Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business, future results of operations or financial condition, including with respect to the ongoing effects of COVID-19, new or planned features or services, or management strategies including our strategic review). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Item 1A: Risk Factors” of this Annual Report on Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the consolidated financial statements and the related notes included in this report.

OVERVIEW

Business

eBay Inc., is a global commerce leader, which includes our Marketplace platforms, that connects millions of buyers and sellers around the world, empowering people and creating opportunity for all. 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. Our technologies and services are designed to provide buyers choice and a breadth of relevant inventory from around the globe and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. In 2020, eBay enabled $100 billion of Gross Merchandise Volume.

On February 13, 2020, we closed the previously announced sale of our StubHub business to an affiliate of viagogo. Beginning in the first quarter of 2020, StubHub’s financial results for periods prior to the sale have been reflected in our consolidated statement of income as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior periods are classified as discontinued operations in our consolidated balance sheet. See “Note 4 – Discontinued Operations” in our consolidated financial statements included elsewhere in this report for additional information.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the world. While the disruption is currently expected to be temporary, there is uncertainty around its duration. As a result of COVID-19 mobility restrictions globally, there have been changes in consumer behavior that have resulted in more online shopping. We expect these changes in behavior to continue to evolve as the pandemic progresses. Our Marketplace platforms experienced improved traffic and buyer acquisition due to the ongoing impact of measures taken globally to contain the spread of COVID-19. The Marketplace platforms also experienced improved acquisition of small business sellers. While the impact of COVID-19 has had a positive impact on our reported results, it’s uncertain whether this consumer behavior will continue. The impacts seen to date may continue to create volatility in our results and a wider range of outcomes as consumer behaviors and mobility restrictions continue to evolve. See “Results of Operations” below for impacts of COVID-19 on our results for the twelve months ended December 31, 2020. For additional information, see “– Liquidity and Capital Resource Requirements” below and “Item 1A: Risk Factors” under the caption “The global COVID-19 pandemic could harm our business and results of operations” in Part II of this report.

On July 20, 2020, we entered into a definitive agreement to transfer our Classifieds business to Adevinta ASA (“Adevinta”) for $2.5 billion in cash, subject to certain adjustments, and approximately 540 million shares in Adevinta. These shares would represent, approximately 44% of Adevinta’s total outstanding shares and approximately 33% of Adevinta’s outstanding voting shares, based on the number of Adevinta’s outstanding shares as of June 30, 2020. Together, the total consideration payable under the definitive agreement is valued at

approximately $9.2 billion, based on the closing trading price of Adevinta shares on the Oslo Stock Exchange on July 17, 2020. We believe the transaction will close by the end of the first quarter of 2021. Completion of the transaction is subject to certain conditions, including receipt of certain regulatory approvals and other risks and uncertainties. We have classified the results of our Classifieds business as discontinued operations in our consolidated statement of income for the periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in our consolidated balance sheet. See “Note 4 – Discontinued Operations” in our 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.

Our commerce platforms operate globally, resulting in certain revenues that are denominated in foreign currencies, primarily the British pound, euro, Korean won and Australian dollar, subjecting us to foreign currency risk which may impact our financial results. Because of this and the fact that we generate a majority of our net revenues internationally, including during the years ended December 31, 2020, 2019 and 2018, we are subject to the risks related to doing business in foreign countries as discussed under “Item 1A: Risk Factors.”

The effect of foreign currency exchange rate movements during 2020 was primarily attributable to the strengthening of the U.S. dollar against the Korean won, partially offset by the weakening of the U.S. dollar against the euro.

Fiscal Year Highlights

Net revenues increased 19% to $10.3 billion in 2020 compared to 2019, primarily driven by improved traffic and buyer acquisition, which we attribute primarily to global restrictions implemented to contain the spread of COVID-19 which resulted in more online shopping during 2020. FX-Neutral net revenue (as defined above) increased 20% in 2020 compared to 2019. Operating margin increased to 26.4% in 2020 compared to 21.6% in 2019.

We generated cash flow from continuing operating activities of $3.1 billion in 2020 compared to $2.6 billion in 2019, ending the year with cash, cash equivalents and non-equity investments for continuing operations of $4.1 billion.

During 2020, we issued senior unsecured notes of $1.8 billion, which consisted of $800 million of 1.900% fixed rate notes due 2025 and $950 million of 2.700% fixed rate notes due 2030. In addition, we repaid approximately $1.8 billion of debt comprising of $500 million of 2.150% senior fixed rate notes due 2020, $500 million of 3.250% senior fixed rate notes due 2020 and $750 million related to 2.875% senior fixed rate notes due 2021. We also repurchased $5.1 billion of shares and paid $447 million in dividends during 2020.

Diluted earnings per share from continuing operations was $3.54 in 2020 compared to diluted earnings per share of $1.77 in 2019. In February 2021, we declared a quarterly cash dividend of $0.18 per share of common stock to be paid on March 19, 2021 to stockholders of record as of March 1, 2021.

RESULTS OF OPERATIONS

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, we expect net revenues to fluctuate. In addition, macroeconomic conditions, such as the ongoing COVID-19 pandemic, may also contribute to fluctuations in revenues and margins. The following table sets forth, for the periods presented, our total net revenues and the sequential quarterly movements of these net revenues (in millions, except percentages):

			Quarter Ended
			March 31						June 30						September 30						December 31
2018
Net revenues			$	2,104					$	2,137					$	2,107					$	2,302
Percent change from prior quarter			(2)		%				2		%				(1)		%				9		%
2019
Net revenues			$	2,161					$	2,156					$	2,083					$	2,236
Percent change from prior quarter			(6)		%				—		%				(3)		%				7		%
2020
Net revenues			$	2,129					$	2,668					$	2,606					$	2,868
Percent change from prior quarter			(5)		%				25		%				(2)		%				10		%

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 presented (in millions, except percentages):

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
U.S.			$	4,151					26		%				3,303						(2)		%				$	3,382
Percentage of net revenues			40		%										38		%										39		%
International			6,120						15		%				5,333						1		%				5,268
Percentage of net revenues			60		%										62		%										61		%
Total net revenues			$	10,271					19		%				$	8,636					—		%				$	8,650

Net revenues included $15 million and $81 million of hedging gains and $8 million of hedging losses during the years ended December 31, 2020, 2019 and 2018, respectively. Foreign currency movements relative to the U.S. dollar had a favorable impact of $1 million, an unfavorable impact of $153 million and a favorable impact of $139 million on net revenues for the years December 31, 2020, 2019 and 2018, respectively. The effect of foreign currency exchange rate movements in 2020 compared to 2019 was primarily attributable to the strengthening of the U.S. dollar against the Korean won, partially offset by the weakening of the U.S. dollar against the euro. The effect of foreign currency exchange rate movements in 2019 compared to 2018 was primarily attributable to the strengthening of the U.S. dollar against the euro, British pound and Korean won.

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 advertisements, revenue sharing arrangements and first-party inventory programs.

The following table presents net revenues by type (in millions, except percentages):

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
Net transaction revenues			$	9,300					23		%				$	7,578					2		%				$	7,416
Marketing services and other revenues			971						(8)		%				1,058						(14)		%				1,234
Total net revenues			$	10,271					19		%				$	8,636					—		%				$	8,650

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 successfully closed transactions between users on our platforms during the applicable period, regardless of whether the buyer and seller actually consummated the transaction. Despite GMV’s divergence from revenue, we still believe that GMV provides a useful measure of the overall volume of closed transactions that flow through our platforms in a given period, notwithstanding the inclusion in GMV of closed transactions that are not ultimately consummated.

Take rate is defined as net transaction revenues divided by GMV.

The following table presents GMV and take rate for the periods presented (in millions, except percentages):

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
GMV			$	100,001					17		%				$	85,510					(5)		%				$	89,829
Transaction take rate			9.30		%				0.44		%				8.86		%				0.61		%				8.25		%

Net Transaction Revenues

			Year Ended December 31,												% Change												Year Ended December 31,												% Change
			2020						2019						As Reported						FX-Neutral						2019						2018						As Reported						FX-Neutral
Net transaction revenues (1)			9,300						7,578						23		%				24		%				7,578						7,416						2		%				4		%
Supplemental data:
GMV			100,001						85,510						17		%				17		%				85,510						89,829						(5)		%				(2)		%
Take rate			9.30		%				8.86		%				0.44		%										8.86		%				8.25		%				0.61		%

(1)Marketplace net transaction revenues were net of $15 million, $81 million and $8 million hedging activity during the years ended December 31, 2020, 2019 and 2018 respectively.

Net transaction revenues increased in 2020 compared to 2019 primarily due to an increase in GMV due to improved traffic and buyer acquisition due to global restrictions implemented to contain the spread of COVID-19 which resulted in consumers engaging in more online shopping during 2020 and higher take rate due to the expansion of managed payments and promoted listings. Transaction take rate was higher in 2020 compared to 2019, due to the expansion of managed payments and due to promoted listings, which along with final value fees are calculated as a percentage of an item’s sale price and category mix.

Net transaction revenues increased in 2019 compared to 2018 primarily due to growth in promoted listing fees and a higher take rate. Transaction take rate was higher in 2019 compared to 2018, primarily due to growth in promoted listing fees, which along with final value fees are calculated as a percentage of an item’s sale price, and category mix. The increase in net transaction revenues in 2019 compared to 2018 was due to take rate considerations discussed above, despite declining GMV. We expect that the divergence between net transaction revenues and GMV will continue. Despite GMV’s divergence from net transaction revenues during the year, we still believe the metric provides a useful measure of overall volume of closed transactions that flow through the platform in a given period.

Marketing Services and Other Revenues

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

			Year Ended December 31,												% Change												Year Ended December 31,												% Change
			2020						2019						As Reported						FX-Neutral						2019						2018						As Reported						FX-Neutral
MS&O revenues			$	971					$	1,058					(8)		%				(8)		%				$	1,058					$	1,234					(14)		%				(12)		%
Percentage of net revenues			9		%				12		%																12		%				14		%

The decrease in MS&O revenues during 2020 compared to 2019 was primarily due to lower advertising revenues that were driven by our ongoing shift to promoted listing fees, which are recognized in net transaction revenues and the sale of brands4friends in the third quarter of 2019, partially offset by an increase attributable to our first-party inventory program in Korea.

The decrease in MS&O revenues during 2019 compared to 2018 was primarily due to a decrease in advertising revenues that was driven by our ongoing shift to promoted listing fees, which are recognized in net transaction revenues and lower revenues resulting from the sale of brands4friends. These decreases were partially offset by increases in first-party inventory program in Korea in 2019 compared to 2018.

Cost of Net Revenues

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

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
Cost of net revenues			$	2,473					16		%				$	2,136					6		%				$	2,023
As a percentage of net revenues			24.1		%										24.7		%										23.4		%

The increase in cost of net revenues in 2020 compared to 2019 was primarily due to an increase in payment processing costs as we continue to transition customers to our payments platform and an increase in cost of goods sold related to our first-party inventory program in Korea. The increase in cost of net revenues was partially offset by lower cost of goods sold due to the sale of brands4friends in the third quarter of 2019.

The increase in cost of net revenues in 2019 compared to 2018 was primarily due to an increase in site operation and payment processing costs as we increased our investments in our business, and an increase in costs of goods sold driven by our first-party inventory program in Korea.

Cost of net revenues, net of immaterial hedging activities, was favorably impacted by $7 million attributable to foreign currency movements relative to the U.S. dollar in 2020 compared to 2019. Cost of net revenues, net of immaterial hedging activities, was favorably impacted by $49 million attributable to foreign currency movements relative to the U.S. dollar in 2018.

Operating Expenses

The following table presents operating expenses (in millions, except percentages):

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
Sales and marketing			$	2,639					11		%				$	2,368					(8)		%				$	2,576
Percentage of net revenues			26		%										27		%										30		%
Product development			1,087						11		%				976						(7)		%				1,051
Percentage of net revenues			11		%										11		%										12		%
General and administrative			1,003						—		%				1,005						3		%				979
Percentage of net revenues			10		%										12		%										11		%
Provision for transaction losses			331						26		%				262						6		%				247
Percentage of net revenues			3		%										3		%										3		%
Amortization of acquired intangible assets			27						(4)		%				28						27		%				22
Total operating expenses			$	5,087					10		%				$	4,639					(5)		%				$	4,875

Foreign currency movements relative to the U.S. dollar had a favorable impact of $8 million on operating expenses in 2020 compared to 2019. Operating expenses were favorably impacted by $88 million attributable to foreign currency movements relative to the U.S. dollar in 2019 compared to 2018. There was no hedging activity within operating expenses in 2020 and 2019.

Sales and Marketing

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

The increase in sales and marketing expense in 2020 compared to 2019 was primarily due to an increase in online and offline advertising expenses and employee-related costs.

The decrease in sales and marketing expense in 2019 compared to 2018 was primarily due to a favorable impact from foreign currency movements relative to the U.S. dollar and decreases in offline advertising spend and employee-related costs. These costs were partially offset by online marketing spend and user coupons and rewards largely driven by our Japan platform acquired in the second quarter of 2018.

Product Development

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

Capitalized internal use and platform development costs were $129 million and $137 million in 2020 and 2019, respectively, and are primarily reflected as a cost of net revenues when amortized in future periods.

The increase in product development expenses in 2020 compared to 2019 was primarily due to an increase in employee-related costs.

The decrease in product development expenses in 2019 compared to 2018 was primarily due to decreases in employee-related costs, foreign currency movement relative to the U.S. dollar and depreciation on equipment.

General and Administrative

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

The decrease in general and administrative expenses in 2020 compared to 2019 was primarily due to restructuring costs incurred in 2019 related to our global workforce reduction partially offset by charitable contributions and employee related costs.

The increase in general and administrative expenses in 2019 compared to 2018 was primarily due to severance costs incurred in 2019 related to our CEO transition.

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 in 2020 compared to 2019 was primarily due to an increase in customer protection program costs as a result of increased volume and bad debt expense.

The increase in provision for transaction losses in 2019 compared to 2018 was primarily due to an increase in bad debt expense.

Interest and Other, Net

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

			Year Ended December 31,
			2020						% Change						2019						% Change						2018
Interest income			$	39					(68)		%				$	120					(32)		%				$	176
Interest expense			(305)						(2)		%				(311)						(5)		%				(326)
Gains on investments and sale of business			1,007						**						80						**						663
Other			(32)						**						(1)						**						(16)
Total interest and other, net			$	709					**						$	(112)					**						$	497

** Not meaningful

The increase in interest and other, net in 2020 compared to 2019 was primarily attributable to the change in the fair value of the Adyen warrant, the change in fair value of our investment in Kakao Bank, the absence of a loss recorded in 2019 for the divestiture of brands4friends and a gain recorded for the receipt of proceeds that were held in escrow related to a long-term investment that was sold in 2018. These increases were partially offset by lower interest income, an impairment recorded on an investment and foreign exchange losses.

The decrease in interest and other, net in 2019 compared to 2018 was primarily attributable to the gain recognized on the sale of our investment in Flipkart of $313 million and the relinquishment of our existing equity method investment in Giosis of $266 million that did not occur in 2019, the loss recorded upon the divestiture of brands4friends of $52 million partially offset by the gain recognized due to the change in fair value of the Adyen warrant of $133 million that occurred in 2019.

Income Tax Provision

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

			Year Ended December 31,
			2020						2019						2018
Income tax provision (benefit)			$	878					$	233					$	121
Effective tax rate			25.7		%				13.3		%				5.4		%

The increase in our effective tax rate in 2020 compared to 2019 was primarily due to tax rate changes enacted in the fourth quarter which resulted in a net tax charge as our deferred tax assets were remeasured to the new rates. Additionally, our tax rate increased due to the effects of a retroactive California law change which resulted in incremental tax on the gain on the sale of StubHub. These impacts were partially offset by a reduction in the 2019 effective tax rate from the effective settlements of audits, and a benefit due to the enacted New York state legislation regarding the taxability of foreign earnings.

The increase in our effective tax rate in 2019 compared to 2018 was primarily due to the $463 million reduction in 2018 to the provisional tax amounts recorded in 2017 related to the Tax Cuts and Jobs Act and the gain recognized from the relinquishment of our existing equity method investment in Giosis that was not subject to U.S. federal income tax on a current basis that did not recur in 2019 and certain expenses in 2019. These impacts were partially offset by a reduction in the 2019 by the effective tax rate from the effective settlements of audits and a benefit due to the enacted New York state legislation regarding the taxability of foreign earnings.

We are regularly under examination by tax authorities both domestically and internationally. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations, although we cannot assure you that this will be the case given the inherent uncertainties in these examinations. Due to the ongoing tax examinations, it is generally impractical to determine the amount and timing of these adjustments. However, we expect several tax examinations to close within the next twelve months. See “Note 16 – Income Taxes” to the consolidated financial statements included in this report for more information on estimated settlements within the next twelve months.

Discontinued Operations

On November 24, 2019, we entered into a stock purchase agreement with an affiliate of viagogo to sell our StubHub business. The sale of our StubHub business was completed on February 13, 2020. Beginning in the first quarter of 2020, StubHub’s financial results for periods prior to the sale have been reflected in our consolidated statement of income as discontinued operations. Additionally, the related assets and liabilities associated with the discontinued operations in the prior periods are classified as discontinued operations in our consolidated balance sheet. See “Note 4 – Discontinued Operations” in our consolidated financial statements included elsewhere in this report for additional information.

On July 20, 2020, we entered into a definitive agreement with Adevinta ASA (“Adevinta”) to transfer our Classifieds business to Adevinta for $2.5 billion in cash, subject to certain adjustments, and approximately 540 million shares in Adevinta. Together, the total consideration payable under the definitive agreement is valued at approximately $9.2 billion, based on the closing trading price of Adevinta’s outstanding shares on the Oslo Stock Exchange on July 17, 2020. We believe the transaction will close by the end of the first quarter of 2021. Completion of the transaction is subject to certain conditions, including receipt of certain regulatory approvals, and other risks and uncertainties, including general industry and economic conditions outside our control. As a result, we have classified the results of our Classifieds business as discontinued operations in our consolidated statement of income for the periods presented. Additionally, the related assets and liabilities associated with the discontinued operations are classified as held for sale in our consolidated balance sheet. See “Note 4 – Discontinued Operations” in our consolidated financial statements included elsewhere in this report for additional information.

Non-GAAP Measures of Financial Performance

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

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

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

The following tables set forth a reconciliation of FX-Neutral GMV and FX-Neutral net revenues (each as defined below) to our reported GMV and net revenues for the periods presented (in millions, except percentages):

			Year Ended December 31, 2020																		Year Ended December 31, 2019
			As Reported						Exchange Rate Effect (1)						FX-Neutral (2)						As Reported						As Reported % Change						FX-Neutral % Change
GMV			$	100,001					$	(237)					$	100,238					$	85,510					17		%				17		%
Net Revenues:
Net transaction revenues (3)			$	9,300					$	5					$	9,295					$	7,578					23		%				24		%
Marketing services and other revenues			971						(4)						975						1,058						(8)		%				(8)		%
Total net revenues			$	10,271					$	1					$	10,270					$	8,636					19		%				20		%

			Year Ended December 31, 2019																		Year Ended December 31, 2018
			As Reported						Exchange Rate Effect (1)						FX-Neutral (2)						As Reported						As Reported % Change						FX-Neutral % Change
GMV			$	85,510					$	(2,745)					$	88,255					$	89,829					(5)		%				(2)		%
Net Revenues:
Net transaction revenues (3)			$	7,578					$	(123)					$	7,701					$	7,416					2		%				4		%
Marketing services and other revenues			1,058						(30)						1,088						1,234						(14)		%				(12)		%
Total net revenues			$	8,636					$	(153)					$	8,789					$	8,650					—		%				1		%

(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 $15 million, $81 million and $8 million of hedging activity in 2020, 2019 and 2018, respectively.

Liquidity and Capital Resources

Cash Flows

			Year Ended December 31,
			2020						2019						2018
			(In millions)
Net cash provided by (used in):
Continuing operating activities			$	3,146					$	2,583					$	2,210
Continuing investing activities			(219)						2,922						2,922
Continuing financing activities			(5,690)						(7,093)						(5,398)
Effect of exchange rates on cash, cash equivalents and restricted cash			77						(33)						(75)
Net increase in cash, cash equivalents and restricted cash - discontinued operations			3,284						398						420
Net increase (decrease) in cash, cash equivalents and restricted cash			$	598					$	(1,223)					$	79

Continuing Operating Activities

Cash provided by continuing operating activities of $3.1 billion in 2020 was primarily attributable to net income of $5.7 billion with adjustments for income from discontinued operations of $3.1 billion, $609 million in depreciation and amortization, $431 million in stock-based compensation, $408 million for deferred income taxes and $331 million in provision for transaction losses, partially offset by a decrease of $168 million in changes in assets and liabilities, net of acquisition effects, and $770 million for changes in the fair value of the Adyen warrant.

Cash provided by continuing operating activities of $2.6 billion in 2019 was primarily attributable to net income of $1.8 billion with adjustments for income from discontinued operations of $270 million, $629 million in depreciation and amortization, $431 million in stock-based compensation, $262 million in provision for transaction losses, $52 million loss on the sale of a business, partially offset by a decrease of $169 million in changes in assets and liabilities, net of acquisition effects, and $133 million for changes in the fair value of the Adyen warrant.

Cash provided by continuing operating activities of $2.2 billion in 2018 was primarily attributable to net income of $2.5 billion with adjustments for income from discontinued operations of $402 million, $635 million in depreciation and amortization, $465 million in stock-based compensation and $247 million in provision for transaction losses, partially offset by a decrease of $503 million in changes in assets and liabilities, net of acquisition effects, and adjustments of $573 million for gain on investments, $104 million for deferred income taxes and $104 million for changes in fair value of the Adyen warrant.

Cash paid for income taxes in 2020, 2019 and 2018 was $520 million, $270 million and $556 million, respectively. Cash paid for income taxes in 2018 included tax payments related to our liability for deemed repatriation of foreign earnings under U.S. tax reform of $168 million, including a prepayment of $72 million.

Continuing Investing Activities

Cash used in investing activities of $219 million in 2020 was primarily attributable to cash paid for purchases of investments of $32.9 billion and property and equipment of $494 million, partially offset by proceeds of $33.1 billion from the maturities and sales of investments.

Cash provided by investing activities of $2.9 billion in 2019 was primarily attributable to proceeds of $50.5 billion from the maturities and sales of investments, partially offset by cash paid for purchases of investments of $47.0 billion, property and equipment of $523 million and an equity investment in Paytm Mall of $160 million.

Cash provided by investing activities of $2.9 billion in 2018 was primarily attributable to proceeds of $30.9 billion from the maturities and sales of investments and $1.0 billion from the sale of equity investment in Flipkart, partially offset by cash paid for purchases of investments of $28.1 billion, property and equipment of $623 million and acquisitions of $302 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 financing activities of $5.7 billion in 2020 was primarily used to repurchase $5.1 billion of common stock, repay outstanding debt of $1.8 billion and pay $447 million of cash dividends, partially offset by proceeds from debt issuances of $1.8 billion.

Cash used in financing activities of $7.1 billion in 2019 was primarily used to repurchase $5.0 billion of common stock, repay outstanding debt of $1.6 billion and pay $473 million of cash dividends.

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

The positive effect of exchange rate movements on cash, cash equivalents and restricted cash was due to the weakening of the U.S. dollar against other currencies, primarily the Korean won and euro, during 2020. The negative 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, primarily the Korean won, euro and British pound during

2019. The negative 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, primarily the euro, Korean won and British pound, during 2018.

Stock Repurchases

In January 2019, our Board authorized a $4.0 billion stock repurchase program and in January 2020, our Board authorized an additional $5.0 billion stock repurchase program. These stock repurchase programs have no expiration from the date of authorization.

On February 13, 2020, we entered into accelerated share repurchase agreements (the “ASR Agreements”) with each three financial institutions (each, an “ASR Counterparty”), as part of our share repurchase program. Under the ASR Agreements, we paid an aggregate amount of $3.0 billion to the ASR Counterparties and received an initial delivery of approximately 69 million shares of our common stock, which shares were recorded as a $2.55 billion increase to treasury stock. The remaining $450 million was evaluated as an unsettled forward contract indexed to our own stock, classified within stockholders’ equity. In July 2020, the ASR Agreements settled and resulted in approximately 74 million shares repurchased at an average price per share of $40.77 and the forward contract was settled and recorded as an increase to treasury stock.

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 2020, we repurchased approximately $5.1 billion of our common stock under our stock repurchase programs. As of December 31, 2020, a total of approximately $2.0 billion remained available for future repurchases of our common stock under our stock repurchase programs. In February 2021, our Board authorized an additional $4.0 billion stock repurchase program, with no expiration from the date of authorization.

We expect, subject to market conditions and other uncertainties, to continue making opportunistic and programmatic repurchases of our common stock. However, our stock repurchase programs may be limited or terminated at any time without prior notice. The timing and actual number of shares repurchased will depend on a variety of factors, including corporate and regulatory requirements, the impacts of the COVID-19 pandemic, price and other market conditions and management’s determination as to the appropriate use of our cash.

Dividends

The company paid a total of $447 million and $473 million in cash dividends during the years ended December 31, 2020 and 2019, respectively. No cash dividends were paid in 2018. In February 2021, we declared a cash dividend of $0.18 per share of common stock to be paid on March 19, 2021 to stockholders of record as of March 1, 2021.

Senior Notes

As of December 31, 2020, we had floating- and fixed-rate senior notes outstanding for an aggregate principal amount of $7.8 billion. 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. The floating rate notes are not redeemable prior to maturity. On and after March 1, 2021, we may redeem some or all of the 6.000% fixed rate notes due 2056 at any time and from time to time prior to their maturity, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest. We may redeem some or all of the other fixed rate notes of each series at any time and from time to time prior to their maturity, generally at a make-whole redemption price plus accrued and unpaid interest. If a change of control triggering event (as defined in the applicable senior notes) occurs with respect to the 3.800% fixed rate notes due 2022, the floating rate notes due 2023, the 2.750% fixed rate notes due 2023, the 1.900% fixed rate notes due 2025, the 3.600% fixed rate notes due 2027, the 2.700% fixed rate notes due 2030 or the 6.000% fixed rate notes due 2056, we must, subject to certain exceptions, offer to repurchase all of the notes of the applicable series at a price equal to 101% of the principal amount plus accrued and unpaid interest. For additional details related to our senior notes, please see “Note 11 – Debt” to the consolidated financial statements included in this report.

On January 29, 2021, the company announced that it issued a notice of redemption for the $750 million aggregate principal amount of the 6.000% senior notes due 2056. The effective date of this redemption will be March 1, 2021.

To help achieve our interest rate risk management objectives, in connection with the previous issuance of certain senior notes, we entered into interest rate swap agreements that effectively converted $2.4 billion of the fixed rate notes to floating rate debt based on the London Interbank Offered Rate (“LIBOR”) plus a spread. These swaps were designated as fair value hedges against changes in the fair value of certain fixed rate senior notes resulting from changes in interest rates. As of December 31, 2019, we had no interest rate swaps designated as fair value hedges outstanding as $1.15 billion related to our 2.200% senior notes of the $2.4 billion aggregate notional amount matured in 2019 and in 2019 we terminated the interest rate swaps related to $750 million of our 2.875% senior notes due July 2021 and $500 million of our 3.450% senior notes due July 2024. As a result of the early termination, hedge accounting was discontinued prospectively and the gain on termination was recorded as an increase to the long-term debt balance and is being recognized over the remaining life of the underlying debt as a reduction to interest expense. The gain recognized was immaterial during the years ended December 31, 2020 and December 31, 2019, respectively. For additional details related to the interest rate swap termination, please see, “Note 11 – Debt” to the consolidated financial statements included in this report.

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 December 31, 2020 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.

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.

Commercial Paper

We have a commercial paper program pursuant to which we may issue commercial paper notes in an aggregate principal amount at maturity of up to $1.5 billion outstanding at any time with maturities of up to 397 days from the date of issue. As of December 31, 2020, 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. The credit agreement replaced our prior $2 billion unsecured revolving credit agreement dated November 2015, which was terminated effective March 2020.

As of December 31, 2020, 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. However, as of December 31, 2020, 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 for the period ended December 31, 2020.

Credit Ratings

As of December 31, 2020, we were rated investment grade by Standard and Poor’s Financial Services, LLC (long-term rated BBB+, short-term rated A-2, with a stable outlook), Moody’s Investor Service (long-term rated Baa1, short-term rated P-2, with a stable outlook), and Fitch Ratings, Inc. (long-term rated BBB, short-term rated F-2, with a stable outlook). We disclose these ratings to enhance the understanding of our sources of liquidity and the effects of our ratings on our costs of funds. Our borrowing costs depend, in part, on our credit ratings and any actions taken by these credit rating agencies to lower our credit ratings, as described above, will likely increase our borrowing costs.

Commitments and Contingencies

We have certain fixed contractual obligations and commitments that include future estimated payments for general operating purposes. Changes in our business needs, contractual cancellation provisions, fluctuating interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of these payments. The following table summarizes our fixed contractual obligations and commitments for our continuing operations (in millions):

Payments Due During the Year Ending December 31,						Debt						Leases						Purchase Obligations						Total
2021						$	974					$	196					$	66					$	1,236
2022						1,931						170						18						2,119
2023						1,280						116						15						1,411
2024						867						45						—						912
2025						889						34						—						923
Thereafter						3,197						42						—						3,239
						$	9,138					$	603					$	99					$	9,840

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

• Debt amounts include the principal and interest amounts of the respective debt instruments. For additional details related to our debt, please see “Note 11 – Debt” to the consolidated financial statements included in this report. This table does not reflect any amounts payable under our $2 billion revolving credit facility or $1.5 billion commercial paper program, for which no borrowings were outstanding as of December 31, 2020.

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

• Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures (computer equipment, software applications, engineering development services, construction contracts) and other goods and services entered into in the ordinary course of business.

As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits, net, the table does not include $295 million of such non-current liabilities included in other liabilities on our consolidated balance sheet as of December 31, 2020. 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. See “Note 16 – Income Taxes” to the consolidated financial statements included in this report for more information on unrecognized tax benefits.

Liquidity and Capital Resource Requirements

As of December 31, 2020 and December 31, 2019, 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 $4.1 billion and $3.7 billion, respectively. As of December 31, 2020, this amount included assets held in certain of our foreign operations totaling approximately $3.1 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.

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.

We believe that our existing cash, cash equivalents and short-term and long-term investments, together with cash expected to be generated from operations, borrowings available under our credit agreement and commercial paper program, and our access to capital markets, will be sufficient to fund our operating activities, anticipated capital expenditures, repayment of debt and stock repurchases for the foreseeable future. However, COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The future impact of COVID-19 and these containment measures 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.

Off-Balance Sheet Arrangements

As of December 31, 2020, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

We have a cash pooling arrangement with a financial institution for cash management purposes. This arrangement allows for cash withdrawals from the financial institution based upon our aggregate operating cash balances held within the same financial institution (“Aggregate Cash Deposits”). This arrangement also allows us to withdraw amounts exceeding the Aggregate Cash Deposits up to an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement. As of December 31, 2020, we had a total of $5.2 billion in aggregate cash deposits, partially offset by $4.9 billion in cash withdrawals, held within the financial institution under the cash pooling arrangement.

Indemnification Provisions

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

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

In the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with which we have commercial relations, including our standard marketing, promotions and application-programming-interface license agreements. Under these contracts, we generally indemnify, hold harmless and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by a third party with respect to our domain names, trademarks, logos and other branding elements to the extent that such marks are applicable to our performance under the subject agreement. In certain cases, we have agreed to provide indemnification for intellectual property infringement. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, losses recorded in our consolidated statement of income in connection with our indemnification provisions have not been significant, either individually or collectively.

Critical Accounting Policies, Judgments and Estimates

General

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

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

Revenue Recognition

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

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties and the complexity of taxes on foreign earnings. We review our tax positions quarterly and adjust the balances as new information becomes available. Tax positions are evaluated for potential reserves for uncertainty based on the estimated probability of sustaining the position under examination. Our income tax rate is affected by the tax rates that apply to our foreign earnings including U.S. minimum taxes on foreign earnings. The deferred tax benefit derived from the amortization of our intellectual property is based on the fair value, which has been agreed with foreign tax authorities. The deferred tax benefit may from time to time change based on changes in tax rates. As a result of U.S. tax reform and the current U.S. taxation of deemed repatriated earnings, management has no specific plans to indefinitely reinvest the undistributed earnings of our foreign subsidiaries at the balance sheet date.

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including our historical experience and short-range and long-range business forecasts. As of December 31, 2020, we had a valuation allowance on certain net operating loss and tax credit carryforwards based on our assessment that it is more likely than not that the deferred tax asset will not be realized.

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

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

The following table illustrates our effective tax rates:

			Year Ended December 31,
			2020						2019						2018
			(In millions, except percentages)
Income tax provision (benefit)			$	878					$	233					$	121
Effective tax rate			25.7		%				13.3		%				5.4		%

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

Based on our results for the year ended December 31, 2020, a one-percentage point change in our provision for income taxes as a percentage of income before taxes would have resulted in an increase or decrease in the provision of approximately $34 million, resulting in an approximate $0.05 change in diluted earnings per share.

Goodwill and Intangible Assets

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

As of December 31, 2020, our goodwill totaled $4.7 billion and our identifiable intangible assets, net totaled $12 million. We assess the impairment of goodwill of our reporting unit annually, or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow approach uses expected future operating results. The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting unit. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2020 and 2019. As of December 31, 2020, we determined that no impairment of the carrying value of

goodwill for any reporting units was required. See “Note 5 – Goodwill and Intangible Assets” to the consolidated financial statements included in this report.

Legal Contingencies

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

From time to time, we are involved in disputes and regulatory inquiries that arise in the ordinary course of business. We are currently involved in legal proceedings, some of which are discussed in “Item 1A: Risk Factors,” “Item 3: Legal Proceedings” and “Note 13 – Commitments and Contingencies” to the consolidated financial statements included in this report. We believe that we have meritorious defenses to the claims against us, and we intend to defend ourselves vigorously. However, even if successful, our defense against certain actions will be costly and could require significant amounts of management’s time and result in the diversion of significant operational resources. If the plaintiffs were to prevail on certain claims, we might be forced to pay significant damages and licensing fees, modify our business practices or even be prohibited from conducting a significant part of our business. Any such results could materially harm our business and could result in a material adverse impact on the financial position, results of operations or cash flows.

Recent Accounting Pronouncements

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