eBay 2004 Annual Report Download - page 98

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
We also entered into two interest rate swaps with two separate Ñnancial institutions to reduce our interest
rate exposure on our San Jose corporate headquarters lease payments. If either of these Ñnancial institutions
should fail to deliver under these contracts, we may be subject to variable interest rate payments. The interest
swaps will mature in March 2005.
During the years ended December 31, 2002, 2003, and 2004, no customers accounted for more than 10%
of net revenues. As of December 31, 2003 and 2004, no customers accounted for more than 10% of net
accounts receivable.
Allowances for transaction losses
Our Payments segment is exposed to transaction losses due to fraud, as well as non-performance of
customers and others. We establish allowances for estimated losses arising from processing customer
transactions, such as charge-backs for unauthorized credit card use and merchant related charge-backs due to
non-delivery of goods or services, Automated Clearing House, or ACH, returns, and debit card overdrafts.
These allowances represent an accumulation of the estimated amounts, using an actuarial technique,
necessary to provide for transaction losses incurred as of the reporting date, including those to which we have
not yet been notiÑed. The allowances are monitored monthly and are updated based on actual claims data
reported by our claims processors. The allowances are based on known facts and circumstances, internal
factors including our experience with similar cases, historical trends involving loss payment patterns and the
mix of transaction and loss types. Additions to the allowance, in the form of provisions, are reÖected as a
general and administrative expense in our consolidated statement of income. At December 31, 2003 and 2004,
the allowance for transaction losses totaled $12.0 million and $11.0 million, respectively, and was included in
accrued expenses and other current liabilities in our consolidated balance sheet.
Foreign currency
Substantially all of our foreign subsidiaries use the local currency of their respective countries as their
functional currency. Assets and liabilities are translated at exchange rates prevailing at the balance sheet
dates. Revenues, costs and expenses are translated into United States dollars at average exchange rates for the
period. Gains and losses resulting from translation are recorded as a component of accumulated other
comprehensive income (loss).
Realized gains and losses from foreign currency transactions are recognized as interest and other income,
net.
Funds receivable and funds payable to customers
Funds receivable and payable relate to our Payments segment and arise due to the time taken to clear
transactions through external payment networks. When customers fund their account using their bank account
or credit card, or withdraw money to their bank account or through a debit card transaction, there is a clearing
period before the cash is received or sent by PayPal, usually two or three business days for U.S. transactions,
and Ñve to eight business days for international transactions. Hence, these funds are treated as a receivable or
payable until the cash is settled.
Customer accounts
We deposit all U.S.-based customer funds held in U.S. dollars not transferred to PayPal's Money Market
Fund into Federal Deposit Insurance Corporation, or FDIC, insured bank accounts. FDIC insurance is
available to U.S. based PayPal customers if we (1) place pooled customer funds in bank accounts
denominated ""PayPal as Agent for the BeneÑt of its Customers'' or similar caption, (2) maintain records
suÇcient to identify the claim of each customer in the FDIC-insured account, (3) comply with applicable
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