Ebay Inc 10-Q for FY2022 Q1
Ebay Inc (EBAY)
10-Q
2022-05-05
For: 2022-03-31
View Original
Added on
April 09, 2026
About this 10-Q
Ebay Inc filed this 10-Q on May 5, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.48B
- down 5.9% from $2.64B a year earlier
- Net loss
- $1.34B
- compared with net income of $641M a year earlier
- Diluted EPS
- -$2.28
- compared with $0.92 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended March 31, 2022
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| , | ||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
Registrant’s telephone number, including area code:
(408 ) 376-7108
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of exchange on which registered | ||||||
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 ☒ 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 ☒ 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.
| ☒ | 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 Exchange Act). Yes ☐ No ☒
As of May 2, 2022, there were 559,842,135 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.
eBay Inc.
TABLE OF CONTENTS
| Page | ||||||||
| PART I: FINANCIAL INFORMATION | ||||||||
| PART II: OTHER INFORMATION | ||||||||
2
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (unaudited)
Index
| Page | |||||
3
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions, except par value) | |||||||||||
| (Unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Customer accounts and funds receivable | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Long-term investments | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred tax assets | |||||||||||
| Equity investment in Adevinta | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Customer accounts and funds payable | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Long-term debt | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and Contingencies (Note 10) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock at cost, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net revenues | $ | $ | |||||||||||||||||||||
| Cost of net revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Product development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Provision for transaction losses | |||||||||||||||||||||||
| Amortization of acquired intangible assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Gain (loss) on equity investments and warrant, net | ( | ( | |||||||||||||||||||||
| Interest and other, net | ( | ( | |||||||||||||||||||||
| Income (loss) from continuing operations before income taxes | ( | ||||||||||||||||||||||
| Income tax benefit (provision) | ( | ||||||||||||||||||||||
| Income (loss) from continuing operations | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ||||||||||||||||||||
| Income (loss) per share - basic: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income (loss) per share - basic | $ | ( | $ | ||||||||||||||||||||
| Income (loss) per share - diluted: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income (loss) per share - diluted | $ | ( | $ | ||||||||||||||||||||
| Weighted-average shares: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ||||||||||||||||||||
| Other comprehensive income (loss), net of reclassification adjustments: | |||||||||||||||||||||||
| Foreign currency translation gains (losses) | ( | ( | |||||||||||||||||||||
| Unrealized gains (losses) on investments, net | ( | ( | |||||||||||||||||||||
| Tax benefit (expense) on unrealized gains (losses) on investments, net | |||||||||||||||||||||||
| Unrealized gains (losses) on hedging activities, net | |||||||||||||||||||||||
| Tax benefit (expense) on unrealized gains (losses) on hedging activities, net | ( | ( | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In millions, except per share amounts) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Common stock: | |||||||||||||||||||||||
| Balance, beginning of period | $ | $ | |||||||||||||||||||||
| Common stock issued | |||||||||||||||||||||||
| Common stock repurchased | |||||||||||||||||||||||
| Balance, end of period | |||||||||||||||||||||||
| Additional paid-in-capital: | |||||||||||||||||||||||
| Balance, beginning of period | |||||||||||||||||||||||
| Common stock and stock-based awards issued | |||||||||||||||||||||||
| Tax withholdings related to net share settlements of restricted stock units and awards | ( | ( | |||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Forward contract for share repurchases | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Balance, end of period | |||||||||||||||||||||||
| Treasury stock at cost: | |||||||||||||||||||||||
| Balance, beginning of period | ( | ( | |||||||||||||||||||||
| Common stock repurchased | ( | ( | |||||||||||||||||||||
| Balance, end of period | ( | ( | |||||||||||||||||||||
| Retained earnings: | |||||||||||||||||||||||
| Balance, beginning of period | |||||||||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||||||||
| Dividends and dividend equivalents declared | ( | ( | |||||||||||||||||||||
| Balance, end of period | |||||||||||||||||||||||
| Accumulated other comprehensive income: | |||||||||||||||||||||||
| Balance, beginning of period | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||||||||
| Change in unrealized gains (losses) on investments | ( | ( | |||||||||||||||||||||
| Change in unrealized gains (losses) on derivative instruments | |||||||||||||||||||||||
| Tax benefit (provision) on above items | ( | ||||||||||||||||||||||
| Balance, end of period | |||||||||||||||||||||||
| Total stockholders’ equity | $ | $ | |||||||||||||||||||||
| Dividends and dividend equivalents declared per share or restricted stock unit | $ | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In millions) | |||||||||||
| (Unaudited) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | ( | $ | ||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ||||||||||
| Adjustments: | |||||||||||
| Provision for transaction losses | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Loss (gain) on investments, net | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Change in fair value of warrant | |||||||||||
| Change in fair value of equity investment in Adevinta | |||||||||||
| Change in fair value of equity investment in Gmarket | |||||||||||
| Unrealized change in fair value of equity investment in KakaoBank | |||||||||||
| Unrealized change in fair value of equity investment in Adyen | |||||||||||
| Realized change in fair value of shares sold in Adyen | |||||||||||
| Loss (gain) on extinguishment of debt | |||||||||||
| Changes in assets and liabilities, net of acquisition effects | ( | ( | |||||||||
| Net cash provided by continuing operating activities | |||||||||||
| Net cash provided by (used in) discontinued operating activities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchases of investments | ( | ( | |||||||||
| Maturities and sales of investments | |||||||||||
| Proceeds from the sale of shares in Adyen | |||||||||||
| Proceeds from the sale of shares in KakaoBank | |||||||||||
| Other | |||||||||||
| Net cash provided by continuing investing activities | |||||||||||
| Net cash provided by (used in) discontinued investing activities | ( | ||||||||||
| Net cash provided by investing activities | |||||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Payments for taxes related to net share settlements of restricted stock units and awards | ( | ( | |||||||||
| Payments for dividends | ( | ( | |||||||||
| Repayment of debt | ( | ( | |||||||||
| Net borrowings under commercial paper program | |||||||||||
| Net funds receivable and payable activity | |||||||||||
| Other | |||||||||||
| Net cash used in continuing financing activities | ( | ( | |||||||||
| Net cash provided by (used in) discontinued financing activities | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net increase in cash, cash equivalents and restricted cash | |||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Less: Cash, cash equivalents and restricted cash of discontinued operations | |||||||||||
| Cash, cash equivalents and restricted cash of continuing operations at end of period | $ | $ | |||||||||
8
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS—(Continued)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In millions) | |||||||||||
| (Unaudited) | |||||||||||
| Supplemental cash flow disclosures: | |||||||||||
| Cash paid for: | |||||||||||
| Interest | $ | $ | |||||||||
| Income taxes | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
Note 1 — The Company and Summary of Significant Accounting Policies
The Company
eBay Inc. is a global commerce leader, which includes our Marketplace platforms. Founded in 1995 in San Jose, California, eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. 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.
When we refer to “we,” “our,” “us,” the “Company” or “eBay” in this Quarterly Report on Form 10-Q, we mean the current Delaware corporation (eBay Inc.) and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.
Principles of Consolidation and Basis of Presentation
The accompanying condensed financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities (“VIE”) 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 VIE’s. Equity investments in entities where we have not elected the fair value option and where we hold at least a 20% ownership interest or 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 gain (loss) on equity investments and warrant, net and our equity investment balance is included in long-term investments. Equity 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 in an orderly transaction for identical or similar instruments or impairment.
Upon the transfer of our Classifieds business to Adevinta ASA (“Adevinta”) on June 24, 2021, shares in Adevinta were included as part of total consideration received under the definitive agreement. The equity interest in Adevinta is accounted for under the fair value option. As of March 31, 2022, our ownership in Adevinta was 33 %. Subsequent changes in fair value are included in gain (loss) on equity investments and warrant, net.
Additionally, upon completion of the sale of 80.01 % of the outstanding equity interests of eBay Korea LLC, a limited liability company incorporated under the laws of Korea and a wholly owned subsidiary of eBay KTA (“eBay Korea”) to E-mart Inc. and one of its wholly owned subsidiaries (together, “Emart”) on November 14, 2021, we retained 19.99 % of the outstanding equity interests of the new entity, Gmarket Global LLC (“Gmarket”) formerly known as Apollo Korea, which is accounted for under the fair value option. Subsequent changes in fair value are included in gain (loss) on equity investments and warrant, net and our equity investment balance is included in long-term investments.
10
Significant Accounting Policies
There were no significant changes to our significant accounting policies disclosed in “Note 1 — The Company and Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements Not Yet Adopted
In March 2022, the Financial Accounting Standards Board issued new guidance to expand the scope of financial assets that can be included in a closed portfolio hedged using the portfolio layer method to allow consistent accounting for similar hedges. The expanded scope permits the application of the same portfolio hedging method to both prepayable and nonprepayable financial assets. The standard will be effective for annual reporting periods beginning after December 15, 2022, including interim reporting periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
11
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 for the periods indicated (in millions, except per share amounts):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | ( | $ | ||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||
| Net income (loss) | $ | ( | $ | ||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares of common stock - basic | |||||||||||||||||||||||
| Dilutive effect of equity incentive awards | |||||||||||||||||||||||
| Weighted average shares of common stock - diluted | |||||||||||||||||||||||
| Income (loss) per share - basic: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income (loss) per share - basic | $ | ( | $ | ||||||||||||||||||||
| Income (loss) per share - diluted: | |||||||||||||||||||||||
| Continuing operations | $ | ( | $ | ||||||||||||||||||||
| Discontinued operations | |||||||||||||||||||||||
| Net income (loss) per share - diluted | $ | ( | $ | ||||||||||||||||||||
| Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive | |||||||||||||||||||||||
12
Note 3 — Discontinued Operations
Classifieds
On June 24, 2021, we completed the previously announced transfer of our Classifieds business to Adevinta for $2.5 billion in cash, subject to certain adjustments, and approximately 540 million shares in Adevinta which represented an equity interest of 44 %. Together, the total consideration received under the definitive agreement was valued at approximately $13.3 billion, based on the closing trading price of Adevinta’s outstanding shares at the Oslo Stock Exchange on June 24, 2021. The transfer resulted in a pre-tax gain of $12.5 billion and related income tax expense of $2.1 billion, both within income from discontinued operations. The results of our Classifieds business have been presented as discontinued operations in our consolidated statement of income for all periods presented through June 24, 2021 as the transfer represented a strategic shift in our business that had a major effect on our operations and financial results.
In addition, upon closing we entered into a transition service agreement (“TSA”) with Adevinta to support the operations of Classifieds after the divestiture for fees of $29 million. This agreement commenced with the close of the transaction and has minimum initial terms ranging from 6 to 12 months and can be extended for a maximum of six months .
eBay Korea
On November 14, 2021, we completed the previously announced sale of 80.01 % of the outstanding equity interests of eBay Korea to Emart, pursuant to the terms and conditions of the securities purchase agreement, in exchange for approximately $3.0 billion of gross cash proceeds as of the transaction close date, subject to certain adjustments. The sale resulted in a pre-tax gain of $3.2 billion inclusive of a $81 million currency translation adjustment and a $44 million gain on the net investment hedge settled in the fourth quarter of 2021, as well as income tax expense of $369 million. The results of our eBay Korea business have been presented as discontinued operations in our condensed consolidated statement of income for all periods presented through November 14, 2021 as the transfer represented a strategic shift in our business that had a major effect on our operations and financial results.
In addition, upon closing we entered into a transition service agreement with eBay Korea to support the operations of eBay Korea after the divestiture for immaterial fees. This agreement commenced with the close of the transaction and has minimum initial terms of 6 months and can be extended for a maximum of 3 months.
Discontinued operations
The following table presents financial results from discontinued operations, net of income taxes in our condensed consolidated statement of income for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
| Classifieds income (loss) from discontinued operations, net of income taxes | $ | $ | |||||||||||||||||||||||||||||||||
| eBay Korea income (loss) from discontinued operations, net of income taxes | ( | ||||||||||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | ( | $ | ||||||||||||||||||||||||||||||||
13
The following table presents cash flows for discontinued operations for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||
Classifieds net cash provided by (used in) discontinued operating activities | $ | ( | $ | ||||||||||||||||||||||||||||||||
eBay Korea net cash provided by (used in) discontinued operating activities | ( | ( | |||||||||||||||||||||||||||||||||
| Net cash provided by (used in) discontinued operating activities | $ | ( | $ | ||||||||||||||||||||||||||||||||
Classifieds net cash used in discontinued investing activities | $ | $ | ( | ||||||||||||||||||||||||||||||||
eBay Korea net cash used in discontinued investing activities | ( | ||||||||||||||||||||||||||||||||||
| Net cash used in discontinued investing activities | $ | $ | ( | ||||||||||||||||||||||||||||||||
Classifieds net cash provided by (used in) discontinued financing activities | $ | $ | |||||||||||||||||||||||||||||||||
eBay Korea net cash used in discontinued financing activities | ( | ||||||||||||||||||||||||||||||||||
| Net cash used in discontinued financing activities | $ | $ | ( | ||||||||||||||||||||||||||||||||
Classifieds
The financial results of Classifieds are presented as income from discontinued operations, net of income taxes on our condensed consolidated statement of income through June 24, 2021, when the transfer of Classifieds was completed. Each period presented below includes the impact of intercompany revenue agreements through June 24, 2021. The impact of these intercompany revenue agreements to net revenues and cost of net revenues was $2
The following table presents the financial results of Classifieds for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net revenues | $ | $ | |||||||||||||||||||||
| Cost of net revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Product development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Provision for transaction losses | |||||||||||||||||||||||
| Amortization of acquired intangible assets | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income (loss) from operations of discontinued operations | |||||||||||||||||||||||
| Interest and other, net | |||||||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | |||||||||||||||||||||||
| Income tax provision | ( | ||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | $ | |||||||||||||||||||||
14
eBay Korea
The financial results of eBay Korea are presented as income from discontinued operations, net of income taxes on our condensed consolidated statement of income. The following table presents the financial results of eBay Korea (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net revenues | $ | $ | |||||||||||||||||||||
| Cost of net revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Product development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income (loss) from operations of discontinued operations | ( | ||||||||||||||||||||||
| Interest and other, net | |||||||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | ( | ||||||||||||||||||||||
| Income tax benefit (provision) | |||||||||||||||||||||||
| Income (loss) from discontinued operations, net of income taxes | $ | ( | $ | ||||||||||||||||||||
StubHub, PayPal and Enterprise
15
Note 4 — Segments
We have one
During the second quarter of 2021, we classified the results of our eBay Korea business which was part of our Marketplace segment as discontinued operations in our consolidated statement of income for the periods presented. See “Note 3 — Discontinued Operations” for additional information.
The accounting policies of our segment are the same as those described in “Note 1 — The Company and Summary of Significant Accounting Policies.”
The following table summarizes net revenues by type for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net revenues by type: | |||||||||||||||||||||||
| Net transaction revenues | $ | $ | |||||||||||||||||||||
| Marketing services and other revenues | |||||||||||||||||||||||
| Total net revenues | $ | $ | |||||||||||||||||||||
The following table summarizes the allocation of net revenues based on geography for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| U.S. | $ | $ | |||||||||||||||||||||
| United Kingdom | |||||||||||||||||||||||
| Germany | |||||||||||||||||||||||
| Rest of world | |||||||||||||||||||||||
| Total net revenues | $ | $ | |||||||||||||||||||||
16
Note 5 — Investments
The following tables summarize the unrealized gains and losses and estimated fair value of our investments classified as available-for-sale debt securities and restricted cash as of the dates indicated (in millions):
| March 31, 2022 | |||||||||||||||||||||||
| Gross Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Restricted cash | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Government and agency securities | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Gross Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Restricted cash | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Government and agency securities | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
We consider cash to be restricted when withdrawal or general use is legally restricted. Restricted cash is held primarily in interest bearing accounts primarily related to our global sabbatical program. 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. Investments classified as available-for-sale debt securities are carried at fair value with changes reflected in other comprehensive income. Where there is an intention or a requirement to sell an impaired available-for-sale debt security, the entire impairment is recognized in earnings with a corresponding adjustment to the amortized cost basis of the security. We presently do not intend to sell any of the available-for-sale debt securities in an unrealized loss position and expect to realize the full value of all these investments upon maturity or sale.
17
We regularly review investment securities for credit impairment using both qualitative and quantitative criteria. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded through interest and other, net for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. We did not recognize any credit-related impairment through an allowance for credit losses as of March 31, 2022.
Investment securities in a continuous loss position for less than 12 months had an estimated fair value of $3.8 billion and unrealized losses of $55 million as of March 31, 2022, and an estimated fair value of $3.1 billion and an immaterial amount of unrealized losses as of December 31, 2021. Investment securities in a continuous loss position for greater than 12 months had an estimated fair value of $22 million and an immaterial amount of unrealized losses as of March 31, 2022, and there were no investment securities in a continuous loss position for greater than 12 months as of December 31, 2021. Refer to “Note 14 — Accumulated Other Comprehensive Income” for amounts reclassified to earnings from unrealized gains and losses.
The following table presents estimated fair values of our short-term and long-term investments classified as available-for-sale debt securities and restricted cash by date of contractual maturity as of the date indicated (in millions):
| March 31, 2022 | |||||
One year or less (including restricted cash of $ | $ | ||||
| One year through two years | |||||
| Two years through three years | |||||
| Three years through four years | |||||
| Four years through five years | |||||
| $ | |||||
Equity Investments
The following table summarizes our equity investments as of the dates indicated (in millions):
| Balance Sheet Location | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Equity investments with readily determinable fair values | Short-term investments | $ | $ | ||||||||||||||
| Equity investment in Adevinta | Equity investment in Adevinta | ||||||||||||||||
| Equity investment under the fair value option | Long-term investments | ||||||||||||||||
| Equity investments under the equity method of accounting | Long-term investments | ||||||||||||||||
| Equity investments without readily determinable fair values | Long-term investments | ||||||||||||||||
| Total equity investments | $ | $ | |||||||||||||||
Equity investment in Adevinta
We account for equity investments through which we exercise significant influence but do not have control over the investee under the fair value option or under the equity method. Our equity investment in Adevinta is accounted for under the fair value option.
18
Upon completion of the transfer of our Classifieds business to Adevinta on June 24, 2021, we received an equity investment of 44 % in Adevinta valued at $10.8 billion at the close of the transfer. On November 18, 2021, we completed the sale of approximately 135 million of our voting shares in Adevinta to Permira, inclusive of the option exercised by Permira to purchase additional voting shares, for total cash consideration of approximately $2.3 billion which reduced our ownership in Adevinta to 33 %. Following the close of the share sale in November 2021, our equity investment in Adevinta is reported in the long-term assets section on the condensed consolidated balance sheet to reflect our contractual requirement to retain at least 25 % of the total number of issued and outstanding equity securities of Adevinta until October 14, 2023, subject to certain exceptions specified in the agreement.
At the initial recognition of the equity investment, we elected the fair value option where subsequent changes in fair value are recognized in earnings. The investment is classified within Level 1 in the fair value hierarchy as the valuation can be obtained from real time quotes in active markets. The fair value of the equity investment is measured based on Adevinta’s closing stock price and prevailing foreign exchange rate at each balance sheet date and the changes in fair value are reflected in gain (loss) on equity investments and warrant, net in the condensed consolidated statement of income. We believe the fair value option election creates more transparency of the current value in the equity investment in Adevinta. Our non-voting shares are convertible to voting shares on a one -to-one basis, subject to a limitation of 33 % voting interest. For the three months ended March 31, 2022, an unrealized loss of $1,643 million was recorded in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income related to the change in fair value of the investment. The fair value of the investment was $3,748 million and $5,391 million as of March 31, 2022 and December 31, 2021, respectively.
Equity investments with readily determinable fair values
Equity investments with readily determinable fair values are classified within Level 1 in the fair value hierarchy as the valuation can be obtained from real time quotes in active markets. Subsequent changes in fair value are reflected in gain (loss) on equity investments and warrant, net in the condensed consolidated statement of income.
In August 2021, one of our equity investments, KakaoBank Corp. (“KakaoBank”), which previously did not have a readily determinable fair value, completed its initial public offering which resulted in this investment having a readily determinable fair value. The fair value of the equity investment is measured based on KakaoBank’s closing stock price and prevailing foreign exchange rate at each balance sheet date. For the three months ended March 31, 2022, an unrealized loss of $91 million was recorded in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income related to the change in fair value of the investment. During the three months ended March 31, 2022, we sold a portion of our shares in KakaoBank for $45 million and recorded a realized loss on the change in fair value of shares sold of $8 million in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income. There were $18 million of unsettled shares sold as of March 31, 2022 which were subsequently settled in the second quarter of 2022. The fair value of the investment was $540 million and $684 million as of March 31, 2022 and December 31, 2021, respectively and is reported within short-term investments in our condensed consolidated balance sheet.
We entered into a warrant agreement in conjunction with a commercial agreement with Adyen that vests in a series of four tranches, at a specified price per share upon meeting processing volume milestone targets on a calendar year basis. When a 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. In the fourth quarter of 2021, we met the processing volume milestone target to vest the first tranche of the warrant. Upon vesting of the first tranche, we exercised the option to purchase shares of Adyen valued at $1.1 billion in exchange for approximately $110 million in cash. The fair value of the equity investment is measured based on Adyen’s closing stock price and prevailing foreign exchange rate at each balance sheet date. For the three months ended March 31, 2022, an unrealized loss of $80 million was recorded in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income related to the change in fair value of the investment. During the three months ended March 31, 2022, we sold a portion of our shares in Adyen for $551 million and recorded a realized loss on the change in fair value of shares sold of $166 million in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income. There were $78 million of unsettled shares sold as of March 31, 2022 which were subsequently settled in the second quarter of 2022. As of March 31, 2022 and December 31, 2021, the fair value of the investment was $264 million and $1,061 million, respectively and is
19
reported within short-term investments in our condensed consolidated balance sheet. Refer to “Note 6 — Derivative Instruments” for more information about the warrant.
Subsequent to March 31, 2022, we sold additional shares in Adyen for $130 million and recorded a realized loss on the change in fair value of shares sold of $1 million, and we sold additional shares in KakaoBank for $79 million and recorded a realized loss on the change in fair value of shares sold of $14 million in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income.
Equity investment under the fair value option
We account for equity investments through which we exercise significant influence but do not have control over the investee under the fair value option or under the equity method. Our equity investment in Gmarket is accounted for under the fair value option.
On November 14, 2021, we completed the previously announced sale of 80.01 % of the outstanding equity interests of eBay Korea to Emart. Upon completion of the sale, we retained 19.99 % of the outstanding equity interest of the new entity, Gmarket, over whom we are able to exercise significant influence based on the terms of the securities purchase agreement, including through our board representation. Our equity investment in Gmarket was valued at $728 million as of the transaction close date. At the initial recognition of this equity investment, we elected the fair value option where subsequent changes in fair value are recognized in gain (loss) on equity investments and warrant, net in the condensed consolidated statement of income. We believe the fair value option election creates more transparency of the current value in the equity investment in Gmarket. Our retained investment in Gmarket is subject to a two year right held by Emart to purchase the remaining interest at the close price of the sale.
For the three months ended March 31, 2022 an unrealized loss of $182 million was recorded in gain (loss) on equity investments and warrant, net related to the change in fair value of the investment. As of March 31, 2022 and December 31, 2021, the fair value of the investment was $543 million and $725 million, respectively and is reported within long-term investments in our condensed consolidated balance sheet.
The investment is classified as Level 3 in the fair value hierarchy as the valuation reflects management’s estimate of assumptions that market participants would use in pricing the equity investment. Refer to “Note 7 — Fair Value Measurement of Assets and Liabilities” for more information.
Other equity method investments
We account for equity investments through which we exercise significant influence but do not have control over the investee under the fair value option or under the equity method. For equity investments accounted for under the equity method, our consolidated results of operations include, as a component of gain (loss) on equity investments and warrant, net, our share of the net income or loss of the equity investments accounted for under the equity method of accounting.
20
Equity investments without readily determinable fair values
The following table summarizes the change in total carrying value related to equity investments without readily determinable fair values still held for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Carrying value, beginning of period | $ | $ | |||||||||||||||||||||
| Downward adjustments for observable price changes and impairment | ( | ||||||||||||||||||||||
| Foreign currency translation and other | ( | ||||||||||||||||||||||
| Carrying value, end of period | $ | $ | |||||||||||||||||||||
For the three months ended March 31, 2022, we recorded a downward adjustment of $7 million to the carrying value of a strategic investment in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income.
For such equity investments without readily determinable fair values still held at March 31, 2022, the cumulative upward adjustment for observable price changes was $41 million and cumulative downward adjustment for observable price changes and impairments was $298 million.
The following table summarizes unrealized gains and losses related to equity investments held at March 31, 2022 and presented within gain (loss) on equity investments and warrant, net for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net gains/(losses) recognized during the period on equity investments | $ | ( | $ | ||||||||||||||||||||
| Less: Net gains/(losses) recognized during the period on equity investments sold during the period | ( | ||||||||||||||||||||||
Total unrealized gains/(losses) on equity investments held at March 31, 2022 | $ | ( | $ | ||||||||||||||||||||
21
Note 6 — 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 24 months. The objective of the foreign exchange contracts is to 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 exchange contracts designated as cash flow or net investment hedges on a quarterly basis.
In 2020, we began to hedge the variability of forecasted interest payments on anticipated debt issuance using forward-starting interest rate swaps. These interest rate swaps effectively fix the benchmark interest rate and have the economic effect of hedging the variability of forecasted interest payments for up to 10 years on an anticipated debt issuance. Similar to other cash flow hedges, we recorded changes in the fair value of these interest rate swaps in accumulated other comprehensive income (loss) (“AOCI”) until the anticipated debt issuance. In May 2021, we issued $2.5 billion of senior unsecured notes, which consisted of notes maturing in 2026, 2031 and 2051. As a result, we terminated the interest rate swaps and the gain associated with the termination of approximately $45 million is amortized to interest expense over the terms of our notes due in May 2026 and May 2031.
During 2020, we began to hedge the variability of the cash flows in interest payments associated with our floating-rate debt using interest rate swaps. These interest rate swap agreements effectively convert our floating-rate debt that is based on London Interbank Offered Rate (“LIBOR”) to a fixed-rate basis, reducing the impact of interest-rate changes on future interest expense. The total notional amount of these interest rate swaps was $400 million as of March 31, 2022 with terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate. Our interest rate swap contracts have maturity dates in 2023. Similar to other cash flow hedges, we record changes in the fair value of these interest rate swaps in AOCI and their fair value is amortized over the term of the debt to interest expense.
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 AOCI and subsequently reclassified into earnings in the same period the forecasted hedged 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 March 31, 2022, we have estimated that approximately $35 million of net derivative gains related to our foreign exchange cash flow hedges and $10 million net derivative gains related to our interest rate cash flow hedges included in AOCI 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 condensed consolidated statement of cash flows.
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 and equity investments 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 in the same line item as the cash flows of the related assets or liabilities, which is generally within operating activities in our condensed consolidated statement of cash flows. Cash flows related to the settlement of non-designated hedging instruments related to equity investments are classified within investing activities in our condensed consolidated statement of cash flows.
22
Warrant
We entered into a warrant agreement in conjunction with a commercial agreement with Adyen that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5 % of Adyen’s fully diluted issued and outstanding share capital at a specific date. The warrant has a term of seven years and vests in a series of four tranches, at a specified price per share (fixed for the first two tranches) upon meeting processing volume milestone targets on a calendar year basis. When or if a 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 .
In 2021, we met the processing volume milestone target to vest the first tranche of the warrant. Upon vesting of the first tranche, we exercised the option to purchase shares of Adyen valued at approximately $1.1 billion in exchange for approximately $110 million in cash. Our equity investment in Adyen is accounted for as an equity investment with a readily determinable fair value. Refer to “Note 5 — Investments” for more information about our equity investments.
The warrant is accounted for as a derivative under ASC Topic 815, Derivatives and Hedging. We report the warrant at fair value within warrant asset in our condensed consolidated balance sheets and changes in the fair value of the warrant are recognized in gain (loss) on equity investments and warrant, net in our condensed 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 condensed consolidated balance sheets and is amortized over the life of the commercial arrangement. See “Note 7 — Fair Value Measurements” for information about the fair value measurement of the warrant.
Fair Value of Derivative Contracts
| Balance Sheet Location | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Derivative Assets: | |||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | Other current assets | $ | $ | ||||||||||||||
| Foreign exchange contracts not designated as hedging instruments | Other current assets | ||||||||||||||||
| Interest rate contracts designated as cash flow hedges | Other current assets | ||||||||||||||||
| Warrant | Other assets | ||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | Other assets | ||||||||||||||||
| Total derivative assets | $ | $ | |||||||||||||||
| Derivative Liabilities: | |||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | Other current liabilities | $ | $ | ||||||||||||||
| Foreign exchange contracts not designated as hedging instruments | Other current liabilities | ||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | Other liabilities | ||||||||||||||||
| Total derivative liabilities | $ | $ | |||||||||||||||
| Total fair value of derivative instruments | $ | $ | |||||||||||||||
23
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 condensed consolidated balance sheet. As of March 31, 2022, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $14 118 million and net derivative liabilities of $3 million. As of March 31, 2022, there was no 4 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 March 31, 2022 and December 31, 2021, and the impact of these derivative contracts on AOCI for the periods indicated (in millions):
| December 31, 2021 | Amount of Gain (Loss) Recognized in Other Comprehensive Income | Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings | March 31, 2022 | ||||||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate contracts designated as cash flow hedges | |||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2020 | Amount of Gain (Loss) Recognized in Other Comprehensive Income | Less: Amount of Gain (Loss) Reclassified From AOCI to Earnings | March 31, 2021 | ||||||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Interest rate contracts designated as cash flow hedges | ( | ||||||||||||||||||||||
Total | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Effect of Derivative Contracts on Condensed Consolidated Statement of Income
The following table summarizes the total gain (loss) recognized in the condensed consolidated statement of income from our foreign exchange derivative contracts by location for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges recognized in net revenues | $ | $ | ( | ||||||||||||||||||||
| Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues | |||||||||||||||||||||||
| Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net | ( | ||||||||||||||||||||||
| Total gain (loss) recognized from foreign exchange derivative contracts in the condensed consolidated statement of income | $ | $ | ( | ||||||||||||||||||||
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The following table summarizes the total gain (loss) recognized in the condensed consolidated statement of income from our interest rate derivative contracts by location for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Gain (loss) from interest rate contracts designated as cash flow hedges recognized in interest and other, net | $ | $ | ( | ||||||||||||||||||||
The following table summarizes the total gain (loss) recognized in the condensed consolidated statement of income due to changes in the fair value of the warrant for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Gain (loss) attributable to changes in the fair value of warrant recognized in gain (loss) on equity investments and warrant, net | $ | ( | $ | ( | |||||||||||||||||||
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 presents the notional amounts of our outstanding derivatives as of the dates indicated (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Foreign exchange contracts designated as cash flow hedges | $ | $ | |||||||||
| Foreign exchange contracts not designated as hedging instruments | |||||||||||
| Interest rate contracts designated as cash flow hedges | |||||||||||
| Total | $ | $ | |||||||||
Credit Risk
25
Note 7 — 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 the dates indicated (in millions):
| March 31, 2022 | 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 | $ | $ | $ | $ | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Restricted cash | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| Equity investments with readily determinable fair values | |||||||||||||||||||||||
| Total short-term investments | |||||||||||||||||||||||
| Equity investment in Adevinta | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| Equity investment under the fair value option | |||||||||||||||||||||||
| Total long-term investments | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | |||||||||||||||||||
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| December 31, 2021 | 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 | $ | $ | $ | $ | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Restricted cash | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| Equity investments with readily determinable fair values | |||||||||||||||||||||||
| Total short-term investments | |||||||||||||||||||||||
| Equity investment in Adevinta | |||||||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||
| Government and agency securities | |||||||||||||||||||||||
| Equity investment under the fair value option | |||||||||||||||||||||||
| Total long-term investments | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | $ | $ | $ | |||||||||||||||||||
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 the three months ended March 31, 2022.
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.
Fair value measurement of derivative instruments
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; Adyen’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’s assumptions with respect to vesting of the remaining three tranches which are each subject to meeting processing volume milestone targets. These assumptions and the probability of meeting processing volume milestone targets may have a significant impact on the value of the warrant. Refer to “Note 6 — Derivative Instruments” for further details on our derivative instruments.
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The following tables present a reconciliation of the opening to closing balance of assets measured using significant unobservable inputs (Level 3) as of the dates indicated (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Opening balance at beginning of period | $ | $ | |||||||||
| Exercise of options under warrant | ( | ||||||||||
| Change in fair value | ( | ||||||||||
| Closing balance at end of period | $ | $ | |||||||||
The following table presents quantitative information about Level 3 significant unobservable inputs used in the fair value measurement of the warrant as of March 31, 2022 (in millions):
| Fair value | Valuation technique | Unobservable Input | Range (weighted average)(1) | |||||||||||||||||||||||
| Warrant | $ | Black-Scholes and Monte Carlo | Probability of vesting | |||||||||||||||||||||||
| Equity volatility | ( | |||||||||||||||||||||||||
(1) Probability of vesting was weighted by the unadjusted value of the tranches. For volatility, the average represents the arithmetic average of the points within the range and is not weighted by the relative fair value or notional amount.
Fair value measurement of equity investments
Certain of our equity investments are measured at fair value on a recurring basis, including our equity investment in Adevinta, equity investments with readily determinable fair values and equity investment under the fair value option.
Our equity investment in Adevinta is accounted for under the fair value option and classified within Level 1 in the fair value hierarchy as the fair value is measured based on Adevinta’s closing stock price and prevailing foreign exchange rate at each balance sheet date. Our equity investments with readily determinable fair values are also classified within Level 1 in the fair value hierarchy as the valuation can be obtained from real time quotes in active markets.
Our equity investment in Gmarket was initially recognized on November 14, 2021 in connection with the sale of 80.01 % of the outstanding equity interests of eBay Korea to Emart. This equity investment is accounted for under the fair value option and its initial valuation of $728 million was based on the sale price of eBay Korea. Our investment in Gmarket is subject to a two year right held by Emart from the date of disposal to purchase the remaining interest at or near the close price of the sale.
The following table presents a reconciliation of the opening to closing balance of the equity investment in Gmarket measured using significant unobservable inputs (Level 3) as of the dates indicated (in millions):
| March 31, 2022 | December 31, 2021 (1) | ||||||||||
| Opening balance at beginning of period | $ | $ | |||||||||
| Recognition of equity investment | |||||||||||
| Change in fair value | ( | ( | |||||||||
| Closing balance at end of period | $ | $ | |||||||||
(1) There were no indicators of a potential material change in fair value of the investment between the date of recognition and December 31, 2021. The fair value of the investment was $725 million as of December 31, 2021 due to foreign currency adjustments.
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This investment is classified within Level 3 in the fair value hierarchy as valuation of the investment reflects management’s estimate of assumptions that market participants would use in pricing the asset. The following table presents quantitative information about Level 3 significant unobservable inputs used in the fair value measurement of the equity investment in Gmarket as of March 31, 2022 that may have a significant impact on the overall valuation (in millions):
| Fair value | Valuation technique | Unobservable Input | Range | |||||||||||||||||||||||
| Equity investment in Gmarket | $ | Market multiples | Revenue multiple — GPC method (1) | |||||||||||||||||||||||
Revenue multiple — GMAC method (1) | ||||||||||||||||||||||||||
(1) The primary unobservable inputs used in the fair value measurement of our equity investment in Gmarket under the fair value option, when using the Guideline Public Company (GPC) method and the Guideline Merged and Acquired Company (GMAC) method under the market multiple approach, are the respective revenue multiples. Significant increases (decreases) in the revenue multiples in isolation would result in significantly higher (lower) fair value measurement. The market multiples are derived from respective groups of guideline public companies and guideline merged and acquired companies.
Refer to “Note 5 — Investments” for further details about our equity investments.
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Note 8 — Debt
The following table summarizes the carrying value of our outstanding debt as of the dates indicated (in millions, except percentages):
| Coupon | As of | Effective | As of | Effective | ||||||||||||||||||||||||||||
| Rate | March 31, 2022 | Interest Rate | December 31, 2021 | Interest Rate | ||||||||||||||||||||||||||||
| Long-Term Debt | ||||||||||||||||||||||||||||||||
| Floating Rate Notes: | ||||||||||||||||||||||||||||||||
| Senior notes due 2023 | LIBOR plus | $ | % | $ | % | |||||||||||||||||||||||||||
| Fixed Rate Notes: | ||||||||||||||||||||||||||||||||
| Senior notes due 2022 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2022 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2023 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2024 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2025 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2026 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2027 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2030 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2031 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2042 | % | % | % | |||||||||||||||||||||||||||||
| Senior notes due 2051 | % | % | % | |||||||||||||||||||||||||||||
| Total senior notes | ||||||||||||||||||||||||||||||||
Hedge accounting fair value adjustments (1) | ||||||||||||||||||||||||||||||||
| Unamortized premium/(discount) and debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Less: Current portion of long-term debt | ( | ( | ||||||||||||||||||||||||||||||
| Total long-term debt | ||||||||||||||||||||||||||||||||
| Short-Term Debt | ||||||||||||||||||||||||||||||||
| Current portion of long-term debt | ||||||||||||||||||||||||||||||||
| Total short-term debt | ||||||||||||||||||||||||||||||||
| Total Debt | $ | $ | ||||||||||||||||||||||||||||||
(1) Includes the fair value adjustments to debt associated with terminated interest rate swaps which are being recorded as a reduction to interest expense over the remaining term of the related notes.
Senior Notes
On February 9, 2022, the company redeemed the $750 million aggregate principal amount of the 3.800 % senior notes due March 2022. Total cash consideration paid was $750 million, as the redemption price was equal to 100 % of the principal amount. In addition, we paid accrued and unpaid interest on the principal amount.
Subsequent to March 31, 2022, the company redeemed the $605 million aggregate principal amount of the 2.600 % senior notes due 2022. Total cash consideration paid was $605 million, as the redemption price was equal to 100 % of the principal amount. In addition, we paid accrued and unpaid interest on the principal amount.
None of the floating rate notes are redeemable prior to maturity. 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.
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If a change of control triggering event (as defined in the applicable senior notes) occurs with respect to the floating rate notes due 2023, the 2.750 % fixed rate notes due 2023, the 1.900 % fixed rate notes due 2025, the 1.400 % fixed rate notes due 2026, the 3.600 % fixed rate notes due 2027, the 2.700 % fixed rate notes due 2030, the 2.600 % fixed rate notes due 2031 or the 3.650 % fixed rate notes due 2051, 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 with customary grace periods in certain circumstances, including payment defaults and bankruptcy-related defaults.
To help achieve our interest rate risk management objectives, during the second quarter of 2020, we entered into interest rate swap agreements that effectively converted $400 million of our LIBOR-based floating-rate debt to a fixed-rate basis. These swaps were designated as cash flow hedges and have maturity dates in 2023.
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 and premium 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, was approximately $60 million and $66 million during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the estimated fair value of these senior notes, using Level 2 inputs, was approximately $8.1 billion and $9.5 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 March 31, 2022, there were no commercial paper notes outstanding.
Credit Agreement
In March 2020, we entered into a credit agreement that provides for an unsecured $2 billion five-year credit facility. We may also, subject to the agreement of the applicable lenders, increase commitments under the revolving credit facility by up to $1 billion. Funds borrowed under the credit agreement may be used for working capital, capital expenditures, acquisitions and other general corporate purposes.
As of March 31, 2022, 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 are required to maintain 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, in an aggregate amount of $1.5 billion. As of March 31, 2022, no borrowings were outstanding under our commercial paper program; therefore, $2 billion of borrowing capacity was available for other purposes permitted by the credit agreement, subject to customary conditions to borrowing. The credit agreement includes a covenant limiting our consolidated leverage ratio to no more than 4.0 :1.0, subject to, upon the occurrence of a qualified material acquisition, if so elected by us, a step-up to 4.5 :1.0 for the four fiscal quarters completed following such qualified material acquisition. The credit agreement includes customary events of default, with corresponding grace periods in certain circumstances, including payment defaults, cross-defaults and bankruptcy-related defaults. In addition, the credit agreement contains customary affirmative and negative covenants, including restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case, subject to customary exceptions. The credit agreement also contains customary representations and warranties.
We were in compliance with all financial covenants in our outstanding debt instruments during the three months ended March 31, 2022.
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Note 9 — Supplemental Consolidated Financial Information
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 reasonable and supportable forecasts, and other factors that may affect our customers’ ability to pay. The allowance for doubtful accounts and authorized credits was $60 million and $74 million as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, we reported an allowance for doubtful accounts of $32 million reflecting a decrease of $16 million, net of write-offs of $26 million for the three months ended March 31, 2022. As of December 31, 2021, we reported an allowance for doubtful accounts of $42 million.
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 three month period ended March 31, 2022 that was included in the deferred revenue balance at the beginning of the period was $37 million. The amount of revenue recognized for the three month period ended March 31, 2021 that was included in the deferred revenue balance at the beginning of the period was $44 million.
Cash, cash equivalents and restricted cash
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Customer accounts | |||||||||||
| Restricted cash included in short-term investments | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
Customer accounts and funds receivable
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Funds receivable | |||||||||||
| Customer accounts and funds receivable | $ | $ | |||||||||
Other current assets
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Payment processor advances | $ | $ | |||||||||
| Prepaid expenses | |||||||||||
| Accounts receivable, net | |||||||||||
| Other | |||||||||||
| Other current assets | $ | $ | |||||||||
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Goodwill
The following table presents goodwill activity for the period indicated (in millions):
| December 31, 2021 | Goodwill Acquired | Adjustments | March 31, 2022 | ||||||||||||||||||||
| Goodwill | $ | $ | $ | ( | $ | ||||||||||||||||||
The adjustments to goodwill during the three months ended March 31, 2022 were primarily due to foreign currency translation.
Accrued expenses and other current liabilities
| March 31, 2022 | December 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Compensation and related benefits | $ | $ | |||||||||
| Sales and use tax and VAT accruals | |||||||||||
| Advertising accruals | |||||||||||
| Operating lease liabilities | |||||||||||
| Transaction loss reserve | |||||||||||
| Deferred revenue | |||||||||||
| Other | |||||||||||
| Accrued expenses and other current liabilities | $ | $ | |||||||||
Gain (loss) on equity investments and warrant, net
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Change in fair value of equity investment in Adevinta | $ | ( | $ | ||||||||||||||||||||
Change in fair value of equity investment in Gmarket | ( | ||||||||||||||||||||||
| Realized change in fair value of shares sold in Adyen | ( | ||||||||||||||||||||||
| Unrealized change in fair value of equity investment in Adyen | ( | ||||||||||||||||||||||
| Unrealized change in fair value of equity investment in KakaoBank | ( | ||||||||||||||||||||||
| Realized change in fair value of shares sold in KakaoBank | ( | ||||||||||||||||||||||
| Change in fair value of warrant | ( | ( | |||||||||||||||||||||
| Gain (loss) on other investments | ( | ||||||||||||||||||||||
| Total gain (loss) on equity investments and warrant, net | $ | ( | $ | ( | |||||||||||||||||||
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Note 10 — Commitments and Contingencies
Off-Balance Sheet Arrangements
As of March 31, 2022, 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 March 31, 2022, we had a total of $1.5 billion in aggregate cash deposits, partially offset by $1.3 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 Overview, 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 three months ended March 31, 2022. 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.
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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 us 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.
From time to time, the Company receives subpoenas or requests for information from various government agencies, typically for potential misconduct by sellers on the Company’s Marketplace platforms. More recently, the Company has received subpoenas or requests for information from government agencies related to potential liability of the Company for products sold by sellers on the Marketplace platforms. The Company generally responds to government subpoenas and requests in the ordinary course of business and in a cooperative, thorough and timely manner. These responses sometimes require time and effort and can result in considerable costs being incurred by the Company.
In this regard, the Company has responded to inquiries from the U.S. Department of Justice regarding products sold on the Marketplace platforms alleged to violate certain laws and regulations, including regulations of the Environmental Protection Agency and, separately, regulations of the Drug Enforcement Agency. If the Company is found to be liable for such activities on the Marketplace, it could be subject to monetary damages, changes in our business practices, or other remedies that could have a material adverse impact on our business. At this time, we are unable to estimate the possible loss because the matters are still under investigation and involve novel legal questions relevant to the Company’s potential liability. Given the uncertainties involved, the ultimate resolution of these matters may be material to our operating results for a particular period, depending on, among other factors, the size of the loss or liability imposed and the level of our net income or loss for that period.
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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.
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Note 11 — Stockholders’ Equity
Stock Repurchase Program
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 August 2021 our Board authorized an additional $3.0 billion stock repurchase program and in February 2022 our Board authorized an additional $4.0 billion stock repurchase program. These stock repurchase programs have no expiration from the date of authorization.
On October 29, 2021, we entered into accelerated share repurchase agreements (the “2021 ASR Agreements”) with two financial institutions (each a “2021 ASR Counterparty”), as part of our share repurchase program. Under the 2021 ASR Agreements, we paid an aggregate amount of $2.5 billion to the 2021 ASR Counterparties and received an initial delivery of approximately 29.3 million shares of our common stock, which were recorded as a $2,125 million increase to treasury stock. In December 2021, the 2021 ASR Agreement with one of the 2021 ASR Counterparties settled and resulted in a delivery of approximately 3.4 million additional shares of our common stock, which were recorded as a $188 million increase to treasury stock. The remaining $188 million was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity as of December 31, 2021.
In January 2022, the 2021 ASR Agreement with the remaining 2021 ASR Counterparty settled and resulted in a delivery of approximately 3.3 million additional shares of our common stock. The related forward contract was settled and recorded as a $188 million increase to treasury stock during the three months ended March 31, 2022. In total under the 2021 ASR Agreements, approximately 36.0 million shares were repurchased at an average price per share of $69.43 .
The following table summarizes stock repurchase activity under our stock repurchase programs for the period indicated (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, 2022 | $ | ||||||||||||||||||||||
| Authorization of additional plan in February 2022 | |||||||||||||||||||||||
| Repurchase of shares of common stock | $ | $ | ( | ||||||||||||||||||||
Accelerated share repurchases (3) | $ | ||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | ||||||||||||||||||||||
(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.
(3) As indicated above, in January 2022, the 2021 ASR Agreement with the remaining ASR Counterparty settled and resulted in delivery of approximately 3.3 million additional shares.
For the three months ended March 31, 2022, share repurchases of $1.25 billion included $181 million of unsettled shares as of March 31, 2022, which were subsequently settled in the second quarter of 2022.
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Dividends
The Company paid a total of $129 million and $122 million in cash dividends during the three months ended March 31, 2022 and 2021, respectively. In May 2022, our Board of Directors declared a cash dividend of $0.22 per share of common stock to be paid on June 17, 2022 to stockholders of record as of June 1, 2022.
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Note 12 — Employee Benefit Plans
Restricted Stock Unit Activity
The following table presents restricted stock unit (“RSU”) activity under our equity incentive plans for the period indicated (in millions):
| Units | |||||
| Outstanding as of January 1, 2022 | |||||
| Awarded | |||||
| Vested | ( | ||||
| Forfeited | ( | ||||
| Outstanding as of March 31, 2022 | |||||
The weighted average grant date fair value for RSUs awarded during the three months ended March 31, 2022 was $57.82 per share.
Stock-Based Compensation Expense
The following table presents the impact on our results of continuing operations of recording stock-based compensation expense for the periods indicated (in millions):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Cost of net revenues | $ | $ | |||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| Product development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | |||||||||||||||||||||
| Capitalized in product development | $ | $ | |||||||||||||||||||||
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Note 13 — Income Taxes
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 2010 to 2020 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 2009 include, among others, the U.S. (Federal and California), Germany, Israel, Singapore, Switzerland and the United Kingdom.
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. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
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.
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Note 14 — Accumulated Other Comprehensive Income
The following tables summarize the changes in AOCI for the periods indicated (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, 2021 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Less: Amount of gain (loss) reclassified from AOCI | ( | ||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||
| Unrealized Gains (Losses) on Derivative Instruments | Unrealized Gains (Losses) on Investments | Foreign Currency Translation | Estimated Tax (Expense) Benefit | Total | |||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ( | |||||||||||||||||||||||||
| Less: Amount of gain (loss) reclassified from AOCI | ( | ( | |||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||
The following table summarizes the reclassifications out of AOCI for the periods indicated (in millions):
| Details about AOCI Components | Affected Line Item in the Statement of Income | Amount of Gain (Loss) Reclassified From AOCI for the Three Months Ended March 31, | ||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Gains (losses) on cash flow hedges: | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts | Net revenues | $ | $ | ( | ||||||||||||||||||||||||||||
| Foreign exchange contracts | Cost of net revenues | |||||||||||||||||||||||||||||||
| Interest rate contracts | Interest and other, net | ( | ||||||||||||||||||||||||||||||
| Total, from continuing operations before income taxes | ( | |||||||||||||||||||||||||||||||
| Provision for income taxes | ( | |||||||||||||||||||||||||||||||
| Total, from continuing operations net of income taxes | ( | |||||||||||||||||||||||||||||||
| Total reclassifications for the period | Total, net of income taxes | $ | $ | ( | ||||||||||||||||||||||||||||
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, including with respect to the effects of COVID-19, impacts from the ongoing war in Ukraine, new or planned features or services, or management strategies, including our portfolio review). You can generally identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Part I – Item 1A: Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as well as in our unaudited condensed consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (“SEC”). We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the unaudited condensed consolidated financial statements and the related notes included in this report.
When we refer to “we,” “our,” “us” or “eBay” in this Quarterly Report on Form 10-Q, we mean the current Delaware corporation (eBay Inc.) and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.
OVERVIEW
Business
eBay Inc. is a global commerce leader, which includes our Marketplace platforms. Founded in 1995 in San Jose, California, eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity. Our technologies and services are designed to provide 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. In 2022, we are focused on our strategic playbook — to understand the customer and their needs; build experiences they will love, at scale; and tell our story in new and different ways.
In 2020 and extending into 2021, there were changes in consumer behavior that resulted in more online shopping driven by the outbreak of a coronavirus and its variants (“COVID-19”). Our Marketplace platforms experienced elevated traffic, acquisition of small business sellers and buyer acquisition due to the impacts of measures taken globally to contain the spread of COVID-19, which were unprecedented and are not expected to recur. As consumer mobility continues to normalize into 2022, we experienced lower traffic in most markets which we expect to continue through the first half of the current year. In addition to the impact of COVID-19, we also experienced softness in international markets during the first quarter of 2022 resulting from geopolitical and macroeconomic events which are uncertain in duration.
On June 24, 2021 we completed the transfer of our Classifieds business to Adevinta ASA (“Adevinta”), and on November 14, 2021 we completed the sale of 80.01% of the outstanding equity interests of eBay Korea LLC, a limited liability company incorporated under the laws of Korea and a wholly owned subsidiary of eBay KTA (“eBay Korea”) to E-mart Inc. and one of its wholly owned subsidiaries (together, “Emart”). The results of our eBay Korea and Classifieds businesses have been presented as discontinued operations in our condensed consolidated statement of income for all periods presented through the respective transaction close dates as the transactions represented a strategic shift in our business that had a major effect on our operations and financial results.
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See “Note 3 — Discontinued Operations” in our condensed consolidated financial statements included elsewhere in this report for additional information.
Presentation
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.
Quarter Highlights
Net revenues decreased 6% to $2,483 million due to a decline in traffic resulting from the normalization of consumer behavior during the three months ended March 31, 2022 compared to the elevated traffic from the impact of COVID-19 during the same period in 2021. This decrease was partially offset by an increase in net revenues due to the completion of the managed payments migration on a global basis by the end of 2021 and the associated higher take rate. FX-Neutral net revenues (as defined above) decreased 5% during the three months ended March 31, 2022 compared to the same period in 2021. Operating margin decreased to 27.9% for the three months ended March 31, 2022 compared to 31.9% for the same period in 2021.
We generated cash flow from continuing operating activities of $629 million during the three months ended March 31, 2022 compared to $948 million in the same period in 2021.
During the three months ended March 31, 2022 we received cash proceeds of $596 million in the aggregate from the sales of shares in Adyen and KakaoBank. We recorded realized losses on the change in fair value of shares sold of $174 million in the aggregate in gain (loss) on equity investments and warrant, net on our condensed consolidated statement of income for the three months ended March 31, 2022.
During the three months ended March 31, 2022, we repaid debt of $750 million consisting of the 3.800% senior notes due March 2022. We also repurchased $1.1 billion of common stock and paid $129 million in cash dividends.
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RESULTS OF OPERATIONS
We have one reportable segment to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our reportable segment is Marketplace, which includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. The accounting policies of our segment are the same as those described in “Note 1 — The Company and Summary of Significant Accounting Policies” in our condensed consolidated financial statements included elsewhere in this report.
Net Revenues
Seasonality
We expect transaction activity patterns on our platforms to mirror general consumer buying patterns and expect that these trends will continue. As we introduce new products and platforms, such as managed payments which was completed by the end of 2021, we expect net revenues to fluctuate. In addition, macroeconomic conditions, such as the ongoing COVID-19 pandemic, also contribute to fluctuations in revenues and margins. The following table presents our total net revenues and the sequential quarterly movements of these net revenues for the periods indicated (in millions, except percentages):
| Quarter Ended | |||||||||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | ||||||||||||||||||||
| 2020 | |||||||||||||||||||||||
| Net revenues | $ | 1,821 | $ | 2,337 | $ | 2,258 | $ | 2,478 | |||||||||||||||
| % change from prior quarter | (4) | % | 28 | % | (3) | % | 10 | % | |||||||||||||||
| 2021 | |||||||||||||||||||||||
| Net revenues | $ | 2,638 | $ | 2,668 | $ | 2,501 | $ | 2,613 | |||||||||||||||
| % change from prior quarter | 6 | % | 1 | % | (6) | % | 4 | % | |||||||||||||||
| 2022 | |||||||||||||||||||||||
| Net revenues | $ | 2,483 | $ | — | $ | — | $ | — | |||||||||||||||
| % change from prior quarter | (5) | % | |||||||||||||||||||||
Net Revenues by Geography
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. The following table presents net revenues by geography for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||
| U.S. | $ | 1,226 | $ | 1,296 | (5) | % | |||||||||||||||||||||||||||||
| Percentage of net revenues | 49 | % | 49 | % | |||||||||||||||||||||||||||||||
| International | 1,257 | 1,342 | (6) | % | |||||||||||||||||||||||||||||||
| Percentage of net revenues | 51 | % | 51 | % | |||||||||||||||||||||||||||||||
| Total net revenues | $ | 2,483 | $ | 2,638 | (6) | % | |||||||||||||||||||||||||||||
Our commerce platforms operate globally, resulting in certain revenues that are denominated in foreign currencies, primarily the British pound and euro. In addition, as shown in the table above, we generate approximately half of our net revenues internationally. Because of these factors, we are subject to the risks related to doing business in foreign countries as discussed in “Part I - Item 1A: Risk Factors” of the 2021 Form 10-K.
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Net revenues included $6 million of hedging gains during the three months ended March 31, 2022 as compared to $28 million of hedging losses during the same period in 2021. The hedging activity in net revenues specifically relates to hedges of net transaction revenues. Foreign currency movements relative to the U.S. dollar had an unfavorable impact of $58 million on net revenues during the three months ended March 31, 2022 compared to a favorable impact of $54 million on net revenues during the same period in 2021.
The effect of foreign currency exchange rate movements during the three months ended March 31, 2022 compared to the same period in 2021 was primarily attributable to the strengthening of the U.S. dollar against the British pound and euro.
Net Revenues by Type
We generate two types of net revenues:
Net transaction revenues primarily include final value fees, feature fees, including fees to promote listings and listing fees from sellers on our 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, including discounts, coupons and rewards, provided to our customers.
Marketing services and other (“MS&O”) revenues consist of revenues principally from the sale of revenue sharing arrangements and advertisements.
The following table presents net revenues by type for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||
| Net transaction revenues | $ | 2,355 | $ | 2,476 | (5) | % | |||||||||||||||||||||||||||||
| MS&O revenues | 128 | 162 | (21) | % | |||||||||||||||||||||||||||||||
| Total net revenues | $ | 2,483 | $ | 2,638 | (6) | % | |||||||||||||||||||||||||||||
Net Transaction Revenues
Key Operating Metrics
Gross Merchandise Volume (“GMV”) and take rate are significant factors that we believe affect our net transaction revenues.
GMV consists of the total value of all paid transactions between users on our platforms during the applicable period inclusive of shipping fees and taxes. Despite GMV’s divergence from revenue, we still believe that GMV provides a useful measure of the overall volume of paid transactions that flow through our platforms in a given period.
Take rate is defined as net transaction revenues divided by GMV and represents net transaction revenue as a percentage of overall volume on our platforms. We believe that take rate provides a useful measure of our ability to monetize volume through marketplace services on our platforms in a given period. We use take rate to identify key revenue drivers on our marketplace.
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Net Transaction Revenues
| Three Months Ended March 31, | % Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | As Reported | FX-Neutral | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
Net transaction revenues (1) | $ | 2,355 | $ | 2,476 | (5) | % | (4) | % | |||||||||||||||||||||||||||||||||||||||
| Supplemental data: | |||||||||||||||||||||||||||||||||||||||||||||||
GMV (2) | $ | 19,409 | $ | 24,127 | (20) | % | (17) | % | |||||||||||||||||||||||||||||||||||||||
| Take rate | 12.14 | % | 10.26 | % | 1.88 | % | |||||||||||||||||||||||||||||||||||||||||
(1) Net transaction revenues were net of $6 million and $28 million hedging activity during the three months ended March 31, 2022 and 2021, respectively.
(2) GMV for the three months ended March 31, 2021 has been retrospectively recast to reflect the new definition of GMV announced in December 2021.
Net transaction revenues decreased $121 million and GMV decreased across major categories primarily due to a decline in traffic resulting from the normalization of consumer behavior during the three months ended March 31, 2022 compared to the elevated traffic experienced on our Marketplace platforms from the impact of COVID-19 during the same period in 2021. Net transaction revenues were also impacted by softness in international markets resulting from geopolitical and macroeconomic events during the three months ended March 31, 2022 compared to the same period in 2021, which are uncertain in duration. The decrease in net transaction revenues was partially offset by the migration to managed payments on a global basis and the associated higher take rate during the three months ended March 31, 2022 compared to the same period in 2021. The migration to managed payments was completed in all markets by the end of 2021, delivering buyers and sellers a simplified end-to-end payments experience.
Transaction take rate was higher during the three months ended March 31, 2022 compared to the same period in 2021 as a result of revenue initiatives such as global payments, which resulted in the majority of global on-platform volume processed through managed payments by the end of 2021.
The 5% decrease in net transaction revenues during the three months ended March 31, 2022 compared to the same period in 2021 was due to take rate considerations discussed above, despite a 20% decline in GMV. We expect that the divergence between net transaction revenues and GMV to continue through the remainder of 2022 and beyond, to a lesser extent. Despite GMV’s divergence from net transaction revenues, we still believe the metric provides a useful measure of overall volume of paid transactions that flow through the platform in a given period.
Marketing Services and Other Revenues
The following table presents MS&O revenues for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | % Change | ||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | As Reported | FX-Neutral | ||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||
| MS&O revenues | $ | 128 | $ | 162 | (21) | % | (20) | % | |||||||||||||||||||||||||||||||||||||||
MS&O revenues decreased during the three months ended March 31, 2022 compared to the same period in 2021 primarily due to decreases in revenues from revenue sharing arrangements for shipping agreements and advertising revenues.
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Cost of Net Revenues
Cost of net revenues represents costs associated with customer support, site operations and payment processing. Significant components of these costs primarily consist of employee compensation including stock-based compensation, contractor costs, facilities costs, depreciation of equipment and amortization expense, bank transaction fees, credit card interchange and assessment fees, authentication costs and digital services tax. The following table presents cost of net revenues for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||
| Cost of net revenues | $ | 689 | $ | 606 | 14 | % | |||||||||||||||||||||||||||||
| Percentage of net revenues | 27.7 | % | 22.9 | % | |||||||||||||||||||||||||||||||
Cost of net revenues, net of immaterial hedging activities, was favorably impacted by $15 million attributable to foreign currency movements relative to the U.S. dollar during the three months ended March 31, 2022 compared to the same period in 2021.
The increase in cost of net revenues during the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to higher payment processing costs incurred for managed payments as we scaled the platform. The migration to managed payments was completed in all markets by the end of 2021.
Operating Expenses
The following table presents operating expenses for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||
| Sales and marketing | $ | 478 | $ | 546 | (13) | % | |||||||||||||||||||||||||||||
| Percentage of net revenues | 19 | % | 21 | % | |||||||||||||||||||||||||||||||
| Product development | 301 | 304 | (1) | % | |||||||||||||||||||||||||||||||
| Percentage of net revenues | 12 | % | 12 | % | |||||||||||||||||||||||||||||||
| General and administrative | 226 | 246 | (8) | % | |||||||||||||||||||||||||||||||
| Percentage of net revenues | 9 | % | 9 | % | |||||||||||||||||||||||||||||||
| Provision for transaction losses | 96 | 88 | 9 | % | |||||||||||||||||||||||||||||||
| Percentage of net revenues | 4 | % | 3 | % | |||||||||||||||||||||||||||||||
| Amortization of acquired intangible assets | 1 | 7 | (85) | % | |||||||||||||||||||||||||||||||
| Total operating expenses | $ | 1,102 | $ | 1,191 | (7) | % | |||||||||||||||||||||||||||||
Foreign currency movements relative to the U.S. dollar had a favorable impact of $28 million on operating expenses during the three months ended March 31, 2022 compared to the same period in 2021. There was no hedging activity within operating expenses.
Sales and Marketing
Sales and marketing expenses primarily consist of advertising and marketing program costs (both online and offline), employee compensation including stock-based 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 decrease in sales and marketing expenses during the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to a decrease in online and offline advertising expenses of $22 million, a decrease in certain user coupons and rewards of approximately $20 million and a favorable impact from foreign currency movements relative to the U.S. dollar of $21 million.
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Product Development
Product development expenses primarily consist of employee compensation including stock-based 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 the implementation of our strategic plan including payment intermediation capabilities, improved seller tools and buyer experiences.
Product development expenses were relatively flat during the three months ended March 31, 2022 compared to the same period in 2021 due to relatively flat employee related costs.
Capitalized internal use and platform development costs were $32 million and $31 million in the three months ended March 31, 2022 and 2021, respectively. These costs are primarily reflected as a cost of net revenues when amortized in future periods.
General and Administrative
General and administrative expenses primarily consist of employee compensation including stock-based 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.
The decrease in general and administrative expenses during the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to restructuring charges of $33 million that did not occur in 2022, partially offset by an increase in charitable contributions of $18 million.
Provision for Transaction Losses
Provision for transaction losses primarily consists of transaction loss expense associated with our buyer protection programs, losses from our managed payments services, 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 during the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to higher chargeback losses of $14 million incurred for managed payments as we scale the platform and higher customer protection program costs of $7 million. These increases were partially offset by lower bad debt expense as a result of fees collected through the managed payments platform of $10 million.
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Gain (Loss) on Equity Investments and Warrant, Net
Gain (loss) on equity investments and warrant, net primarily consists of realized and unrealized gains and losses related to our various types of equity investments, including our equity investments in Adevinta, Adyen, KakaoBank and Gmarket, and gains and losses due to changes in fair value of the warrant received from Adyen. The following table presents gain (loss) on equity investments and warrant, net for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||
| Change in fair value of equity investment in Adevinta | $ | (1,643) | $ | — | ** | ||||||||||||
Change in fair value of equity investment in Gmarket | (182) | — | ** | ||||||||||||||
| Realized change in fair value of shares sold in Adyen | (166) | — | ** | ||||||||||||||
| Unrealized change in fair value of equity investment in Adyen | (80) | — | ** | ||||||||||||||
| Unrealized change in fair value of equity investment in KakaoBank | (91) | — | ** | ||||||||||||||
| Realized change in fair value of shares sold in KakaoBank | (8) | — | ** | ||||||||||||||
| Change in fair value of warrant | (115) | (36) | 219 | % | |||||||||||||
| Gain (loss) on other investments | (6) | — | ** | ||||||||||||||
| Total gain (loss) on equity investments and warrant, net | $ | (2,291) | $ | (36) | ** | ||||||||||||
| Percentage of net revenues | (92) | % | (1) | % | |||||||||||||
** Not meaningful
The increase in gain (loss) on equity method investments and warrant, net during the three months ended March 31, 2022 compared to the same period in 2021 was primarily driven by a $1.6 billion loss from the change in fair value of our equity investment in Adevinta.
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, 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 for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||||||||||||
| Total interest and other, net | $ | (50) | $ | (81) | (38) | % | |||||||||||||||||||||||||||||
| Percentage of net revenues | (2) | % | (3) | % | |||||||||||||||||||||||||||||||
The decrease in interest and other, net expense during the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to lower interest expense and foreign exchange transaction gains.
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Income Tax Provision
The following table presents provision for income taxes for the periods indicated (in millions, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Income tax provision (benefit) | $ | (310) | $ | 156 | |||||||||||||||||||
| Effective tax rate | 18.8 | % | 21.6 | % | |||||||||||||||||||
The decrease in our effective tax rate for the three months ended March 31, 2022 compared to the same period in 2021 was primarily due to lower U.S. taxes on foreign operations and increased research and development credits.
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, we believe it is impractical to determine the amount and timing of these adjustments.
Discontinued Operations
On November 14, 2021, we completed the previously announced sale of 80.01% of the outstanding equity interests of eBay Korea to Emart. We classified the results of our eBay Korea business as discontinued operations in our condensed consolidated statement of income for the periods presented through November 14, 2021.
On June 24, 2021, we completed the previously announced transfer of our Classifieds business to Adevinta. We classified the results of our Classifieds business as discontinued operations in our condensed consolidated statement of income for the periods presented through June 24, 2021.
See “Note 3 — Discontinued Operations” in our condensed consolidated financial statements included elsewhere in this report for additional information.
Non-GAAP Measures of Financial Performance
To supplement our condensed 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.
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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.
The following tables present 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 indicated (in millions, except percentages):
| Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | % Change | |||||||||||||||||||||||||||||||||
| As Reported | Exchange Rate Effect (1)(3) | FX-Neutral (2) | As Reported (4) | As Reported | FX-Neutral | ||||||||||||||||||||||||||||||
| GMV | $ | 19,409 | $ | (566) | $ | 19,975 | $ | 24,127 | (20) | % | (17) | % | |||||||||||||||||||||||
| Net Revenues: | |||||||||||||||||||||||||||||||||||
| Net transaction revenues | $ | 2,355 | $ | (56) | $ | 2,411 | $ | 2,476 | (5) | % | (4) | % | |||||||||||||||||||||||
| Marketing services and other revenues | 128 | (2) | 130 | 162 | (21) | % | (20) | % | |||||||||||||||||||||||||||
| Total net revenues | $ | 2,483 | $ | (58) | $ | 2,541 | $ | 2,638 | (6) | % | (5) | % | |||||||||||||||||||||||
(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) Net transaction revenues were net of $6 million and $28 million of hedging activity during the three months ended March 31, 2022 and 2021, respectively.
(4) GMV for the three months ended March 31, 2021 has been retrospectively recast to reflect the new definition of GMV announced in December 2021.
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Liquidity and Capital Resources
Cash Flows
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In millions) | |||||||||||
| Net cash provided by (used in): | |||||||||||
| Continuing operating activities | $ | 629 | $ | 948 | |||||||
| Continuing investing activities | 1,772 | 267 | |||||||||
| Continuing financing activities | (1,952) | (1,101) | |||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | (18) | (11) | |||||||||
| Net increase in cash, cash equivalents and restricted cash - discontinued operations | (16) | 24 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 415 | $ | 127 | |||||||
Continuing Operating Activities
Our operating cash flows arise primarily from cash received from our customers on our platforms offset by cash payments for sales and marketing, employee compensation and payment processing expenses.
Cash provided by continuing operating activities of $629 million in the three months ended March 31, 2022 compared to cash provided by continuing operating activities of $948 million in the three months ended March 31, 2021 was primarily attributable to a decrease in operating income from continuing operations of $149 million. The decrease in operating income was driven by a decrease in net revenues during the three months ended March 31, 2022 compared to the elevated traffic from the impact of COVID-19 during the same period in 2021, as noted in our comments on “Net Transaction Revenues.” The remaining changes in continuing operating cash flows are attributable to working capital movements and changes in non-cash items.
Continuing Investing Activities
Cash provided by continuing investing activities of $1.8 billion in the three months ended March 31, 2022 was primarily attributable to proceeds of $6.8 billion from the maturities and sales of investments and proceeds of $500 million in the aggregate from the sales of shares in Adyen and KakaoBank, partially offset by cash paid for investments of $5.5 billion and property and equipment of $83 million.
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.
Continuing Financing Activities
Cash used in continuing financing activities of $2.0 billion in the three months ended March 31, 2022 was primarily attributable to cash paid to repurchase $1.1 billion of common stock, debt repayments of $750 million related to our 3.800% senior fixed rate notes due 2022 that were redeemed and $129 million paid in cash dividends.
The positive effect of exchange rate movements on cash, cash equivalents and restricted cash was due to the strengthening of the U.S. dollar against other currencies during the three months ended March 31, 2022 compared to the 2021 year-end rate.
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Liquidity and Capital Resource Requirements
As of March 31, 2022 and December 31, 2021, we had assets classified as cash and cash equivalents, as well as short-term and long-term non-equity investments from continuing operations, in an aggregate amount of $6.3 billion and $7.3 billion, respectively. We believe that our 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 satisfy our material cash requirements over the next 12 months and for the foreseeable future.
However, geopolitical and macroeconomic events including COVID-19 and related measures to contain its impact have caused material disruptions in both U.S. and international financial markets and economies and are uncertain in duration. The future impact of these events cannot be predicted with certainty and may increase our borrowing costs and other costs of capital and otherwise adversely affect our business, results of operations, financial condition and liquidity, and we cannot assure that we will have access to external financing at times and on terms we consider acceptable, or at all, or that we will not experience other liquidity issues going forward.
Senior Notes
As of March 31, 2022, we had floating- and fixed-rate senior notes outstanding for an aggregate principal amount of $8.4 billion, with $1.8 billion payable within 12 months. The net proceeds from the issuances of these senior notes are used for general corporate purposes, including, among other things, capital expenditures, share repurchases, repayment of indebtedness and possible acquisitions.
On February 9, 2022, the company redeemed the $750 million aggregate principal amount of the 3.800% senior notes due March 2022. Total cash consideration paid was $750 million, as the redemption price was equal to 100% of the principal amount. In addition, we paid accrued and unpaid interest on the principal amount.
Subsequent to March 31, 2022, the company redeemed the $605 million aggregate principal amount of the 2.600% senior notes due 2022. Total cash consideration paid was $605 million, as the redemption price was equal to 100% of the principal amount. In addition, we paid accrued and unpaid interest on the principal amount.
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 March 31, 2022, there were no commercial paper notes outstanding.
Credit Agreement
In March 2020, we entered into a credit agreement that provides for an unsecured $2 billion five-year credit facility. We may also, subject to the agreement of the applicable lenders, increase commitments under the revolving credit facility by up to $1 billion. Funds borrowed under the credit agreement may be used for working capital, capital expenditures, acquisitions and other general corporate purposes. As of March 31, 2022, no borrowings were outstanding under our $2 billion credit agreement.
Credit Ratings
As of March 31, 2022, 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) and Moody’s Investor Service (long-term rated Baa1, short-term rated P-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 actions taken by these credit rating agencies to lower our credit ratings, as described above, will likely increase our borrowing costs.
We were in compliance with all financial covenants in our outstanding debt instruments for the three months ended March 31, 2022. For additional details related to our debt, please see “Note 8 — Debt” to the condensed consolidated financial statements included in this report.
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Income Taxes
As of March 31, 2022, our assets classified as cash and cash equivalents, and short-term and long-term non-equity investments from continuing operations included assets held in certain of our foreign operations totaling approximately $2.4 billion. 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 on those amounts during the period when such repatriation occurs. We have accrued deferred taxes for the tax effect of repatriating the funds to the U.S.
For additional details related to our income taxes, please see “Income Tax Provision” in our Results of Operations above and “Note 13 — Income Taxes” to the condensed consolidated financial statements included in this report.
Stock Repurchases
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.
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, the impacts of the COVID-19 pandemic, price and other market conditions and management’s determination as to the appropriate use of our cash.
During the three months ended March 31, 2022, we repurchased approximately $1.25 billion of our common stock under our stock repurchase programs inclusive of $181 million of unsettled shares as of March 31, 2022, which were subsequently settled in the second quarter of 2022. In February 2022 our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization. As of March 31, 2022, a total of approximately $4.7 billion remained available for future repurchases of our common stock under our stock repurchase programs. See “Note 11 — Stockholders’ Equity” to the condensed consolidated financial statements included in this report for more information about our stock repurchase programs.
Dividends
The Company paid a total $129 million and $122 million in cash dividends during the three months ended March 31, 2022 and 2021, respectively. In May 2022, our Board of Directors declared a cash dividend of $0.22 per share of common stock to be paid on June 17, 2022 to stockholders of record as of June 1, 2022.
Other Capital Resource Requirements
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, including, without limitation, as a result of the impact of the COVID-19 pandemic. 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.
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We have a cash pooling arrangement with a financial institution for cash management purposes. As of March 31, 2022, we had a total of $1.5 billion in aggregate cash deposits, partially offset by $1.3 billion in cash withdrawals, held within the financial institution under the cash pooling arrangement. See “Note 10 — Commitments and Contingencies” to the condensed consolidated financial statements included in this report for more information about our cash pooling arrangement.
We have entered into various indemnification agreements and, 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. It is not possible to determine the maximum potential loss under these various 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 condensed consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively. See “Note 10 — Commitments and Contingencies” to the condensed consolidated financial statements included in this report for more information about our indemnification provisions.
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Item 3: 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 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.
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 March 31, 2022, approximately 16% 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 market 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 March 31, 2022, the balance of our corporate debt and government bond securities was $4.5 billion, which represented approximately 39% 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 $38 million and $4 million as of March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022, we had an aggregate principal amount of $8.4 billion of outstanding senior notes, of which 95% bore interest at fixed rates. During 2020, we began to hedge the variability of the cash flows in interest payments associated with our floating-rate debt using interest rate swaps. These interest rate swap agreements effectively convert our LIBOR-based floating-rate debt to a fixed-rate basis, reducing the impact of interest-rate changes on future interest expense. The total notional amount of these interest swaps was $400 million as of March 31, 2022 with terms calling for us to receive interest at a variable rate and to pay interest at a fixed rate. Our interest rate swap contracts have maturity dates in 2023. At March 31, 2022, we did not have an unhedged balance on our floating-rate debt. We considered the historical volatility of short-term interest rates and determined that it was reasonably possible that an adverse change of 100 basis points could be experienced in the near term. A hypothetical 1% (100 basis points) decrease in interest rates would have resulted in a decrease in the fair values of our floating to fixed rate interest swaps of approximately $3 million at March 31, 2022.
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 8 — Debt” to the condensed consolidated financial statements included in this report.
Equity Price Risk
Equity investments
On June 24, 2021, we completed the transfer of our Classifieds business to Adevinta. Upon completion of the transfer we received an equity interest in Adevinta. The equity investment is accounted for under the fair value option and changes in Adevinta’s stock price and equity volatility may have a significant impact on the value of our equity investment in Adevinta. As of March 31, 2022, a one dollar change in Adevinta’s common stock, holding other factors constant, would increase or decrease the fair value of the investment by approximately $405 million.
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In August 2021, KakaoBank completed its initial public offering which resulted in this investment having a readily determinable fair value. Previously this investment was accounted for as an equity investment without a readily determinable fair value. Valuation of equity investments with readily determinable fair values can be obtained from real time quotes in active markets. Changes in KakaoBank’s stock price and equity volatility may have a significant impact on the value of our equity investment in KakaoBank. As of March 31, 2022, a one dollar change in KakaoBank’s common stock, holding other factors constant, would increase or decrease the fair value of the investment by approximately $13 million.
As further described in the “Warrant” section below, we entered into a warrant agreement in conjunction with a commercial agreement with Adyen that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of Adyen’s fully diluted issued and outstanding share capital at a specific date. In 2021, we met the processing volume milestone target to vest the first tranche of the warrant. Upon vesting of the first tranche, we exercised the option to purchase shares of Adyen. Our equity investment in Adyen is accounted for as an equity investment with a readily determinable fair value. Changes in Adyen’s common stock price and equity volatility may have a significant impact on the value of the investment. As of March 31, 2022, a one dollar change in Adyen’s common stock, holding other factors constant, would increase or decrease the fair value of the investment by approximately $0.1 million.
Our remaining equity investments are primarily investments in privately-held companies, including equity method investments, equity investments under the fair value option and equity investments without readily determinable fair values. Our consolidated results of operations include, as a component of gain (loss) on equity investments and warrant, net, our share of the net income or loss of the equity investments accounted for under the equity method of accounting and the change in fair value of the equity investments under the fair value option. 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 gain (loss) on equity investments and warrant, net.
As of March 31, 2022, our equity investments totaled $5.2 billion, which represented approximately 45% of our total cash and investments, and primarily related to our equity investment in Adevinta.
For additional details related to these investments, please see “Note 5 — Investments” to our condensed consolidated financial statements included in this report.
Warrant
We entered into a warrant agreement in conjunction with a commercial agreement with Adyen that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of Adyen’s fully diluted issued and outstanding share capital at a specific date. As discussed above, in 2021 we met the processing volume milestone target to vest the first tranche of the warrant, and we exercised the option to purchase shares of Adyen. The remaining tranches of the warrant are accounted for as a derivative instrument under ASC Topic 815, Derivatives and Hedging. Changes in Adyen’s common stock price and equity volatility may have a significant impact on the value of the warrant. As of March 31, 2022, a one dollar change in Adyen’s common stock, holding other factors constant, would increase or decrease the fair value of the warrant by approximately $0.2 million. For additional details related to the warrant, please see “Note 6 — Derivative Instruments” to our condensed 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 British pound and euro, 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 and results of operations 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.
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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 condensed 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 or net investment hedge accounting, as applicable. For additional details related to our derivative instruments, please see “Note 6 — Derivative Instruments” to our condensed 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 and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. For contracts not designated for hedge accounting, the derivative’s gain or loss is recognized immediately in earnings in our condensed 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 the before-tax effect on fair values of a hypothetical adverse change in the foreign exchange rates that existed as of March 31, 2022. 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 | $ | 100 | $ | (164) | |||||||
| Foreign exchange contracts - Not designated for hedge accounting | $ | 14 | $ | (146) | |||||||
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.
We also 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.
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 $30 million as of March 31, 2022 taking into consideration the offsetting effect of foreign exchange forwards in place as of March 31, 2022.
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Item 4: Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in 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 March 31, 2022.
(b) Changes in internal controls. There were no changes in our internal control over financial reporting as defined in Exchange Act Rules 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.
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PART II: OTHER INFORMATION
Item 1: Legal Proceedings
The information set forth under “Note 10 — Commitments and Contingencies — Litigation and Other Legal Matters” to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A: Risk Factors
Risk Factors:
We are subject to various risks and uncertainties that may affect our business, results of operations and financial condition including not limited to, those described in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). Current global economic and geopolitical events and conditions may amplify many of these risks. These risks are not the only risks that may affect us. Additional risks that we are not aware of or do not believe are material at the time of this filing may also become important factors that adversely affect our business. There have been no material changes to the Company’s risk factors since the 2021 Form 10-K.
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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Stock repurchase activity during the three months ended March 31, 2022 was as follows:
| Period Ended | Total Number of Shares Purchased | Average Price Paid per Share (3) | Total Number of Shares Purchased as Part of Publicly Announced Programs | Maximum Dollar Value that May Yet be Purchased Under the Programs (2) | ||||||||||||||||||||||
| January 31, 2022 | ||||||||||||||||||||||||||
| Open market purchases | 3,880,050 | $ | 62.35 | 3,880,050 | $ | 1,749,254,297 | ||||||||||||||||||||
| Accelerated share repurchase | 3,333,522 | (1) | $ | — | (1) | 3,333,522 | $ | 1,749,254,297 | ||||||||||||||||||
| February 28, 2022 | ||||||||||||||||||||||||||
| Open market purchases | — | $ | — | — | $ | 1,749,254,297 | ||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||||||||
| Open market purchases | 17,918,622 | $ | 56.25 | 17,918,622 | $ | 4,741,254,406 | ||||||||||||||||||||
| 25,132,194 | 25,132,194 | |||||||||||||||||||||||||
(1)In October 2021, we entered into accelerated share repurchase agreements (the “2021 ASR Agreements”) with two financial institutions (each, a “2021 ASR Counterparty”), as part of our share repurchase program. In January 2022, the 2021 ASR Agreements with the remaining 2021 ASR Counterparty settled and resulted in a delivery of approximately 3.3 million additional shares. In total under the 2021 ASR Agreements, approximately 36.0 million shares were repurchased at an average price per share of $69.43.
(2)In August 2021 our Board authorized an additional $3.0 billion stock repurchase program and in February 2022 our Board authorized an additional $4.0 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 the three months ended March 31, 2022, we repurchased approximately $1.25 billion of our common stock under our stock repurchase programs. As of March 31, 2022, a total of approximately $4.7 billion remained available for future repurchases of our common stock under our stock repurchase programs.
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.
(3)Excludes broker commissions.
Item 3: Defaults Upon Senior Securities
Not applicable.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
Not applicable.
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Item 6: Exhibits
The information required by this Item is set forth in the Index to Exhibits of this Quarterly Report.
INDEX TO EXHIBITS
| Exhibit Number | Filed or furnished with this 10-Q | Description | ||||||||||||
| 10.01+ | X | |||||||||||||
| 10.02+ | X | |||||||||||||
| 10.03+ | X | |||||||||||||
| 10.04+ | X | |||||||||||||
| 31.01 | X | |||||||||||||
| 31.02 | X | |||||||||||||
| 32.01 | X | |||||||||||||
| 32.02 | X | |||||||||||||
| 101.INS | X | Inline 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) | ||||||||||||
| 101.SCH | X | Inline XBRL Taxonomy Extension Schema Document | ||||||||||||
| 101.CAL | X | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||
| 101.DEF | X | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||
| 101.LAB | X | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||
| 101.PRE | X | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||
| 104 | X | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||||
+ Indicates a management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| eBay Inc. | |||||||||||
| Principal Executive Officer: | |||||||||||
| By: | /s/ Jamie Iannone | ||||||||||
| Jamie Iannone | |||||||||||
| Chief Executive Officer | |||||||||||
| Date: | May 5, 2022 | ||||||||||
| Principal Financial Officer: | |||||||||||
| By: | /s/ Steve Priest | ||||||||||
| Steve Priest | |||||||||||
| Chief Financial Officer | |||||||||||
| Date: | May 5, 2022 | ||||||||||
| Principal Accounting Officer: | |||||||||||
| By: | /s/ Brian J. Doerger | ||||||||||
| Brian J. Doerger | |||||||||||
| Vice President, Chief Accounting Officer | |||||||||||
| Date: | May 5, 2022 | ||||||||||
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Exhibit 10.01
 | eBay Inc. 2065 Hamilton Ave. San Jose, CA 95125 U.S.A. Company Tax ID: 77-043092 | ||||
Performance Based Restricted Stock Unit Award Grant Notice (“Grant Notice”)
and Performance Based Restricted Stock Unit Award Agreement
and Performance Based Restricted Stock Unit Award Agreement
| [●] [●] [●] [●] | Award Number: Plan: Type: | [●] [●]PBRSU | ||||||
Effective as of [●](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 [●] 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, the Plan, and any applicable sub-plan to the Plan for Participant’s country, 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 applicable performance periods beginning and ending on the dates set forth in Appendix A (each, a “Performance Period” and together, the “Performance Periods”). 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, any applicable sub-plan to the Plan for Participant’s country, 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, any applicable sub-plan to the Plan for Participant’s country, 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
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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, any applicable sub-plan to the Plan for Participant’s country, and this Grant Notice, including Exhibits A and B.
| eBay Inc. | Date | |||||||
[●], 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
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 Appendix A (each, a “Vesting Date”) (and in no event later than 60 days following 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,
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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 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
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(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 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 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.
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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 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;
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(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 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.
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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, 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.
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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.
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APPENDIX A
TO PERFORMANCE BASED RESTRICTED STOCK UNIT AWARD GRANT NOTICE
Performance-Based Vesting Conditions
TO PERFORMANCE BASED RESTRICTED STOCK UNIT AWARD GRANT NOTICE
Performance-Based Vesting Conditions
1.Performance Periods. Achievement of the [_____] (as defined below) Performance Goal and the [_____] (as defined below) Performance Goal (together, the “Core Metric Performance Goals”) shall be measured over the following three, one-year performance periods (each a “Core Metric Performance Period” and, together, the “Core Metric Performance Periods”): (a) calendar year [●] (the “First Core Metric Performance Period”), calendar year [●] (the “Second Core Metric Performance Period”), and calendar year [●] (the “Third Core Metric Performance Period”). Achievement of the [_____] (as defined below) Performance Goal shall be measured over the following three, one-year performance periods (each an “[_____] Modifier Performance Period”): (a) calendar year [●] (the “First [_____] Modifier Performance Period”), calendar year [●] (the “Second [_____] Modifier Performance Period”), and calendar year [●] (the “Third [_____] Modifier Performance Period”). The Performance Period with respect to which the achievement of the Relative TSR (as defined below) Performance Goal is measured and determined shall commence on March 15, [●] and end on March 14, [●] (the “TSR Modifier Performance Period”).
2.Determination of Performance; Vesting and Settlement of PBRSUs. As soon as reasonably practicable following the completion of a Performance Period, the Committee shall determine, as of the completion of the Performance Period, the extent to which the Performance Goal relating to that Performance Period has been achieved. Subject to Participant’s continuous service with the Company or a Subsidiary through the Vesting Date set forth below, and subject to Section 16 of the Agreement, Participant will vest in a number of PBRSUs determined based on the extent to which the Performance Goals are achieved during the applicable Performance Periods (the “Earned PBRSUs”). Except as otherwise provided in Section 4 below, Participant will vest in 100% of any Earned PBRSUs on March 15, [●] (the “Vesting Date”), subject to the terms of the Plan and the Award Agreement.
Any portion of the Award that does 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. Attainment of the Performance Goals shall be determined and certified by the Committee in writing prior to the settlement of the Award. In no event shall the Company deliver any Shares to Participant later than 60 days following the date the applicable portion of the Award vests.
3.Calculation of Earned PBRSUs and Performance Goals. Subject to the terms of the Grant Notice (including the Agreement) and the Plan, 50% of the Award shall be based on [_____] (as defined below) during the Core Metric Performance Periods and 50% of the Award shall be based on [_____] (as defined below) during the Core Metric Performance Periods, as set forth below, with the “Percentage of Target Shares Earned” (as that term is used in the following tables) in each of the three Core Metric Performance Periods adjusted based on [_____] performance during the corresponding [_____] Modifier Performance Period. The average of such Target Shares Earned over the three, one-year Core Metric Performance Periods will then be further adjusted by the Company’s Relative TSR performance over the TSR Modifier Performance Period.
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The percentage of the Award earned with respect to each of the Performance Goals shall be determined using straight-line interpolation between the specified performance levels. None of the PBRSUs with respect to a Core Metric Performance Goal shall be earned for performance below the “threshold” performance level.
First Core Metric Performance Period and First [_____] Modifier Performance Period
a.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | [●]% of Target | 25% | ||||||
| Target | $[●] | 50% | ||||||
| Maximum | [●]% of Target | 100% | ||||||
b.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | [●]% of Target | 25% | ||||||
| Target | $[●] | 50% | ||||||
| Maximum | [●]% of Target | 100% | ||||||
c.[_____] Modifier. The number of PBRSUs determined pursuant to Sections 3(a) and 3(b) above shall be adjusted by multiplying such number of PBRSUs by the [_____] Modifier (as defined below), which shall be determined in accordance with the schedule set forth below based on the [_____] performance during the First [_____] Modifier Performance Period. The resulting amount shall be referred to as the “[●] Core Metric Percentage of Target Shares Earned.”
| Performance Levels | [_____] * | [_____] Multiplier | ||||||
| Threshold | ≤ [●]% of Target | .85 multiplier | ||||||
| Target | [●]% | No adjustment | ||||||
| Maximum | ≥ [●]% of Target | 1.15 multiplier | ||||||
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The modifier shall be determined using straight-line interpolation between the specified performance levels.
Second Core Metric Performance Period and Second [_____] Modifier Performance Period1
d.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | $[TBD] | 25% | ||||||
| Target | $[TBD] | 50% | ||||||
| Maximum | $[TBD] | 100% | ||||||
e.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | $[TBD] | 25% | ||||||
| Target | $[TBD] | 50% | ||||||
| Maximum | $[TBD] | 100% | ||||||
f.[_____] Modifier. The number of PBRSUs determined pursuant to Sections 3(d) and 3(e) above shall be adjusted by multiplying such number of PBRSUs by the Second [_____] Modifier (as defined below), which shall be determined in accordance with the schedule set forth below based on the [_____] performance during the [_____] Modifier Performance Period. The resulting amount shall be referred to as the “[●] Core Metric Percentage of Target Shares Earned.”
| Performance Levels | [_____] * | [_____] Multiplier | ||||||
| Threshold | ≤TBD% | .85 multiplier | ||||||
| Target | TBD % | No adjustment | ||||||
| Maximum | ≥TBD % | 1.15 multiplier | ||||||
The modifier shall be determined using straight-line interpolation between the specified performance levels.
1 Performance Goals for the [●] Performance Periods to be determined by the Compensation and Human Capital Committee.
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Third Core Metric Performance Period and Third [_____] Modifier Performance Period2
g.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | $[TBD] | 25% | ||||||
| Target | $[TBD] | 50% | ||||||
| Maximum | $[TBD] | 100% | ||||||
h.[_____] Performance Goal
| Performance Levels | Performance Goal: [_____] ($ Billions) | Percentage of Target Shares Earned | ||||||
| Threshold | $[TBD] | 25% | ||||||
| Target | $[TBD] | 50% | ||||||
| Maximum | $[TBD] | 100% | ||||||
i.[_____] Modifier. The number of PBRSUs determined pursuant to Sections 3(g) and 3(h) above shall be adjusted by multiplying such number of PBRSUs by the Third [_____] Modifier (as defined below), which shall be determined in accordance with the schedule set forth below based on the [_____] performance during the [_____] Modifier Performance Period. The resulting amount shall be referred to as the “[●] Core Metric Percentage of Target Shares Earned.”
| Performance Levels | [_____] * | [_____] Multiplier | ||||||
| Threshold | ≤TBD% | .85 multiplier | ||||||
| Target | TBD % | No adjustment | ||||||
| Maximum | ≥TBD % | 1.15 multiplier | ||||||
The modifier shall be determined using straight-line interpolation between the specified performance levels.
The sum of the (i) [●] Core Metric Percentage of Target Shares Earned, (ii) [●] Core Metric Percentage of Target Shares Earned and (iii) [●] Core Metric Percentage of Target Shares Earned, divided by three, is referred to as the “Average Percentage of Target Shares Earned.”
2 Performance Goals for the [●] Performance Periods to be determined by the Compensation and Human Capital Committee.
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j.Relative TSR Modifier. The Average Percentage of Target Shares Earned determined as described above shall be further adjusted by multiplying such amount by the Relative TSR Modifier (as defined below), which shall be determined in accordance with the schedule set forth below based on the Relative TSR performance during the TSR Modifier Performance Period; provided, however, that if the Company’s TSR during the TSR Modifier Performance Period is negative, the Relative TSR Modifier shall in no event be greater than “No adjustment.”
| Performance Levels | Relative TSR Percentile | Relative TSR Modifier | ||||||
| Threshold | ≤25th | .85 multiplier | ||||||
| Target | 50th | No adjustment | ||||||
| Maximum | ≥75th | 1.15 multiplier | ||||||
The modifier shall be determined using straight-line interpolation between the specified performance levels.
4.Change in Control; Qualifying Termination. If a Change in Control occurs before a Performance Period has been completed, notwithstanding anything to the contrary in the eBay Inc. Change in Control Severance Plan for Key Employees (the “CIC Severance Plan”), then on and after the date of the Change in Control, the Performance Goal relating to that Performance Period shall be deemed to have been achieved at the “Target” level. For clarity, if a Change in Control occurs upon or after completion of a Performance Period, but before the Award vests, the level of achievement for the Performance Goal relating to the completed Performance Period shall be based on actual achievement over the completed Performance Period. For example, if a Change in Control were to occur in calendar year 2023, the level of achievement would be determined based on actual results in the First Core Metric Performance Period and First [_____] Modifier Performance Period, and “Target” results for the remaining uncompleted Performance Periods. After a Change in Control, the Award shall no longer be subject to performance-based vesting conditions and the number of Earned PBRSUs determined pursuant to the preceding sentence shall remain unvested, with vesting subject to Participant’s continued service with the Company or a Subsidiary through the Vesting Date, except as otherwise provide in the CIC Severance Plan. Additionally, unless provided otherwise in Participant’s offer letter or similar employment letter or agreement, if Participant’s employment terminates before the occurrence of a Change in Control (other than due to Participant’s death or Disability (as that term is defined in the eBay Inc. SVP and Above Standard Severance Plan (the “Standard Severance Plan”))) for any reason that entitles Participant to severance benefits under the Standard Severance Plan, (i) if the termination occurs before completion of the First Core Metric Performance Period, the Award will be forfeited and (ii) if the termination occurs upon or after completion of the First Core Metric Performance Period but before the Vesting Date, Participant shall vest on the Vesting Date in a number of PBRSUs equal to the product of (x) multiplied by (y), where (x) is the total number of Earned PBRSUs determined based on actual results in all Performance Periods and (y) is a fraction, the numerator of which is the number of days Participant was employed during the Core Metric Performance Periods (January 1, [●] – December 31, [●]) through and including the date of termination, plus [365]3 (provided that the numerator shall in no event exceed 1,095) and (y) is 1,095. Unless provided otherwise in Participant’s offer letter or similar employment letter or agreement, if Participant’s employment terminates before the occurrence of a Change in Control due to Participant’s death or Disability (as that term is defined in the Standard Severance
3 730 for the CEO and 548 for the CFO
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Plan) and upon or after completion of the First Core Metric Performance Period, the terms of the Standard Severance Plan shall apply; provided, that, notwithstanding anything to the contrary in the Standard Severance Plan (1) if the termination occurs on or after completion of the First Core Metric Performance Period, the Award will vest as described in the Standard Severance Plan regardless of whether the termination occurs more than 24 months before the Vesting Date, and (2) vesting shall be based on the actual level of achievement with respect to any completed Performance Periods (e.g., if the termination occurs during the Second Core Metric Performance Period, vesting will be based on the actual level of achievement in the First Core Metric Performance Period and the First [_____] Modifier Performance Period, and deemed achievement of “Target” performance in all other Performance Periods).
5.Definitions. For the purpose of this Appendix A, the following terms shall be defined as follows:
a.“Beginning Stock Price” means the average closing price of a share of common stock of a company, as reported on the principal national stock exchange on which such common stock is traded, over the 30 consecutive trading days immediately preceding the first day of the TSR Modifier Performance Period.
b.“Dividends Paid” means all dividends paid with respect to an ex-dividend date that occurs during the TSR Modifier Performance Period (whether or not the dividend payment date occurs during the TSR Modifier Performance Period), which shall be deemed to have been reinvested in the underlying common shares and shall include dividends paid with respect to such reinvested dividends, appropriately adjusted to reflect stock splits, spinoffs, and similar transactions.
c.“Ending Stock Price” means the average closing price of a share of common stock of a company, as reported on the principal national stock exchange on which such common stock is traded, over the 30 consecutive trading days ending on (and including) the last day of the TSR Modifier Performance Period.
d.“[_____]” means [_____], as determined in accordance with GAAP and reported in the Company’s audited financial statements, as adjusted to disregard (i) the effects of changes in foreign exchange rates and (ii) the impact of extraordinary and nonrecurring gains, losses and expenses as determined by the Compensation Committee.
e. “[_____]” means [_____], as reported in the Company’s audited financial statements (expressed as a dollar value), as adjusted to disregard the effects of extraordinary and nonrecurring gains, losses and expenses as determined by the Compensation Committee.
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f.“Relative TSR Percentile” means the percentile rank of the Company’s TSR relative to the TSR of the companies in the [_____] Index for the TSR Modifier Performance Period. Relative TSR Percentile will be determined by ranking the TSR of the Company and each of the companies in the [_____] Index (with the company having the lowest TSR being ranked number 1, the company with the second lowest TSR being ranked number 2, and so forth) and determining the Company’s percentile rank based upon its position in the list by dividing the Company’s position by the total number of companies (including the Company) in the [_____] Index and rounding the quotient to the nearest hundredth.
g. “[_____]” means [_____].
h. “TSR” means, for any company, the cumulative total shareholder return for the TSR Modifier Performance Period as measured by dividing (A) the sum of (i) the cumulative amount of Dividends Paid, and (ii) the Ending Stock Price minus the Beginning Stock Price, by (B) the Beginning Stock Price.
i. “[_____] Index” means the companies that are included in the [_____] Index on the first day of the TSR Modifier Performance Period. If any of the companies included in the [_____] Index undergo transactions or other changes during the TSR Modifier Performance Period, the following treatment shall apply or, if the transaction or other change is not covered by the list included below, the Compensation and Human Capital Committee of the Board of Directors of the Company (the “Committee”) shall determine the treatment of such transaction or other change in its discretion:
•Company 1 merges with or acquires Company 2 where Company 1 is surviving entity, then Company 1 is included and Company 2 is removed.
•Company merges with or acquires a Non- Company where Company is surviving entity, then Company is included.
• Company merges with or acquires a Non- Company where Company is not surviving entity, then Company is removed.
• Company declares bankruptcy, then Company is included with a TSR of -100%.
• Company spins out a portion of business but the parent company in the spinoff remains the same Company, then Company is included.
• Company spins out a portion of business and spun out entity replaces Company in the [_____] Index, then Company is removed.
• Company’s Ticker Changes, then Company is included.
• Company merges with or acquires another Company where entirely new company is established, then the Committee has discretion regarding whether to include or remove the new company.
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Exhibit 10.02
 | eBay Inc. 2065 Hamilton Ave. San Jose, CA 95125 U.S.A. Company Tax ID: 77-043092 | ||||
Notice of Grant of Stock Option (the “Grant Notice”) and
Stock Option Agreement
[INSERT NAME] [INSERT ADDRESS] [INSERT ADDRESS] | Award Number: Plan: Type: | [INSERT NUMBER] 2008 NQ | ||||||
Effective as of [INSERT 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”) a Non-Qualified Stock Option award (the “Option”) to purchase [INSERT NUMBER] shares of Stock at US$[INSERT PRICE] per share (the “Exercise Price”). This Option is subject to all of the terms and conditions set forth in this Grant Notice, the Stock Option 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, and any applicable sub-plan to the Plan for Participant’s country, 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.
Subject to Participant’s continuous service with the Company or a Subsidiary, Participant will vest in a number of shares of Stock subject to the Option on the vesting dates set forth in Appendix A (the “Vesting Dates”), determined based on the extent to which the performance goals set forth in Appendix A (each a “Performance Goal” and together the “Performance Goals”) are achieved during the performance periods beginning and ending on the dates set forth in Appendix A. Any portion of the Option that does not vest based on the achievement of the Performance Goal and Participant’s continued service shall be forfeited by Participant and cancelled by the Company. 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 the Participant’s signature and the Company’s signature below, the Participant agrees to be bound by the terms and conditions of the Plan, any applicable sub-plan to the Plan for Participant’s country, and this Grant Notice which includes Exhibit A (the Agreement) and Exhibit B (the special provisions for Participant’s country, if any). The Participant has reviewed and fully understands all provisions of the Plan, any applicable sub-plan to the Plan for Participant’s country, 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. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Company upon any questions arising under the Plan, any applicable sub-plan to the Plan for Participant’s country, and this Grant Notice, including Exhibits A and B.
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| eBay Inc. | Date | |||||||
| [INSERT NAME] | Date | |||||||
2
EXHIBIT A
to Notice of Grant of Stock Option
under the eBay Inc. 2008 Equity Incentive Award Plan
Stock Option Agreement
(Non-Qualified Stock Option)
Pursuant to the Notice of Grant of Stock Options (the “Grant Notice”) to which this Non-Qualified Stock Option Agreement (this “Agreement”) is attached, eBay Inc., a Delaware corporation (the “Company”), has granted to the Participant an option under the Company’s 2008 Equity Incentive Award Plan (the “Plan”) to purchase the number of shares of Stock indicated in the Grant Notice. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice, as applicable. The Option 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.
GRANT OF OPTION
1.1 Grant of Option. Effective as of the Grant Date set forth in the Grant Notice (the “Grant Date”), the Company grants to the Participant the Option to purchase any part or all of an aggregate of the number of shares of Stock set forth in the Grant Notice, upon the terms and conditions set forth in the Plan, this Agreement and the Grant Notice (including all exhibits thereto).
1.2 Exercise Price. The Exercise Price of the shares of Stock subject to the Option shall be as set forth in the Grant Notice; provided, however, that the price per share of the shares of Stock subject to the Option shall not be less than 100% of the Fair Market Value of a share of Stock on the Grant Date.
PERIOD OF EXERCISABILITY
2.1 Commencement of Exercisability. Subject to Sections 2.2, 2.3, 4.13 and 4.15 of this Agreement, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice (including Appendix A, which is hereby incorporated herein by reference).
2.2 Effect of Termination of Service on Exercisability.
(a)No portion of the Option which has not become vested and exercisable as of the date of the Participant’s Termination of Service shall thereafter become vested and exercisable, as further described in Section 4.5(l) below.
(b)In the event of the Participant's Termination of Service for any reason except the Participant's death, Disability or for Cause, the portion of the Option which has become vested and exercisable as of the date of the Participant's Termination of Service may be exercised by the Participant for a period of three (3) months as measured from the date of Termination of Service, as further described in Section 4.5(l) below.
(c)In the event of the Participant's Termination of Service because of death or Disability (or in the event the Participant dies within three (3) months after Termination of Service other than for Cause or because of Disability), the portion of the Option which has become vested and exercisable as of the date of the Participant's Termination of Service may be exercised by the Participant (or by the Participant's personal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution, in the case of the Participant's death) for a period of one (1) year as measured from the date of Termination of Service.
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(d)In the event of the Participant's Termination of Service for Cause or for a reason that is comparable to Cause under local law as determined by the Committee at its sole discretion, this Option will expire on the date of the Participant's Termination of Service, as further described in Section 4.5(l) below, and no portion of the Option may be exercised thereafter. For purposes of this provision, "Cause" shall mean any of the following: the commission of an act of theft, embezzlement, fraud, dishonesty, material violation of corporate policy, or a breach of fiduciary duty to the Company or a Subsidiary. The Company shall have the sole discretion to determine whether any Participant has been terminated for Cause, and its decision shall be final and binding.
(e)Notwithstanding the above provisions, no portion of the Option may be exercised by anyone after the expiration of the Option described in Section 2.3(a) below.
2.3 Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:
(a)The expiration of ten (10) years from the Grant Date;
(b)The expiration of three (3) months from the date of the Participant’s Termination of Service, unless such termination occurs by reason of the Participant’s death or Disability or for Cause;
(c)The expiration of one (1) year from the date of the Participant’s Termination of Service by reason of the Participant’s death or Disability; or
(d)The date of the Participant’s Termination of Service for Cause.
EXERCISE OF OPTION
3.1 Person Eligible to Exercise. During the Participant’s lifetime, only the Participant may exercise the Option or any portion thereof. After the death of the Participant, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 2.3 above, be exercised by the Participant’s personal representative or by any person empowered to do so under the deceased Participant’s will or under the then applicable laws of descent and distribution.
3.2 Manner of Exercise. The Option, or any exercisable portion thereof, may be exercised solely by delivery to the Secretary of the Company (or any third party administrator or other person or entity designated by the Company) of all of the following:
(a)An exercise notice in a form specified by the Company, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Company;
(b)The receipt by the Company of full payment of the Exercise Price for the shares of Stock with respect to which the Option or portion thereof is exercised, which may be in one or more of the forms of consideration permitted under Section 3.3 below, as well as payment of any Tax-Related Items as defined in Section 4.4 below;
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(c)Any other written representations as may be required in the Company’s reasonable discretion to evidence compliance with the Securities Act or any other applicable law, rule, or regulation.
Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.
3.3 Method of Payment. Payment of the Exercise Price may be by any of the following, or a combination thereof:
(a)Cash (or cash equivalent acceptable to the Committee); or
(b)Delivery of a notice that the Participant has placed a market sell order with a broker with respect to shares of Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payment required; provided, that payment of such proceeds is then made to the Company upon settlement of such sale (a “cashless exercise” or “same day sale”); or
(c)Shares of Stock (including shares of Stock issuable pursuant to the exercise of the Option) having a Fair Market Value on the date of delivery equal to the aggregate payment required.
The Company reserves the right to restrict the available methods of payment to the extent it determines in its sole discretion that such restriction is required to comply with local law or desirable for the administration of the Plan, or to otherwise modify the available methods of payment to the extent permitted under the terms of the Plan.
3.4 Conditions to Issuance of Stock Certificates. The shares of Stock deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued shares of Stock or issued shares of Stock which have then been reacquired by the Company. Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:
(a)The admission of such shares of Stock to listing on all stock exchanges on which such Stock is then listed;
(b)The completion of any registration or other qualification of such shares of Stock under any local, state, federal or foreign law or under rulings or regulations of the U.S. Securities and Exchange Commission or of any other governmental regulatory body, which the Company shall, in its absolute discretion, deem necessary or advisable;
(c)The obtaining of any approval or other clearance from any local, state, federal or foreign governmental agency which the Company shall, in its absolute discretion, determine to be necessary or advisable;
(d)The receipt by the Company of full payment of the Exercise Price for such shares of Stock and full payment of any Tax-Related Items; and
5
(e)The lapse of such reasonable period of time following the exercise of the Option as the Company may from time to time establish for reasons of administrative convenience.
3.5 Rights as Stockholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares of Stock purchasable upon the exercise of any part of the Option unless and until such shares of Stock shall have been issued by the Company to such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment will be made for a dividend or other right for which the record date is prior to the date the shares of Stock are issued, except as provided in Section 12.1 of the Plan.
OTHER PROVISIONS
4.1 Administration. The Committee or its delegates shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made in good faith by the Committee or its delegates shall be final and binding upon the Participant, the Company and all other interested persons. No member of the Committee or the Board (or their delegates) shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the Option.
4.2 Option Not Transferable. Unless otherwise permitted by the Committee in accordance with Section 10.4 of the Plan, this Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution.
4.3 Adjustments. The Participant acknowledges that the Option is subject to modification and termination in certain events as provided in this Agreement and the Plan.
4.4 Responsibility for Taxes. The Participant acknowledges that, regardless of any action taken by the Company or the 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 the Participant’s participation in the Plan and legally applicable to the Participant as a result of participation in the Plan (“Tax-Related Items”), is and remains the Participant’s responsibility and may exceed the amount (if any) withheld by the Company or the Employer. The 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 Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of shares of Stock acquired pursuant to such exercise 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 Option to reduce or eliminate the Participant’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Participant has become subject to Tax-Related Items in more than one jurisdiction, the 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, the Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Participant may direct the Company and/or the Employer, or their respective agents, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Company and/or the Employer; (ii) withholding from proceeds of the sale of shares of Stock acquired upon exercise of the Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participant’s behalf pursuant to this authorization); or (iii) withholding in shares of Stock to be issued at exercise of the Option.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding
6
rates, including maximum applicable rates in which case the Participant will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares of Stock. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes the Participant will be deemed to have been issued the full number of shares of Stock subject to the exercised portion of the Option, notwithstanding that a number of the shares of Stock are held back solely for the purpose of paying the Tax-Related Items.
Finally, the Participant shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Participant’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to honor the exercise and refuse to issue or deliver the shares of Stock or the proceeds of the sale of shares of Stock if the Participant fails to comply with the Participant’s obligations in connection with the Tax-Related Items.
4.5 Nature of Grant. In accepting the Option, the Participant acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time;
(b)the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past;
(c)all decisions with respect to future option grants, if any, will be at the sole discretion of the Company;
(d)the Participant is voluntarily participating in the Plan;
(e)the grant of the Option and the Participant’s participation in the Plan shall not create a right to employment 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, as applicable, to terminate the Participant’s employment or service relationship (if any);
(f)the Option and any shares of Stock subject to the Option are not intended to replace any pension rights or compensation;
(g)the Option and any shares of Stock subject to the Option, and the income and value of same, are not part of normal or expected compensation 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;
7
(h)the future value of the shares of Stock subject to the Option is unknown and cannot be predicted with certainty;
(i)if the shares of Stock subject to the Option do not increase in value, the Option will have no value;
(j)if the Participant exercises the Option and acquires shares of Stock, the value of such Stock may increase or decrease, even below the Exercise Price;
(k)no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from the Participant’s Termination of Service by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws) and in consideration of the grant of the Option to which the Participant is otherwise not entitled, the Participant irrevocably agrees never to institute any claim against the Company or the Employer, waives his or her ability, if any, to bring any such claim, and releases the Company and the Employer 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, the 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;
(l)in the event of the Participant’s Termination of Service (whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), the Participant’s right to vest in the Option, if any, will terminate effective as of the date that the Participant is no longer actively providing services and will not be extended by any notice period mandated under local law (e.g., active service would not include a period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any); furthermore, in the event of the Participant’s Termination of Service (whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Participant is employed or the terms of the Participant’s employment agreement, if any), the Participant’s right to exercise the Option after Termination of Service, if any, will be measured by the date that the Participant is no longer actively providing services and will not be extended by any notice period mandated under local law; the Committee shall have the exclusive discretion to determine when the Participant is no longer actively providing services for purposes of the Option; and
(m)neither the Company, the Employer nor any Subsidiary will be liable for any foreign exchange rate fluctuation between the Participant’s local currency and the United States Dollar that may affect the value of the Option or any amounts due to the Participant pursuant to the exercise of the Option or the subsequent sale of any shares of Stock acquired under the Plan.
4.6 No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Participant’s participation in the Plan or the Participant’s acquisition or sale of the shares of Stock subject to the Option. The 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.
4.7 Insider Trading Restrictions/Market Abuse Laws. The Participant acknowledges that, depending on his or her country of residence, the Participant may be subject to insider trading restrictions and/or market abuse laws, which may affect his or her ability to acquire or sell shares of Stock or rights to shares of Stock (e.g., Options) under the Plan during such times as the Participant is considered to have “inside information” regarding the Company (as defined by the laws in the 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. The Participant acknowledges that it is the Participant’s responsibility to comply with any applicable restrictions and that the Participant is advised to speak to his or her personal legal advisor on this matter.
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4.8 Data Privacy. The Participant hereby voluntarily consents to the collection, use and transfer, in electronic or other form, of the Participant’s personal data as described in this Agreement and any other Option grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan.
The Participant understands that the Company and the Employer may hold certain personal information about the Participant, including, but not limited to, the Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Participant’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).
The Participant understands that 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. The Participant understands that the recipients of 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 the Participant’s country. The 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 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 Data as may be required to a broker or other third party until which the Participant may elect to deposit any shares of Stock received upon exercise of the Option. The Participant understands that he or she may request a list with the names and addresses of any potential recipients of Data by contacting the Participant’s regional human resources (“MyHR”) representative. The Participant understands that Data will be held only as long as is necessary to implement, administer and manage the Participant’s participation in the Plan. The Participant understands that he or she may, at any time, request access to Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her MyHR representative. Further, the Participant understands that the Participant is providing the consents herein on a purely voluntary basis. If the Participant does not consent, or if the Participant later seeks to revoke his or her consent, the 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 options or other equity awards to the Participant or administer or maintain such awards. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect the Participant’s ability to participate in the Plan. For more information on the consequences of the Participant’s refusal to consent or withdrawal of consent, the Participant understands that he or she may contact his or her MyHR representative.
4.9 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the address given beneath the signature of the Company’s authorized officer on the Grant Notice, and any notice to be given to the Participant shall be addressed to the Participant at the address given beneath the Participant’s signature on the Grant Notice. By a notice given pursuant to this Section 4.9, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service (or by an equivalent method with an internationally recognized delivery service).
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4.10 Titles. Section titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
4.11 Governing Law; Choice of Venue. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under such state’s conflict of laws rules.
For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or the Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted only in the courts of Santa Clara, 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.
4.12 Conformity to U.S. Securities Laws. The 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 by the U.S. Securities and Exchange Commission thereunder, and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, 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.
4.13 Amendments, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended 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, suspension or termination of this Agreement shall adversely effect the Option in any material way without the prior written consent of the Participant.
4.14 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 set forth in Section 4.1 above, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.
4.15 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if the Participant is subject to Section 16 of the Exchange Act, the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
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4.16 Electronic Delivery and Participation. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The 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.
4.17 Language. If the Participant has received this Agreement or any other document related to the Option and/or 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.
4.18 Severability. The provisions of this Agreement are severable and if any provision is determined to be illegal or otherwise unenforceable, then such provision will be enforced to the maximum extent possible and the remaining provisions will be fully effective and enforceable.
4.19 Exhibit B. The Option shall be subject to any special provisions set forth in Exhibit B for the Participant’s country, if any. If the Participant relocates to one of the countries included in Exhibit B during the life of the Option or while holding shares of Stock acquired upon exercise of the Option, the special provisions for such country shall apply to the Participant, to the extent the Company determines that the application of such provisions is necessary or advisable for legal or administrative reasons. Exhibit B constitutes part of this Agreement.
4.20 Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Option and the shares of Stock acquired upon exercise of the Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Participant to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
4.21 Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits thereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof.
4.22 Section 409A. Notwithstanding any other provision of the Plan, this Agreement or the Grant Notice, and to the extent the Participant is or becomes subject to U.S. federal income taxation, the Plan, this Agreement and the Grant Notice shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the U.S. Internal Revenue Code of 1986, as amended (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”) in order for the Option to be exempt from Section 409A. The Committee may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Committee determines are necessary or appropriate to comply with the exemption requirements under Section 409A.
4.23 Waiver. The 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 the Participant or any other participant.
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APPENDIX A
TO PERFORMANCE BASED STOCK OPTION AWARD GRANT NOTICE
Performance and Time-Based Vesting Conditions
TO PERFORMANCE BASED STOCK OPTION AWARD GRANT NOTICE
Performance and Time-Based Vesting Conditions
1.Performance Period and Performance Years. The Performance Period with respect to which the [_____] (as defined below) Goals may be achieved is the period commencing on January 1, [●] and ending on December 31, [●] (the “Performance Period”). The [_____] Goals are annual goals and determination of whether the goals have been met will be assessed annually with respect to calendar years [●], [●] and [●] (each a “Performance Year” and, together, the “Performance Years”).
2.Determination of Performance. As soon as reasonably practicable following the completion of each Performance Year, the Committee shall determine the extent to which a [_______] Goal set forth below has been achieved in such Performance Year. If a [_______] Goal is achieved, the corresponding “Percentage of Option Earned,” set forth in the table below, will be deemed to be an “Earned Option.”
| Performance Levels | [_____] Performance Goals ($ [Billions]) | Percentage of Option Earned | ||||||
| Unlock #1 “Threshold” | [●] | 25% | ||||||
| Unlock #2 “Target” | [●] | 50% | ||||||
| Unlock #3 | [●] | 75% | ||||||
| Unlock #4 | [●] | 100% | ||||||
No portion of the Option shall be deemed an Earned Option if the “Threshold” [_____] Goal is not achieved. Each of the four [_____] Goals may only be achieved once (i.e., once a [_____] Goal has been achieved, the number of Earned Options will not increase unless the next highest Performance Level is achieved). For example, if the “Threshold” [_____] Goal were to be achieved in 2022, the “Threshold” [_____] Goal were to be achieved in 2023, and the “Target” [_____] Goal were to be achieved in 2024, the number of Earned Options on each of the three Vesting Dates would be 25% on the first Vesting Date, it would remain 25% on the second Vesting Date, and it would increase to 50% on the third Vesting Date. Additionally, for clarity, the Earned Option percentage is a cumulative percentage (i.e., in the example above, a total of 50% of the Option would be deemed to be an Earned Option).
3.Vesting of Option. The number of shares of Stock with respect to which the Option will vest on each Vesting Date (subject to Participant’s continued service with the Company or a Subsidiary), which will be determined annually before March 15th following each Performance Year, will be equal to (a) the applicable Time-Vesting Percentage (as defined below) multiplied by the Aggregate Earned Options (as defined below) as of such Vesting Date (rounded up to the nearest whole share, provided that in no event will the amount that vests exceed the total number of shares of Stock subject to the Option), minus (b) a number of shares of Stock subject to the Option with respect to which the Option has already vested prior to such Vesting Date. For example, using the same facts described above, and assuming the total number of Options granted was 100, on March 15th, 2023, the Option would vest with respect to 9 shares (33.33% x 25 Aggregate Earned Options, rounded up to the nearest whole share), on March 15th, 2024, the Option would vest with respect to an additional 8 shares (66.66% x 25 Aggregate Earned Options, rounded up to the nearest whole share (17 shares), less the 9 that previously vested) and on March 15th, 2025, the Option would vest with respect to an additional 33 shares (100% x 50 Aggregate Earned Options, less the 17 that previously vested).
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4.Change in Control; Qualifying Termination. If a Change in Control occurs before the Performance Period has been completed, notwithstanding anything to the contrary in the eBay Inc. Change in Control Severance Plan for Key Employees the “Change in Control Severance Plan”), then on and after the date of the Change in Control, the number of Earned Options shall be equal to the greater of the “Target” number of Options (50% of the total number of shares of Stock subject to the Option) and the number of Options that became Earned Options based on performance in any completed Performance Year. After a Change in Control, the Award shall no longer be subject to performance-based vesting conditions and the number of unvested Earned Options determined pursuant to the preceding sentence shall remain unvested, with vesting subject to Participant’s continued service with the Company or a Subsidiary through the applicable Vesting Date. For clarity, any portion of the Option that was an Earned Option as of the date of a Change in Control or that becomes an Earned Option pursuant to this Section 4 shall be deemed to an equity award that vests based solely on continued service for purposes of the Change in Control Severance Plan. Additionally, if Participant’s employment terminates (a) due to Participant’s death or Disability (as that term is defined in the eBay Inc. SVP and Above Standard Severance Plan (the “Standard Severance Plan”)) or (b) for any other reason that entitles Participant to severance benefits under the Standard Severance Plan, Participant shall vest as of the date of termination in any then unvested portion of the Aggregate Earned Options (as of the date of termination), if any, that otherwise would have become vested pursuant to their ordinary vesting schedule within the [12]1 calendar months following the date of termination (including any partial month in which the termination occurs). Notwithstanding anything to the contrary in the Change in Control Severance Plan or the Standard Severance Plan relating to the ability to settle equity awards in shares of Stock, cash or a combination of shares of Stock and cash, such provisions shall not apply to the Option (i.e., the Option will vest as described above, but the Option will not be settled in shares of Stock, cash or a combination of shares of Stock and cash).
5.Definitions. For the purpose of this Appendix A, the following terms shall be defined as follows:
a.[_____].
b.“Aggregate Earned Options” means a number of shares of Stock subject to the Option equal to (i) the applicable “Percentage of Option Earned” as set forth in the table in Section 2 multiplied by (ii) the total number of shares subject to the Option, with the resulting number of shares rounded up to the nearest whole share, if the foregoing formula results in a fractional share (provided that in no event will the Aggregate Earned Options exceed the total number of shares of Stock subject to the Option).
c.[_____].
d.[_____].
e.“Time Vesting Percentage” means: (i) 33.33% with respect to the March 15, [●] Vesting Date (ii) 66.66% with respect to the March 15, [●] Vesting Date, and (iii) 100% with respect to March 15, [●] Vesting Date.
f.“Vesting Date” means each of March 15, [●], March 15, [●] and March 15, [●].
1 24 for the CEO and 18 for the CFO.
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Exhibit 10.03
January 4, 2021
Cornelius Boone
c/o eBay
2065 Hamilton Avenue
San Jose, CA 95125
Dear Cornelius:
eBay Inc. (the "Company" or "eBay") is pleased to offer you, on the terms and conditions set forth in this offer letter (the "Offer Letter"), the exempt position of Senior Vice President, Chief People Officer to be located in San Jose, CA. The terms and conditions of this Offer Letter are subject to a successful background check.
Cash Compensation
Your salary shall be set at a bi-weekly rate of $24,807.70, which is equivalent to an annual base salary of $645,000.20.
You will be eligible to participate in the eBay Incentive Plan (elP) with an annual bonus based on individual achievement as well as company performance. The annual bonus period is from January 1 through December 31. Your target bonus for the elP is 65% of your annual base salary, pro-rated based on the eligible earnings paid while you are employed in an elP eligible position during the annual bonus period. There is no guarantee any elP bonus will be paid and any actual bonus will be determined after the end of the annual bonus period based on your eligible earnings as defined in the elP. To be eligible to receive any elP bonus, you must be employed on or before the first business day of the fourth quarter and you must be employed on the date the bonus is paid. The payment of any bonus is at eBay's sole and absolute discretion and subject to the terms and conditions of the elP. eBay reserves the right, in its sole discretion, to amend, change or cancel the elP at any time.
Equity Compensation
You will be granted two awards of restricted stock units ("RSUs") and an award of performance-based restricted stock units ("PBRSUs"), as described in the following paragraphs. The grants of RS Us will be made on the 15th of the month following the month you start work. The grant of PBRSUs is expected to be made in the same month that PBRSUs are granted to other employees in positions comparable to yours for the 2021-2022 PBRSU cycle (typically April 2021). The grants are described as a U.S. dollar value. For the RSU award, the number of shares to be granted will be determined by dividing the U.S. dollar value of the RSU award by the Average eBay Closing Price (as described below) and rounding up to the nearest whole number of shares of eBay common stock. For the PBRSU award, the number of shares subject to the target award will be determined by dividing the U.S. dollar value of the award by the same 10 day average price used to convert the RSU award, rounded up to the nearest whole number of shares of eBay common stock. The "Average eBay Closing Price" shall be calculated based on the average of the closing prices of eBay common stock in U.S. dollars for the period of 10 consecutive trading days ending on (and including) the last trading day prior to the date of the RSU grant.
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In accordance with the methodology above, you will be granted an award of RSUs valued at USD $1,800,000 to be granted under the terms and conditions of eBay's current stock plans (the "Plans") as well as the terms and conditions of the RSU agreement (which will be provided to you as soon as practicable after the grant date). The RSUs will vest and become non-forfeitable (assuming your continued employment with an eBay company on each vesting date) over four years as follows: 25% on the first anniversary of the date of grant and an additional 1/16th of the shares subject to the award each three month period thereafter, subject to applicable taxes and withholdings.
You will also be granted an award of PBRSUs valued at USD $2,700,000 to be granted under the terms and conditions of the Plans as well as the terms and conditions of the PBRSU agreement (which will be provided to you as soon as practicable after the grant date). The PB RS Us will be subject to performance over the period January 1, 2021 through December 31, 2022 under the 2021-2022 PBRSU cycle and will have the same performance goals and modifiers set for other similarly situated officers in the 2021-2022 PBRSU cycle. The actual amount of the award will be determined based on Company performance and will be subject to the terms and conditions of the performance plan approved by the Compensation Committee. Any PBRSUs earned for this cycle will vest as to 50% of the earned shares in April 2022 and 50% of the earned shares in April 2023, subject to your continued employment with an eBay company.
You will also be granted a supplemental equity award of RSUs valued at USO $1,500,000 to be granted under the terms and conditions of the Plans as well as the terms and conditions of the RSU agreement (which will be provided to you as soon as practicable after the grant date). The RSUs will vest and become non-forfeitable (assuming your continued employment with an eBay company on each vesting date) over two years as follows: 50% on the first anniversary of the date of grant and 50% on the second anniversary of the date of grant, subject to applicable taxes and withholdings.
You will be eligible to receive annual grants under eBay's annual review process beginning in 2022. We commit to you that the aggregate target grant value of your annual equity awards (RSU and PBRSU awards) in 2022 will be a minimum of $3,000,000.
All employees are subject to eBay's Insider Trading Agreement, which outlines the procedures and guidelines governing securities trades by company personnel. You will be provided with a copy of eBay's Insider Trading Agreement. Please review the Agreement carefully. You will be asked to execute the certification as part of your new hire on boarding process.
Supplemental Payments
You will be eligible to receive a one-time Transition Payment 1 of $2,300,000 (less deductions and applicable taxes). This payment will be paid within two pay periods of your start date, subject to your continued employment on the date of payment. In the event that your employment ceases for reasons of Cause (as this term is defined in the Repayment Requirement Agreement) or resignation without Good Reason (as this term is defined in the Repayment Requirement Agreement) prior to completion of one year of service from your start date, the net portion of the Transition Payment 1 that was paid to you (net of deductions or applicable taxes) is fully refundable to the Company. If your employment ceases for reasons of Cause or resignation without Good Reason after one year, but prior to the third anniversary from your start date, your repayment obligation will be reduced by 1/36th for every full month of active employment. No repayment of the Transition Payment 1 would be required for termination after three years of employment with the Company. A Repayment Requirement Agreement is attached.
2
You will be eligible to receive a one-time Transition Payment 2 of $830,000 (less deductions and applicable taxes). This payment will be made in or around April 2022, subject to your continued employment on the date of payment. In the event that your employment ceases for reasons of Cause (as this term is defined in the Repayment Requirement Agreement) or resignation without Good Reason (as this term is defined in the Repayment Requirement Agreement) after the payment of the Transition Payment 2 is made and prior to the third anniversary of your start date, the net portion of the Transition Payment 2 that was paid to you (net of deductions or applicable taxes) is refundable to the Company provided that your repayment obligation will be reduced by 1/36th for every full month of active employment following your start date. No repayment of the Transition Payment 2 would be required for termination after three years of employment with the Company following your start date. A Repayment Requirement Agreement is attached.
You will be eligible to receive a one-time Transition Payment 3 of $380,000 (less deductions and applicable taxes). This payment will be made in or around April 2023, subject to your continued employment on the date of payment. In the event that your employment ceases for reasons of Cause (as this term is defined in the Repayment Requirement Agreement) or resignation without Good Reason (as this term is defined in the Repayment Requirement Agreement) after the payment of the Transition Payment 3 is made and prior to the third anniversary of your start date, the net portion of the Transition Payment 3 that was paid to you (net of deductions or applicable taxes) is refundable to the Company provided that your repayment obligation will be reduced by 1/36th for every full month of active employment following your start date. No repayment of the Transition Payment 3 would be required for termination after three years of employment with the Company following your start date. A Repayment Requirement Agreement is attached.
The Transition Payment 1, Transition Payment 2, and Transition Payment 3 will be considered Make-good Payments under the terms of the SVP & Above Standard Severance Plan and the eBay Change in Control Severance Plan for Key Employees.
Employee Benefits
You will also be entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours. Please refer to the benefit plan documents for more details, including eligibility. eBay reserves the right, in its sole discretion, to amend, change or cancel the benefits at any time.
You will be eligible to accrue 20 days of Paid Time Off ("PTO") per year.
eBay will provide you with relocation assistance under our executive relocation program, including temporary housing in the San Jose area for up to 6 months and coverage of travel between San Jose and Texas for you and/ or your wife as needed for the same period.
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Work Location
Your work location will be at the eBay Inc. offices located at 2025 Hamilton Avenue, San Jose, CA, 95125. It is expected that you will work at this location, subject to our COVID-19 return to work plan.
Severance and Change in Control Protections
Although your employment with the Company shall be "at-will" as set forth below, you will be entitled to severance protection in certain circumstances, as described below, subject in all instances to you executing and not revoking the Company's standard form of release (the "Release") within 60 days of your termination of employment, with such amounts or benefits to be paid and/or provided as set forth in the applicable plan document or as described below as of the date the Release becomes irrevocable, provided that if the 60-day time period following your termination of employment spans two calendar years, they shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates.
Termination Outside of a Change in Control Period. You will be eligible to participate in the eBay Inc. SVP & Above Standard Severance Plan (the "Severance Plan"). Under the Severance Plan, you will be entitled to certain benefits if you are terminated for reasons other than for "Cause" (as this term is defined in the Severance Plan). Please review the enclosed eBay Inc. SVP and Above Standard Severance Plan and Summary Plan Description for the details on the Plan.
Termination During a Change in Control Period. You will be eligible to participate in the eBay Change in Control Severance Plan for Key Employees (the "CIC Severance Plan") at Tier 1. Under the CIC Severance Plan, you will be entitled to certain benefits if you are terminated for reasons other than for "Cause" or resignation without "Good Reason" during the "Change in Control Period" (as these terms are defined in the CIC Severance Plan). Please review the enclosed Change in Control Severance Plan for Key Employees and Summary Plan Description for the details on the Plan.
Required Employee Documents and Agreements
Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. You will be provided with a list of the required documents.
Other terms, conditions, job responsibilities, compensation and benefits may be adjusted by the Company from time to time in its sole discretion.
All of us at eBay are very excited about you joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration rather than by a jury court or administrative agency. The Company will bear those expenses unique to arbitration. Please review the enclosed Mutual Arbitration Agreement carefully.
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As a condition of your employment, you must complete both the Mutual Arbitration Agreement and the enclosed Employee Proprietary Information and Inventions Agreement prior to commencing employment. These agreements address important obligations to the Company, both during and after your employment; therefore, please read both agreements carefully. You will be asked to execute the agreements as part of your new hire onboarding process. If you should have any questions about either agreement, please contact me.
This Offer Letter, the Mutual Arbitration Agreement, the Employee Proprietary Information and Inventions Agreement as well as all other enclosed required documents, contain the entire agreement with respect to your employment. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this Offer Letter by signing a copy of this Offer Letter and returning it to me. All other documents requiring your signature must be submitted either in hard copy or electronically prior to your start date, including but not limited to the Mutual Arbitration Agreement, the Employee Proprietary Information and Inventions Agreement, and the Insider Trading Agreement certification.
This Offer Letter is contingent upon the results of your background verification. Upon your signature below, this will become our binding agreement with respect to your employment and its terms merging and superseding in their entirety all other or prior offers, agreements and communications, whether written or oral, by you and the Company as to the specific subjects of this Offer Letter. The commencement of your employment is contingent upon your resignation from your current employer.
We are excited at the prospect of you joining our team. We look forward to having you on board!
Very truly yours,
| /s/ Jamie Iannone | |||||||||||
| Jamie Iannone | |||||||||||
| Chief Executive Officer | |||||||||||
| ACCEPTED: | |||||||||||
| /s/ Cornelius Boone | Anticipated start date: | February 1, 2021 | |||||||||
| Cornelius Boone | |||||||||||
| January 7, 2021 | |||||||||||
| Date | |||||||||||
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Exhibit 10.04
November 16, 2020
Julie Loeger
c/o eBay
2065 Hamilton Avenue
San Jose, CA 95125
Dear Julie:
eBay Inc. (the "Company" or "eBay'') is pleased to offer you, on the terms and conditions set forth in this offer letter (the "Offer Letter"), the exempt position of Senior Vice President, Chief Growth Officer. The terms and conditions of this Offer Letter have been approved by the Compensation Committee of the eBay Board of Directors.
Cash Compensation
Your salary shall be set at a bi-weekly rate of $25,000.00, which is equivalent to an annual base salary of $650,000.00.
You will be eligible to participate in the eBay Incentive Plan (elP) with an annual bonus based on individual achievement as well as company performance. The annual bonus period is from January 1 through December 31. Your target bonus for the elP is 75% of your annual base salary, pro-rated based on the eligible earnings paid while you are employed in an elP eligible position during the annual bonus period. There is no guarantee any elP bonus will be paid and any actual bonus will be determined after the end of the annual bonus period based on your eligible earnings as defined in the elP. To be eligible to receive any elP bonus, you must be employed on or before the first business day of the fourth quarter and you must be employed on the date the bonus is paid. The payment of any bonus is at eBay's sole and absolute discretion and subject to the terms and conditions of the elP. eBay reserves the right, in its sole discretion, to amend, change or cancel the elP at any time.
Equity Compensation
You will be granted two awards of restricted stock units ("RSUs") and an award of performance-based restricted stock units ("PBRSUs"), as described in the following paragraphs. The grants of RSUs will be made on the 15th of the month following the month you start work and the grant of PBRSUs will be made at the same time PBRSUs are granted to other employees in positions comparable to yours for the 2021-2022 PBRSU cycle. The grant is described as a U.S. dollar value. For the RSU award, the number of shares to be granted will be determined by dividing the U.S. dollar value of the RSU award by the Average eBay Closing Price (as described in this paragraph) and rounding up to the nearest whole number of shares of eBay common stock. For the PBRSU award, the number of shares subject to the target award will be determined by dividing the U.S. dollar value of the award by the same 10 day average price used to convert the RSU award rounded up to the nearest whole number of shares of eBay common stock. The "Average eBay Closing Price" shall be calculated based on the average of the closing prices of eBay common stock in U.S. dollars for the period of 10 consecutive trading days ending on (and including) the last trading day prior to the date of grant.
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In accordance with the methodology above, you will be granted an award of RSUs valued at USD $1,600,000 to be granted under the terms and conditions of eBay's current stock plans (the "Plans") as well as the terms and conditions of the RSU agreement (which will be provided to you as soon as practicable after the grant date). The RSUs will vest and become non-forfeitable (assuming your continued employment with an eBay company on each vesting date} over four years as follows: 25% on the first anniversary of the date of grant and an additional 1/16th of the shares subject to the award each three month period thereafter, subject to applicable taxes and withholdings.
You will also be granted an award of PBRSUs valued at USD $2,400,000 to be granted under the terms and conditions of the Plans as well as the terms and conditions of the PBRSU agreement (which will be provided to you as soon as practicable after the grant date). The PBRSUs will be subject to performance over the period January 1, 2021 through December 31, 2022 under the 2021-2022 PBRSU cycle and will have the same performance goals and modifiers set for other similarly situated officers in the 2021-2022 PBRSU cycle. The actual amount of the award will be determined based on Company performance and will be subject to the terms and conditions of the performance plan approved by the Compensation Committee. Any PBRSUs earned for this cycle will vest as to 50% of the earned shares in March 2023 and 50% of the earned shares in March 2024, subject to your continued employment with an eBay company.
You will also be granted a supplemental equity award of RSUs valued at USD $3,000,000 to be granted under the terms and conditions of the Plans as well as the terms and conditions of the RSU agreement (which will be provided to you as soon as practicable after the grant date). The RSUs will vest and become non-forfeitable (assuming your continued employment with an eBay company on each vesting date) over four years as follows: 25% on the first anniversary of the date of grant and an additional 1/16th of the shares subject to the award each three month period thereafter, subject to applicable taxes and withholdings.
You will be eligible to receive annual grants under eBay's annual review process beginning in 2022. Your annual grant target is $3,500,000.
All employees are subject to eBay's Insider Trading Agreement, which outlines the procedures and guidelines governing securities trades by company personnel. You will be provided with a copy of eBay's Insider Trading Agreement. Please review the Agreement carefully. You will be asked to execute the certification as part of your new hire onboarding process.
Supplemental Payments
If you do not receive a 2020 bonus payment from your current company or receive a reduced 2020 bonus payment, you will be eligible to receive a one-time 2020 Bonus Make-good Payment. The amount of the 2020 Bonus Make-good Payment will be $1,100,000 minus the 2020 bonus payment you receive from your current company, if any. For the sake of clarity, the value of the 2020 bonus payment you receive from your current company, if any, will be determined using the gross value prior to any deductions and applicable taxes. The 2020 Bonus Make-good Payment is subject to deductions and applicable taxes, and will be made as soon as practical after the later of: (1) when you notify us that you will not receive a bonus from your current company or received a reduced 2020 bonus payment, and (2) the second pay period following your start date, subject to your continued employment on the date of payment.
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You will be eligible to receive a one-time 2021 Equity Transition Payment of $1,200,000 (less deductions and applicable taxes). This payment will be paid within two pay periods of your start date, subject to your continued employment on the date of payment. In the event that your employment ceases for reasons of Cause (as this term is defined in the Repayment Requirement Agreement) or resignation without Good Reason {as this term is defined in the Repayment Requirement Agreement) prior to completion of one year of service from your start date, the net portion of the 2021 Equity Transition Payment that was paid to you (net of deductions or applicable taxes) is fully refundable to the Company. If your employment ceases for reasons of Cause or resignation without Good Reason after one year, but prior to the second anniversary from your start date, your repayment obligation will be reduced by 1/24th for every full month of active employment. No repayment of the 2021 Equity Transition Payment would be required for termination after two years of employment with the Company. A Repayment Requirement Agreement is attached.
You will be eligible to receive a 2022 Equity Transition Payment of $800,000 (less deductions and applicable taxes). This payment will be made on or around the first anniversary of your start date, subject to your continued employment on the date of payment. In the event that your employment ceases for reasons of Cause (as this term is defined in the Repayment Requirement Agreement) or resignation without Good Reason (as this term is defined in the Repayment Requirement Agreement) within one year from the date that the 2022 Equity Transition Payment is made, the net portion of the 2022 Equity Transition Payment that was paid to you (net of deductions or applicable taxes) is refundable to the Company provided that your repayment obligation will be reduced by 1/12th for every full month of active employment following the 2022 Equity Transition Payment date. No repayment of the 2022 Equity Transition Payment would be required for termination after one year of employment with the Company following the 2022 Equity Transition Payment date. A Repayment Requirement Agreement is attached.
You will be eligible to receive a 2023 Equity Transition Payment of $500,000 (less deductions and applicable taxes). The 2023 Equity Transition Payment will be made on or around the second anniversary of your start date, subject to your continued employment on the date of payment.
The 2021 Equity Transition Payment, 2022 Equity Transition Payment, and 2023 Equity Transition Payment will be considered Make-good Payments under the terms of the SVP & Above Standard Severance Plan and the eBay Change in Control Severance Plan for Key Employees.
Employee Benefits
You will be also entitled to the benefits that eBay customarily makes available to employees in positions comparable to yours. Please refer to the benefit plan documents for more details, including eligibility. eBay reserves the right, in its sole discretion, to amend, change or cancel the benefits at any time.
You will be eligible to accrue 20 days of Paid Time Off ("PTO") per year.
eBay will provide you with relocation assistance under our executive relocation program, including temporary housing in the San Jose area for up to 6 months and coverage of travel between San Jose and Chicago for you and/or your husband as needed for the same period.
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Severance and Change in Control Protections
Although your employment with the Company shall be "at-will" as set forth below, you will be entitled to severance protection in certain circumstances, as described below, subject in all instances to you executing and not revoking the Company's standard form of release (the "Release") within 60 days of your termination of employment, with such amounts or benefits to be paid and/or provided as set forth in the applicable plan document or as described below as of the date the Release becomes irrevocable, provided that if the 60-day time period following your termination of employment spans two calendar years, they shall be provided as of the later of the date the Release becomes irrevocable or the first calendar day of the calendar year following the year in which your employment terminates.
Termination Outside of a Change in Control Period. You will be eligible to participate in the eBay Inc. SVP & Above Standard Severance Plan (the "Severance Plan"). Under the Severance Plan, you will be entitled to certain benefits if you are terminated for reasons other than for "Cause" (as this term is defined in the Severance Plan). Please review the enclosed eBay Inc. SVP and Above Standard Severance Plan and Summary Plan Description for the details on the Plan.
Termination During a Change in Control Period. You will be eligible to participate in the eBay Change in Control Severance Plan for Key Employees (the "CIC Severance Plan") at Tier 1. Under the CIC Severance Plan, you will be entitled to certain benefits if you are terminated for reasons other than for "Cause" or resignation without "Good Reason" during the "Change in Control Period" (as these terms are defined in the CIC Severance Plan). Please review the enclosed Change in Control Severance Plan for Key Employees and Summary Plan Description for the details on the Plan.
Required Employee Documents and Agreements
Under federal immigration laws, the Company is required to verify each new employee's identity and legal authority to work in the United States. Accordingly, please be prepared to furnish appropriate documents satisfying those requirements; this offer of employment is conditioned on submission of satisfactory documentation. You will be provided with a list of the required documents.
Other terms, conditions, job responsibilities, compensation and benefits may be adjusted by the Company from time to time in its sole discretion.
All of us at eBay are very excited about you joining our team and look forward to a beneficial and fruitful relationship. However, should any dispute arise with respect to your employment or the termination of that employment, we both agree that such dispute shall be conclusively resolved by final, binding and confidential arbitration rather than by a jury court or administrative agency. The Company will bear those expenses unique to arbitration. Please review the enclosed Mutual Arbitration Agreement carefully.
As a condition of your employment, you must complete both the Mutual Arbitration Agreement and the enclosed Employee Proprietary Information and Inventions Agreement prior to commencing employment. These agreements address important obligations to the Company, both during and after your employment; therefore, please read both agreements carefully. You will be asked to execute the agreements as part of your new hire on boarding process. If you should have any questions about either agreement, please contact me.
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This Offer Letter, the Mutual Arbitration Agreement, the Employee Proprietary Information and Inventions Agreement as well as all other enclosed required documents, contain the entire agreement with respect to your employment. Should you have any questions with regard to any of the items indicated above, please call me. Kindly indicate your consent to this Offer Letter by signing a copy of this Offer Letter and returning it to me. All other documents requiring your signature must be submitted either in hard copy or electronically prior to your start date, including but not limited to the Mutual Arbitration Agreement, the Employee Proprietary Information and Inventions Agreement, and the Insider Trading Agreement certification.
This Offer Letter is contingent upon the results of your background verification. Upon your signature below, this will become our binding agreement with respect to your employment and its terms merging and superseding in their entirety all other or prior offers, agreements and communications, whether written or oral, by you and the Company as to the specific subjects of this Offer Letter. The commencement of your employment is contingent upon your resignation from your current employer.
We are excited at the prospect of you joining our team. We look forward to having you on board!
Very truly yours,
| /s/ Robin J. Coleman | |||||||||||
| Robin J. Coleman | |||||||||||
Vice President, Rewards, People Technology, and Analytics | |||||||||||
| ACCEPTED: | |||||||||||
| /s/ Julie Loeger | Anticipated start date: | January 2021 | |||||||||
| Julie Loeger | |||||||||||
| November 11, 2020 | |||||||||||
| Date | |||||||||||
5
Exhibit 31.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Jamie Iannone, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q 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/ Jamie Iannone | |||||
| Jamie Iannone | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Date: May 5, 2022
Exhibit 31.02
CERTIFICATION OF CHIEF FINANCIAL OFFICER,
AS REQUIRED BY SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Steve Priest, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q 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/ Steve Priest | |||||
| Steve Priest | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Date: May 5, 2022
Exhibit 32.01
CERTIFICATION OF CHIEF EXECUTIVE OFFICER,
AS REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
I, Jamie Iannone, 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 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/ Jamie Iannone | |||||
| Jamie Iannone | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Date: May 5, 2022
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, Steve Priest, 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 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/ Steve Priest | |||||
| Steve Priest | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Date: May 5, 2022
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.