eBay 2009 Annual Report Download - page 76

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 other disclosures included
in this report.
Provision for Transaction and Loan Losses
Provision for transaction and loan losses primarily consists of bad debt expense associated with our
accounts receivable balance, loan reserves associated with our principal loan receivable balance, and PayPal
transaction loss expense, as well our losses resulting from our customer protection programs. Provisions for these
items represent our estimate of actual losses based on our historical experience, actuarial techniques, the age and
delinquency rates of receivables, the credit quality of the relevant loan, as well as economic and regulatory
conditions. The following table illustrates the provision as a percentage of net revenues for 2007, 2008 and 2009
(in thousands, except percentages):
Year Ended December 31,
2007 2008 2009
Net revenues ............................................. $7,672,329 $8,541,261 $8,727,362
Provision for transaction and loan losses ....................... $ 293,917 $ 347,453 $ 382,825
Provision for transaction and loan losses as a % of net revenues ..... 3.8% 4.1% 4.4%
Determining appropriate allowances for these losses is an inherently uncertain process, and ultimate losses
may vary from the current estimates. We regularly update our allowance estimates as new facts become known
and events occur that may impact the settlement or recovery of losses. The allowances are maintained at a level
we deem appropriate to adequately provide for losses incurred at the balance sheet date. An aggregate 50 basis
point deviation from our estimates would have resulted in an increase or decrease in operating income of
approximately $43.6 million in 2009 resulting in an approximate $0.03 change in diluted earnings per share.
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 that arise in the ordinary course of business. We are
currently involved in certain legal proceedings as discussed in “Item 1A: Risk Factors,” “Item 3: Legal
Proceedings” and “Note 13 — Commitments and Contingencies — Litigation and Other Legal Matters” 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 divert our management’s time. 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 of either or both of our business segments.
Accounting for Income Taxes
We are required to recognize a provision for income taxes based upon the taxable income and temporary
differences for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes
payable under currently enacted tax laws around the world and an analysis of temporary differences between the
book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and
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