eBay 2010 Annual Report Download - page 100

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Allowance for loans and interest receivable
The allowance for loans and interest receivable represents management’s estimate of probable losses
inherent in our Bill Me Later portfolio of receivables from loans. This evaluation process is subject to numerous
estimates and judgments, primarily forecasted principal balance delinquency rates (“roll rates”). Roll rates are the
percentage of balances that we estimate will migrate from one stage of delinquency to the next based on our
historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment. The
roll rates are applied to principal balances for each stage of delinquency, from current to 180 days past due, in
order to estimate the principal loans that are probable to be charged off by the end of 180 days. The allowance for
loans and interest receivable was $50.3 million and $42.3 million at December 31, 2009 and 2010, respectively.
Funds receivable and funds payable
Funds receivable and funds payable relate primarily to our Payments segment and arise due to the time 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 settled, usually one to three business days for U.S. transactions, and
generally up to five business days for international transactions. To a lesser extent and primarily related to our
Marketplaces segment, we generate funds receivable in certain foreign locations from external credit providers
that settle within 12 months ($132.0 million as of December 31, 2010).
Customer accounts
Based on differences in regulatory requirements and commercial law in the jurisdictions where PayPal
operates, PayPal holds customer balances either as direct claims against PayPal or as an agent or custodian on
behalf of PayPal’s customers. Customer balances held as direct claims against PayPal are included on our
consolidated balance sheet as funds receivable and customer accounts with an offsetting current liability in funds
payable and amounts due to customers. We maintain these customer account balances in interest bearing bank
deposits, including time deposits with maturity dates of less than one year.
Customer funds held by PayPal as an agent or custodian on behalf of our customers are not reflected in our
consolidated balance sheet. These off-balance sheet funds totaled approximately $2.2 billion and $2.7 billion as
of December 31, 2009 and 2010, respectively. These off-balance sheet funds include funds held in the U.S. that
are deposited in bank accounts insured by the Federal Deposit Insurance Corporation and funds that customers
choose to invest in the PayPal Money Market Fund. The PayPal Money Market Fund is invested in a portfolio
managed by BlackRock Fund Advisors.
Investments
Short-term investments, which include marketable equity securities, time deposits and government and
corporate bonds with original maturities of greater than three months but less than one year when purchased, are
classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized
gains and losses are excluded from earnings and reported as a component of other comprehensive income (loss),
net of related estimated tax provisions or benefits.
Long-term investments include government and corporate bonds, time deposits and cost and equity method
investments. Debt securities and time deposits are classified as available-for-sale and are reported at fair value
using the specific identification method. Unrealized gains and losses are excluded from earnings and reported as
a component of other comprehensive income (loss), net of related estimated tax provisions or benefits. Our
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