eBay 2015 Annual Report Download - page 102

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
variable based on London InterBank Offered Rate (LIBOR) plus a spread. We have designated these swap
agreements as qualifying hedging instruments and are accounting for them as fair value hedges. These
transactions are characterized as fair value hedges for financial accounting purposes because they protect us
against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate
movements. Changes in the fair values of these interest rate swap agreements are recognized in other assets or
other liabilities with a corresponding increase or decrease in long-term debt. Each quarter we pay interest based
on LIBOR plus a spread to the counterparty and on a semi-annual basis receive interest from the counterparty per
the fixed rate of these senior notes. The net amount is recognized as interest expense in interest and other, net.
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 contracts on a quarterly basis. We do not use any interest rate
swap agreements for trading purposes.
For our derivative instruments designated as fair value 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.
Fair Value of Derivative Contracts
The fair value of our outstanding derivative instruments as of December 31, 2015 and 2014 were as follows:
Balance Sheet Location
December 31,
2015
December 31,
2014
(In millions)
Derivative Assets:
Foreign exchange contracts designated as cash flow
hedges Other Current Assets $42 $42
Foreign exchange contracts not designated as hedging
instruments Other Current Assets 14 20
Interest rate contracts designated as fair value hedges Other Assets 41 22
Total derivative assets $97 $84
Derivative Liabilities:
Foreign exchange contracts designated as cash flow
hedges Other Current Liabilities $ 1 $—
Foreign exchange contracts not designated as hedging
instruments Other Current Liabilities 24 20
Total derivative liabilities $25 $20
Total fair value of derivative instruments $72 $64
Under the master netting agreements with the respective counterparties to our derivative contracts, subject
to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount
payable by one party to the other. However, we have elected to present the derivative assets and derivative
liabilities on a gross basis on our consolidated balance sheet. As of December 31, 2015, the potential effect of
rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by
$20 million, resulting in net derivative assets and net derivative liabilities of $36 million and $5 million,
respectively. We are not required to pledge, nor are we entitled to receive, collateral related to our foreign
exchange derivative transactions. As of December 31, 2015, we had neither pledged nor received collateral
related to our interest rate derivative transactions.
F-28