eBay 2015 Annual Report Download - page 69

The following table illustrates the provision for transaction losses as a percentage of net revenues for 2015,
2014 and 2013:
Year Ended December 31,
2015 2014 2013
(In millions, except percentages)
Net revenues $8,592 $8,790 $8,257
Provision for transaction losses $ 271 $ 262 $ 236
Provision for transaction losses as a % of net revenues 3.2% 3.0% 2.9%
Determining appropriate allowances for these losses is an inherently uncertain process and is subject to
numerous estimates and judgments, 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 provision for transaction
losses as a percentage of net revenues would have resulted in an increase or decrease in operating income of
approximately $43 million in 2015, resulting in an approximate $0.02 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 and regulatory inquiries that arise in the ordinary course of
business. We are currently involved in legal proceedings, some of which are discussed in “Item 1A: Risk
Factors,” “Item 3: Legal Proceedings” and “Note 13 — Commitments and Contingencies” 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 require significant amounts of management’s time and result in the diversion of
significant operational resources. 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.
Recent Accounting Pronouncements
See “Note 1 — The Company and Summary of Significant Accounting Policies” to the consolidated
financial statements included in this report, regarding the impact of certain recent accounting pronouncements on
our consolidated financial statements.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk relating to our investment portfolio and our outstanding debt. We seek
to reduce earnings volatility that may result from changes in interest rates.
As of December 31, 2015, approximately 19% of our total cash and investment portfolio was held in cash
and cash equivalents. As such, changes in interest rates will impact interest income. As discussed below, fixed
rate securities may have their fair market value adversely affected due to a rise in interest rates, and we may
suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in
interest rates.
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