eBay 2015 Annual Report Download - page 101

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
currency contracts designated as cash flow hedges may have a duration of up to 18 months. The duration of our
interest rate derivative contracts match the duration of the fixed rate notes due 2019, 2021 and 2024.
As of December 31, 2015 and 2014, we held no direct investments in auction rate securities, collateralized
debt obligations, structured investment vehicles or mortgage-backed securities.
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.
Note 9 — Derivative Instruments
Summary of 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. Our derivatives expose us to credit risk to the
extent that the counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk
by limiting our counterparties to, and by spreading the risk across, major financial institutions. In addition, the
potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing
basis. To further limit credit risk, we also enter into collateral security arrangements related to certain interest
rate derivative instruments whereby collateral is posted between counterparties if the fair value of the derivative
instrument exceeds certain thresholds. Additional collateral would be required in the event of a significant credit
downgrade by either party.
Foreign Exchange Contracts
We transact business in various foreign currencies and have significant international revenues as well as
costs denominated in foreign currencies, which subjects us to foreign currency risk. We use foreign currency
exchange contracts, primarily short-term in nature, generally one month to one year in duration but with
maturities up to 18 months, to reduce the volatility of cash flows primarily related to forecasted revenues,
expenses, assets and liabilities denominated in foreign currencies. The objective of the foreign exchange
contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by
changes in the applicable U.S. dollar/foreign currency exchange rate. For derivative instruments that are
designated as cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported as a
component of accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the
same period the forecasted transaction affects earnings. The ineffective portion of the unrealized gains and losses
on these contracts, if any, is recorded immediately in earnings. We evaluate the effectiveness of our foreign
exchange contracts on a quarterly basis. We do not use any foreign exchange contracts for trading purposes.
For our derivative instruments designated as cash flow hedges, the amounts recognized in earnings related
to the ineffective portion were not material in each of the periods presented, and we did not exclude any
component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness.
As of December 31, 2015, we have estimated that approximately $33 million of net derivative gains related to
our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings
within the next 12 months.
Interest Rate Contracts
In connection with the July 2014 issuance of our fixed rate notes due 2019, 2021 and 2024, we entered into
certain interest rate swap agreements that have the economic effect of modifying the fixed interest obligations
associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became
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