Stock Units and Performance-Based Restricted Stock Units
You are receiving this notice because you hold outstanding restricted stock units (“RSUs”) and/or performance-based restricted stock units (“PBRSUs”) granted under eBay Inc.’s (“eBay” or the “Company”) 2008 Equity Incentive Award Plan (the “Plan”).
Effective as of January 9, 2019, eBay amended your outstanding RSUs and/or PBRSUs under the Plan to confer a right to receive the equivalent value of dividends paid on shares of eBay’s common stock (“Dividend Equivalents”), as specified below. Capitalized terms used but not defined herein have the same meaning set forth in the relevant award agreement or the Plan, as applicable.
Amendment to RSUs Granted Without Dividend Equivalents
1.
The terms of applicable award agreements for outstanding and unvested RSUs under the Plan (“RSU Agreements”) have been supplemented with the following provision:
“Unless otherwise determined by the Committee, the RSUs include a right to Dividend Equivalents equal to the value of any dividends paid on the Stock for which the dividend record date occurs between the Grant Date and the date the RSUs are settled or forfeited. Subject to vesting, each Dividend Equivalent entitles Participant to receive the equivalent cash value of any such dividends paid on the number of Shares underlying the RSUs that are outstanding during such period. Dividend Equivalents will be accrued (without interest) and will be subject to the same conditions as the RSUs to which they are attributable, including, without limitation, the vesting conditions, the provisions governing the time and form of settlement of the RSUs, and any special provisions for Participant’s country in Exhibit B.”
Amendment to PBRSUs Granted Without Dividend Equivalents
2.
The terms of applicable award agreements for outstanding and unvested PBRSUs under the Plan (“PBRSU Agreements”) have been supplemented with the following provision:
“Unless otherwise determined by the Committee, the PBRSUs include a right to Dividend Equivalents equal to the value of any dividends paid on the Stock for which the dividend record date occurs between the Grant Date and the date the PBRSUs are settled or forfeited. Subject to vesting and the amount of Earned PBRSUs (as defined in Appendix A), each Dividend Equivalent entitles Participant to receive the equivalent cash value of any such dividends paid on the number of Shares underlying the PBRSUs that are earned during such period. Dividend Equivalents will be accrued (without interest) and will be subject to the same conditions as the PBRSUs to which they are attributable, including, without limitation, the vesting conditions, the provisions governing the time and form of settlement of the PBRSUs, and any special provisions for Participant’s country in Exhibit B.”

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Amendment to RSUs and PBRSUs Regarding Taxes
3.
The text in the second paragraph of Section 3 of the applicable RSU Agreements and PBRSU Agreements following the phrase “provided, however, that” has been replaced with the following provision regarding taxes:
“if Participant is an executive officer, within the meaning of Section 16 of the Exchange Act, then the obligations with regard to the Tax-Related Items shall be satisfied by first withholding any otherwise payable Dividend Equivalents upon the relevant taxable or tax withholding event, as applicable, and then withholding a net number of otherwise issuable vested Shares as described in clause (i) above, unless the use of such Share withholding method would result in adverse consequences under applicable tax or securities law or accounting principles, in which case the obligations with regard to the Tax-Related Items in excess of the amount of otherwise payable Dividend Equivalents shall be satisfied by the method described in clause (ii) above.”

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 Exhibit 21.01


 
LIST OF SUBSIDIARIES

The following is a list of our subsidiaries as of December 31, 2018 that are required to be disclosed pursuant to Item 601(b)(21) of Regulation S-K.

DOMESTIC SUBSIDIARIES

Name
StubHub, Inc., a Delaware corporation


INTERNATIONAL SUBSIDIARIES
 
 
Jurisdiction of
 
Percent Ownership
Name
 
Incorporation
 
If Less Than 100%
mobile.de GmbH
 
Germany
 
 
eBay GmbH
 
Germany
 
 
eBay International Treasury Center Sarl
 
Luxembourg
 
 
eBay Korea Co., Ltd.
 
Korea
 
99.9%
eBay International Holding GmbH
 
Switzerland
 
 
eBay International AG
 
Switzerland
 
 
eBay Korea Holding GmbH
 
Switzerland
 
 
eBay Marketplaces GmbH
 
Switzerland
 
 
Marktplaats B.V.
 
The Netherlands
 
 
eBay Classifieds Holding B.V.
 
The Netherlands
 
 
eBay KTA (UK) Limited
 
United Kingdom
 
 
eBay (UK) Limited
 
United Kingdom
 
 





Exhibit 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-215919), Form S-4 (Nos. 333-97727, No. 333-117914), and Form S-8 (Nos. 333-64179, 333-87593, 333-41944, 333-58046, 333-97729, 333-100426, 333-107832, 333-117913, 333-127971, 333-129072, 333-136118, 333-140942, 333-143880, 333-149131, 333-149132, 333-151851, 333-155314, 333-159778, 333-165438, 333-168295, 333-171154, 333-174242, 333-175416, 333-175417, 333-176477, 333-176663, 333-178369, 333-181535, 333-181539, 333-192514, 333-193299, 333-195987, 333-203546, 333-213340) of eBay Inc. of our report dated January 30, 2019 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.

/s/ PricewaterhouseCoopers LLP

San Jose, California
January 30, 2019





Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

I, Devin N. Wenig, certify that:

1.
I have reviewed this Annual Report on Form 10-K of eBay Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect 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/ Devin N. Wenig
 
Devin N. Wenig
 
President and Chief Executive Officer
                                                                   
(Principal Executive Officer)

Date: January 30, 2019




Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

I, Scott F. Schenkel, certify that:

1.
I have reviewed this Annual Report on Form 10-K of eBay Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect 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/ Scott F. Schenkel
 
Scott F. Schenkel
 
Senior Vice President, Chief Financial Officer
                                                                                          
(Principal Financial Officer)

Date: January 30, 2019




Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

I, Devin N. Wenig, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(i) The accompanying Annual Report on Form 10-K for the year ended December 31, 2018 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; 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/ Devin N. Wenig
 
Devin N. Wenig
 
President and Chief Executive Officer
                                                                   
(Principal Executive Officer)

Date: January 30, 2019

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report.





Exhibit 32.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.

I, Scott F. Schenkel, hereby certify pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(i) The accompanying Annual Report on Form 10-K for the year ended December 31, 2018 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; 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/ Scott F. Schenkel
 
Scott F. Schenkel
 
Senior Vice President, Chief Financial Officer
                                                                                          
(Principal Financial Officer)

Date: January 30, 2019

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this report.