eBay 2015 Annual Report Download - page 70

As of December 31, 2013, 100% of the outstanding senior notes bore interest at fixed rates. In July 2014, we
issued additional senior notes in an aggregate principal amount of $3.5 billion comprised of $850 million of
floating rate notes and $2.65 billion of fixed rate notes, as described in the “Shelf Registration Statement and
Long-Term Debt” section of “Item 7 — Management’s Discussion and Analysis of Financial Condition and
Results of Operations” above. In order to reduce volatility that may result from changes in interest rates, we
entered into $2.4 billion of interest rate swap agreements that have the economic effect of modifying the fixed
interest obligations associated with $1.15 billion of our 2.2% senior notes due July 2019, $750 million of our
2.875% senior notes due July 2021, and $500 million of our 3.450% senior notes due July 2024 so that the
interest payable on those notes effectively became variable based on LIBOR plus a spread. 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.
As of December 31, 2015, we held no direct investments in auction rate securities, collateralized debt
obligations, structured investment vehicles or mortgage-backed securities.
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. As of December 31, 2015, the balance of our
government bond and corporate debt security portfolio was $6.6 billion, which represented approximately 69%
of our total cash and investment portfolio. A 100 basis point increase or decrease in interest rates would not have
a material impact on our financial assets or liabilities as of December 31, 2015.
Investment Risk
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 portfolio of 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 December 31, 2015, our cost and equity method investments totaled $124 million, which represented
approximately 1% of our total cash and investment portfolio, and were primarily related to equity method
investments in privately held companies. We review our investments for impairment when events and
circumstances indicate a decline in fair value of such assets below carrying value is other-than-temporary. Our
analysis includes a review of recent operating results and trends, recent sales/acquisitions of the securities in
which we have invested and other publicly available data.
Equity Price Risk
We are exposed to equity price risk on marketable equity instruments due to market volatility. As of
December 31, 2015, the total fair value of our marketable equity instruments (primarily related to our equity
holdings in MercadoLibre) was $929 million, which represented approximately 10% of our total cash and
investment portfolio.
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