EBAY INC, 10-K filed on 2/5/2018
Annual Report
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2017
Jan. 29, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]      
Entity Registrant Name EBAY INC    
Entity Trading Symbol EBAY    
Entity Central Index Key 0001065088    
Document Type 10-K    
Document Period End Date Dec. 31, 2017    
Amendment Flag false    
Document Fiscal Year Focus 2017    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filer No    
Entity Filer Category Large Accelerated Filer    
Entity Common Stock, Shares Outstanding   1,012,079,673  
Entity Public Float     $ 34,908,774,337
v3.8.0.1
CONSOLIDATED BALANCE SHEET - USD ($)
$ in Millions
Dec. 31, 2017
Dec. 31, 2016
Current assets:    
Cash and cash equivalents $ 2,120 $ 1,816
Short-term investments 3,743 5,333
Accounts receivable, net 695 592
Other current assets 1,185 1,134
Total current assets 7,743 8,875
Long-term investments 6,331 3,969
Property and equipment, net 1,597 1,516
Goodwill 4,773 4,501
Intangible assets, net 69 102
Deferred tax assets 5,195 4,608
Other assets 273 276
Total assets 25,981 23,847
Current liabilities:    
Short-term debt 781 1,451
Accounts payable 330 283
Accrued expenses and other current liabilities 2,134 1,893
Deferred revenue 117 110
Income taxes payable 177 110
Total current liabilities 3,539 3,847
Deferred tax liabilities 3,425 1,453
Long-term debt 9,234 7,509
Other liabilities 1,720 499
Total liabilities 17,918 13,308
Commitments and contingencies (Note 12)
Stockholders' equity:    
Common stock, $0.001 par value; 3,580 shares authorized; 1,029 and 1,087 shares outstanding 2 2
Additional paid-in capital 15,293 14,907
Treasury stock at cost, 632 and 557 shares (21,892) (19,205)
Retained earnings 13,943 14,959
Accumulated other comprehensive income 717 (124)
Total stockholders' equity 8,063 10,539
Total liabilities and stockholders' equity $ 25,981 $ 23,847
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CONSOLIDATED BALANCE SHEET (Parentheticals) - $ / shares
Dec. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Common stock - par value (in usd per share) $ 0.001 $ 0.001
Common stock - shares authorized 3,580,000,000 3,580,000,000
Common stock - shares outstanding 1,029,000,000 1,087,000,000
Treasury stock - shares 632,000,000 557,000,000
v3.8.0.1
CONSOLIDATED STATEMENT OF INCOME - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]      
Net revenues $ 9,567 $ 8,979 $ 8,592
Cost of net revenues 2,222 2,007 1,771
Gross profit 7,345 6,972 6,821
Operating expenses:      
Sales and marketing 2,515 2,368 2,267
Product development 1,224 1,114 923
General and administrative 1,031 900 1,122
Provision for transaction losses 272 231 271
Amortization of acquired intangible assets 38 34 41
Total operating expenses 5,080 4,647 4,624
Income from operations 2,265 2,325 2,197
Interest and other, net 11 1,326 209
Income from continuing operations before income taxes 2,276 3,651 2,406
Income tax benefit (provision) (3,288) 3,634 (459)
Income (loss) from continuing operations (1,012) 7,285 1,947
Income (loss) from discontinued operations, net of income taxes (4) (19) (222)
Net income (loss) $ (1,016) $ 7,266 $ 1,725
Income (loss) per share - basic:      
Continuing operations (in usd per share) $ (0.95) $ 6.43 $ 1.61
Discontinued operations (in usd per share) 0 (0.02) (0.18)
Net income (loss) per share - basic (in usd per share) (0.95) 6.41 1.43
Income (loss) per share - diluted:      
Continuing operations (in usd per share) (0.95) 6.37 1.60
Discontinued operations (in usd per share) 0 (0.02) (0.18)
Net income (loss) per share - diluted (in usd per share) $ (0.95) $ 6.35 $ 1.42
Weighted average shares:      
Basic (in shares) 1,064 1,133 1,208
Diluted (in shares) 1,064 1,144 1,220
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ (1,016) $ 7,266 $ 1,725
Other comprehensive income (loss), net of reclassification adjustments:      
Foreign currency translation adjustment 978 (185) (431)
Unrealized gains (losses) on investments, net (66) (794) (187)
Tax (expense) benefit on unrealized gains (losses) on investments, net 23 314 56
Unrealized gains (losses) on hedging activities, net (111) 18 (65)
Tax (expense) benefit on unrealized gains (losses) on hedging activities, net 17 (3) (6)
Other comprehensive income (loss), net of tax 841 (650) (633)
Comprehensive income (loss) $ (175) $ 6,616 $ 1,092
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($)
shares in Millions, $ in Millions
Total
Common stock
Additional paid-in capital
Treasury stock at cost
Retained earnings
Accumulated other comprehensive income (loss)
Stockholders' equity, beginning of period at Dec. 31, 2014   $ 2 $ 13,887 $ (14,054) $ 18,900 $ 1,171
Common stock, beginning of year (in shares) at Dec. 31, 2014   1,224        
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   $ 0        
Common stock issued (in shares)   19        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares)   (59)        
Common stock and stock-based awards issued and assumed     230      
Tax withholdings related to net share settlements of restricted stock awards and units     (245)      
Stock-based compensation     576      
Stock-based awards tax impact     90      
Other     0      
Common stock repurchased       (2,149)    
Net income (loss) $ 1,725       1,725  
Change in unrealized gains (losses) on investments           (187)
Change in unrealized gains (losses) on derivative instruments           (65)
Foreign currency translation adjustment           (431)
Tax benefit (provision) on above items           50
Distribution of PayPal         (12,912) (12)
Common stock, end of period (in shares) at Dec. 31, 2015   1,184        
Stockholders' equity, end of period at Dec. 31, 2015 6,576 $ 2 14,538 (16,203) 7,713 526
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   $ 0        
Common stock issued (in shares)   22        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares)   (119)        
Common stock and stock-based awards issued and assumed     102      
Tax withholdings related to net share settlements of restricted stock awards and units     (121)      
Stock-based compensation     416      
Stock-based awards tax impact     5      
Other     (33)      
Common stock repurchased       (3,002)    
Net income (loss) $ 7,266       7,266  
Change in unrealized gains (losses) on investments           (794)
Change in unrealized gains (losses) on derivative instruments           18
Foreign currency translation adjustment           (185)
Tax benefit (provision) on above items           311
Distribution of PayPal         (20) 0
Common stock, end of period (in shares) at Dec. 31, 2016 1,087 1,087        
Stockholders' equity, end of period at Dec. 31, 2016 $ 10,539 $ 2 14,907 (19,205) 14,959 (124)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   $ 0        
Common stock issued (in shares)   24        
Common stock repurchased/forfeited   $ 0        
Common stock repurchased/forfeited (in shares) (75) (82)        
Common stock and stock-based awards issued and assumed     120      
Tax withholdings related to net share settlements of restricted stock awards and units     (219)      
Stock-based compensation     484      
Stock-based awards tax impact     0      
Other     1      
Common stock repurchased $ (2,685)     (2,687)    
Net income (loss) $ (1,016)       (1,016)  
Change in unrealized gains (losses) on investments           (66)
Change in unrealized gains (losses) on derivative instruments           (111)
Foreign currency translation adjustment           978
Tax benefit (provision) on above items           40
Distribution of PayPal         0 0
Common stock, end of period (in shares) at Dec. 31, 2017 1,029 1,029        
Stockholders' equity, end of period at Dec. 31, 2017 $ 8,063 $ 2 $ 15,293 $ (21,892) $ 13,943 $ 717
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CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net income (loss) $ (1,016) $ 7,266 $ 1,725
(Income) loss from discontinued operations, net of income taxes 4 19 222
Adjustments:      
Provision for transaction losses 272 231 271
Depreciation and amortization 676 682 687
Stock-based compensation 483 416 379
Gain on sale of business (167) 0 0
Deferred income taxes 1,729 (4,556) (32)
Loss (gain) on sale of investments and other, net 49 (1,236) (195)
Excess tax benefits from stock-based compensation 0 (15) (74)
Changes in assets and liabilities, net of acquisition effects      
Accounts receivable (195) (48) (105)
Other current assets (148) 23 (143)
Other non-current assets 19 94 143
Accounts payable 19 (28) 226
Accrued expenses and other liabilities 206 (130) (202)
Deferred revenue 6 4 9
Income taxes payable and other tax liabilities 1,209 105 (34)
Net cash provided by continuing operating activities 3,146 2,827 2,877
Net cash provided by (used in) discontinued operating activities 0 (1) 1,156
Net cash provided by operating activities 3,146 2,826 4,033
Cash flows from investing activities:      
Purchases of property and equipment (666) (626) (668)
Purchases of investments (14,599) (11,212) (6,744)
Equity investment in Flipkart (514) 0 0
Maturities and sales of investments 14,520 10,063 6,781
Acquisitions, net of cash acquired (34) (212) (24)
Other (3) (21) (18)
Net cash used in continuing investing activities (1,296) (2,008) (673)
Net cash used in discontinued investing activities 0 0 (2,938)
Net cash used in investing activities (1,296) (2,008) (3,611)
Cash flows from financing activities:      
Proceeds from issuance of common stock 120 102 221
Repurchases of common stock (2,746) (2,943) (2,149)
Tax withholdings related to net share settlements of restricted stock awards and units (219) (121) (245)
Proceeds from issuance of long-term debt, net 2,484 2,216 0
Repayment of debt (1,452) (20) (850)
Other 29 22 63
Net cash used in continuing financing activities (1,784) (744) (2,960)
Net cash provided by (used in) discontinued financing activities 0 0 (1,594)
Net cash (used in) provided by financing activities (1,784) (744) (4,554)
Effect of exchange rate changes on cash and cash equivalents 238 (90) (364)
Net increase (decrease) in cash and cash equivalents 304 (16) (4,496)
Cash and cash equivalents at beginning of period 1,816 1,832 6,328
Cash and cash equivalents at end of period 2,120 1,816 1,832
Supplemental cash flow disclosures:      
Cash paid for interest 285 220 175
Cash paid for income taxes 308 492 256
Noncash investing activities:      
Sale of business in exchange for ownership interest in Flipkart $ 211 $ 0 $ 0
v3.8.0.1
The Company and Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
Accounting Policies [Abstract]  
The Company and Summary of Significant Accounting Policies The Company and Summary of Significant Accounting Policies

The Company

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized counterparts and the eBay mobile apps. Our StubHub platforms include our online ticket platform located at www.stubhub.com, the StubHub mobile apps and Ticketbis. Our Classifieds platforms include a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. 

When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

In 2015, we completed the distribution of 100% of the outstanding common stock of PayPal Holdings, Inc. (“PayPal”) to our stockholders (the “Distribution”) and closed the sale of our former Enterprise segment (“Enterprise”). As a result, the financial results and related assets and liabilities of PayPal and Enterprise were retrospectively reflected as discontinued operations in our consolidated statement of income and consolidated balance sheet. See “Note 4 - Discontinued Operations” for additional information.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill and the recoverability of intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Principles of consolidation and basis of presentation

The accompanying financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities (“VIE”) where we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Minority interests are recorded as a noncontrolling interest. A qualitative approach is applied to assess the consolidation requirement for VIEs. Investments in entities where we hold at least a 20% ownership interest and have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investees’ results of operations is included in interest and other, net and our investment balance is included in long-term investments. Investments in entities where we hold less than a 20% ownership interest are generally accounted for using the cost method of accounting, and our share of the investees’ results of operations is included in our consolidated statement of income to the extent dividends are received.

Certain prior period amounts have been reclassified on our consolidated balance sheet to conform with current year presentation. We have evaluated all subsequent events through the date the consolidated financial statements were issued.

Revenue recognition

We generate net transaction revenues primarily from final value fees and listing fees paid by sellers. Final value fee revenues are recognized at the time that the transaction is successfully closed, while listing fee revenues are recognized ratably over the estimated period of the listing. An auction transaction is considered successfully closed when at least one buyer has bid above the seller’s specified minimum price or reserve price, whichever is higher, at the end of the transaction term.

Our marketing services revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, marketing service fees and lead referral fees. Our advertising revenues are derived principally from the sale of online advertisements. The duration of our advertising contracts has ranged from one week to five years, but is generally one week to one year. Advertising revenues on contracts are recognized as “impressions” (i.e., the number of times that an advertisement appears in pages viewed by users of our platforms) are delivered, or as “clicks” (which are generated each time users on our platforms click through our advertisements to an advertiser’s designated website) are provided to advertisers. For contracts with minimum monthly or quarterly advertising commitments where the fee and commitments are fixed throughout the term, we recognize revenue ratably over the term of the agreement. We also may enter into arrangements to purchase services from certain customers and if the service is not considered an identifiable benefit that is separable from the customer’s purchase of our services or for which we cannot reasonably estimate fair value, the fees paid to the customer are recorded as a reduction in revenue. Some of our advertising contracts consist of multiple elements which generally include a blend of various impressions and clicks as well as other marketing deliverables. Where neither vendor-specific objective evidence nor third-party evidence of selling price exists, we use management’s best estimate of selling price (“BESP”) to allocate arrangement consideration on a relative basis to each element. BESP is generally based on the selling prices of the various elements when they are sold to customers of a similar nature and geography on a stand-alone basis or estimated stand-alone pricing when the element has not previously been sold on a stand-alone basis. These estimates are generally based on pricing strategies, market factors and strategic objectives. Revenues related to revenue sharing arrangements are recognized based on revenue reports received from our partners, provided that collectability is reasonably assured. Revenues related to fees for listing items on our Classifieds platforms are recognized over the estimated period of the classified listing. Lead referral fee revenue is generated from lead referral fees based on the number of times users click through to a merchant’s website from our platforms. Lead referral fees are recognized in the period in which a user clicks through to the merchant’s website.

Our other revenues are derived principally from contractual arrangements with third parties that provide services to our users. Revenues from contractual arrangements with third parties are recognized as the contracted services are delivered to end users.

To drive traffic to our platforms, we provide incentives to our users in the form of coupons and buyer and seller rewards. These incentives are generally treated as reductions in revenue.

Internal use software and platform development costs

Direct costs incurred to develop software for internal use and platform development costs are capitalized and amortized over an estimated useful life of one to five years. During the years ended December 31, 2017 and 2016, we capitalized costs, primarily related to labor and stock-based compensation, of $140 million and $137 million, respectively. Amortization of previously capitalized amounts was $156 million, $149 million and $110 million for 2017, 2016 and 2015, respectively. Costs related to the design or maintenance of internal use software and platform development are expensed as incurred.

Advertising expense

We expense the costs of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used, in each case as sales and marketing expense. Internet advertising expenses are recognized based on the terms of the individual agreements, which are generally over the greater of the ratio of the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract. Advertising expense totaled $1.3 billion, $1.2 billion and $1.0 billion for the years ended December 31, 2017, 2016 and 2015, respectively.

Stock-based compensation

We have equity incentive plans under which we grant equity awards, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units, and performance share units, to our directors, officers and employees. We primarily issue RSUs. We determine compensation expense associated with RSUs based on the fair value of our common stock on the date of grant. We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model. We generally recognize compensation expense using a straight-line amortization method over the respective vesting period for awards that are ultimately expected to vest. Accordingly, stock-based compensation expense for 2017, 2016 and 2015 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. We recognize a benefit or provision from stock-based compensation in earnings as a component of income tax expense to the extent that an incremental tax benefit or deficiency is realized by following the ordering provisions of the tax law. In addition, we account for the indirect effects of stock-based compensation on the research tax credit and the foreign tax credit through our consolidated statement of income.

Provision for transaction losses

Provision for transaction losses consists primarily of losses resulting from our customer protection programs, fraud and bad debt expense associated with our accounts receivable balance. Provisions for these items represent our estimate of actual losses based on our historical experience and many other factors including changes to our customer protection programs, the impact of regulatory changes as well as economic conditions.

Income taxes

We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to be realized based on available evidence.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We have accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional basis. Our accounting for certain income tax effects is incomplete, but we have determined reasonable estimates for those effects. Our reasonable estimates are included in our financial statements as of December 31, 2017.  We expect to complete our accounting during the one year measurement period from the enactment date.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are primarily comprised of bank deposits and certificates of deposit.

Allowance for doubtful accounts and authorized credits

We record our allowance for doubtful accounts based upon our assessment of various factors. We consider historical experience, the age of the accounts receivable balances, current economic conditions and other factors that may affect our customers’ ability to pay. The allowance for doubtful accounts and authorized credits was $102 million and $81 million as of December 31, 2017 and 2016, respectively.

Investments

Short-term investments, which may include marketable equity securities, time deposits, certificates of deposit, government bonds and corporate debt securities 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 income tax provisions or benefits.

Long-term investments may include marketable government bonds and corporate debt securities, time deposits, certificates of deposit and cost and equity method investments. Debt securities are classified as available-for-sale and are reported at fair value using the specific identification method. Unrealized gains and losses on our available-for-sale investments are excluded from earnings and reported as a component of other comprehensive income (loss), net of related estimated income tax provisions or benefits.

Our equity method investments are primarily investments in privately-held companies. Our consolidated results of operations include, as a component of interest and other, net, our share of the net income or loss of the equity method investments. Our share of investees’ results of operations is not significant for any period presented. Our cost method investments consist of investments in privately held companies and are recorded at cost. Amounts received from our cost method investees were not material to any period presented.

We assess whether an other-than-temporary impairment loss on our investments has occurred due to declines in fair value or other market conditions. With respect to our debt securities, this assessment takes into account the severity and duration of the decline in value, our intent to sell the security, whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis, and whether we expect to recover the entire amortized cost basis of the security (that is, whether a credit loss exists).

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally, one to three years for computer equipment and software, up to thirty years for buildings and building improvements, the shorter of five years or the term of the lease for leasehold improvements and three years for furniture, fixtures and vehicles.
 
Goodwill and intangible assets

Goodwill is tested for impairment at a minimum on an annual basis. Goodwill is tested for impairment at the reporting unit level. A qualitative assessment can be performed to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying value is compared to its fair value. The fair values of the reporting units are estimated using income and market approaches. Goodwill is considered impaired if the carrying value of the reporting unit exceeds its fair value. The discounted cash flow method, a form of the income approach, uses expected future operating results and a market participant discount rate. The market approach uses comparable company prices and other relevant information generated by market transactions (either publicly traded entities or merger and acquisitions) to develop pricing metrics to be applied to historical and expected future operating results of our reporting units. Failure to achieve these expected results, changes in the discount rate or market pricing metrics may cause a future impairment of goodwill at the reporting unit. We conducted our annual impairment test of goodwill as of August 31, 2017 and 2016. Additionally, we evaluated impairment based on the significant activities regarding the Distribution and Enterprise divestiture during 2015. See “Note 4 - Discontinued Operations” for further detail. As a result of this test, we determined that no further adjustment to the carrying value of goodwill for any reporting units was required. 

Intangible assets consist of purchased customer lists and user base, marketing related, developed technologies and other intangible assets, including patents and contractual agreements. Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to five years. No significant residual value is estimated for intangible assets.

Impairment of long-lived assets

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. In 2017, 2016 and 2015, no impairment was noted.

Foreign currency
 
Most of our foreign subsidiaries use the local currency of their respective countries as their functional currency. Assets and liabilities are translated into U.S. dollars using exchange rates prevailing at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year. Gains and losses resulting from the translation of our consolidated balance sheet are recorded as a component of accumulated other comprehensive income.

Gains and losses from foreign currency transactions are recognized as interest and other, net.

Derivative instruments

We use derivative financial instruments, primarily forwards, options and swaps, to hedge certain foreign currency and interest rate exposures. We may also use other derivative instruments not designated as hedges, such as forwards to hedge foreign currency balance sheet exposures. We do not use derivative financial instruments for trading purposes. See “Note 9 - Derivative Instruments” for a full description of our derivative instrument activities and related accounting policies.

Concentration of credit risk

Our cash, cash equivalents, accounts receivable and derivative instruments are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Our accounts receivable are derived from revenue earned from customers. In each of the years ended December 31, 2017, 2016 and 2015, no customer accounted for more than 10% of net revenues. Our derivative instruments expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the agreements.

Recently Adopted Accounting Pronouncements

In 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance to revise certain aspects of stock-based compensation guidance which includes income tax consequences, classification of awards as equity or liabilities, and classification on the statement of cash flows. We adopted the new standard in the first quarter of 2017. Adoption of this standard did not have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations.

The Company will adopt the standard effective January 1, 2018 using the full retrospective transition method and recast each prior reporting period presented.

Under the new standard, we identified one performance obligation related to the core service offered to sellers in our Marketplace platform and believe additional services mainly to promote or feature listings at the option of sellers are not distinct within the context of the contract. Accordingly, certain fees paid by sellers for these services will be recognized when the single performance obligation is satisfied or when the contract expires resulting, in some cases, in a change in the timing of recognition from current guidance. In addition, we made the policy election to consider delivery of tickets in our StubHub business to be fulfillment activities and consequently, the performance obligation is considered to be satisfied upon payment to sellers. We believe the impact of this policy election will allow an acceleration of revenue recognition for certain users. The total impact resulting from the change in timing of recognition for both the Marketplace and StubHub platforms is expected to be a net decrease in transaction revenue of less than $2 million for fiscal years 2017 and 2016, respectively and increase in deferred revenue of $20 million and $19 million
as of December 31, 2017 and 2016, respectively.

Revenue recognition related to our marketing services and other revenue derived principally from the sale of advertisements, revenue sharing arrangements, and marketing services fees will substantially remain unchanged partially due to the fact that the principal versus agent considerations under ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) will not materially change how we currently present revenue. Further, we believe certain incentives such as coupons and rewards provided to certain users from which we do not earn revenue within the context of the identified contract of $363 million and $322 million for fiscal year 2017 and 2016, respectively, should be recognized as sales and marketing expense, which historically were recorded as a reduction of revenue under current guidance.

Adoption of this guidance is expected to have the following impact on select financial statement line items for the periods presented (in millions):
 
Year Ended
December 31, 2017
 
Year Ended
December 31, 2016
 
As Reported
 
As Adjusted
 
As Reported
 
As Adjusted
 
(In millions, except per share data)
Net revenues
$
9,567

 
$
9,926

 
$
8,979

 
$
9,298

Cost of net revenues
$
2,222

 
$
2,220

 
$
2,007

 
$
2,005

Sales and marketing
$
2,515

 
$
2,878

 
$
2,368

 
$
2,690

Income (loss) from continuing operations
$
(1,012
)
 
$
(1,013
)
 
$
7,285

 
$
7,285

Net income (loss)
$
(1,016
)
 
$
(1,017
)
 
$
7,266

 
$
7,266

 
 
 
 
 
 
 
 
Net income (loss) per share - basic
$
(0.95
)
 
$
(0.95
)
 
$
6.41

 
$
6.41

 
 
 
 
 
 
 
 
Net income (loss) per share - diluted
$
(0.95
)
 
$
(0.95
)
 
$
6.35

 
$
6.35



In 2016, the FASB issued new guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We anticipate that the adoption of the new standard will increase the volatility of our other income (expense), net, as a result of the remeasurement of our equity and cost method investments. The Company will adopt this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2016, the FASB issued new guidance related to accounting for leases. The new guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or extinguishment costs, settlement of contingent consideration arising from a business combination, insurance settlement proceeds, and distributions from certain equity method investees. Additionally, the FASB issued new guidance to include restricted cash with cash and cash equivalents when reconciling the beginning-of-the-period and end-of-the-period total amounts shown on the statement of cash flows. The new standards are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We will adopt this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements.

In 2016, the FASB issued new guidance that requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This removes the exception to postpone recognition until the asset has been sold to an outside party. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. It is required to be applied on a modified retrospective basis through a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We will adopt this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance that narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, with early adoption permitted. We anticipate that the adoption of the new guidance will impact management’s consideration of strategic investments upon adoption in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2017, the FASB issued new guidance to clarify the scope and application of the sale or transfer of nonfinancial assets to noncustomers, including partial sales and also defines what constitutes an “in substance nonfinancial asset” which can include financial assets. The new guidance eliminates several accounting differences between transactions involving assets and transactions involving businesses. Further, the guidance aligns the accounting for derecognition of a nonfinancial asset with that of a business. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. We will adopt this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.

In 2017, the FASB issued new guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. The new guidance will not impact debt securities held at a discount. Adoption of this standard will be made on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. While we continue to assess the potential impact of this standard, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2017, the FASB issued new guidance to amend the scope of modification accounting for share-based payment arrangements. The amendments in the update provide guidance on types of changes to the terms or conditions of share-based payment awards would be required to apply modification accounting under ASC 718, Compensation-Stock Compensation. The amendments are effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted. We will adopt this standard in the first quarter of 2018.

In 2017, the FASB issued new guidance to simplify the application of the hedge accounting guidance in current GAAP and improve the financial reporting of hedging relationships by allowing entities to better align its risk management activities and financial reporting for hedging relationships through changes to both designation and measurement for qualifying hedging relationships and the presentation of hedge results. Further, the new guidance allows more flexibility in the requirements to qualify and maintain hedge accounting. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods with early adoption permitted. We will early adopt this guidance in the first quarter of 2018 with no material impact on our consolidated financial statements at adoption.
v3.8.0.1
Net Income (loss) Per Share
12 Months Ended
Dec. 31, 2017
Earnings Per Share [Abstract]  
Net Income (loss) Per Share Net Income (loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares.

The following table presents the computation of basic and diluted net income (loss) per share (in millions, except per share amounts):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Numerator:
 
 
 
 
 
Income (loss) from continuing operations
$
(1,012
)
 
$
7,285

 
$
1,947

Income (loss) from discontinued operations, net of income taxes
(4
)
 
(19
)
 
(222
)
Net income
$
(1,016
)
 
$
7,266

 
$
1,725

Denominator:
 
 
 
 
 
Weighted average shares of common stock - basic
1,064

 
1,133

 
1,208

Dilutive effect of equity incentive awards

 
11

 
12

Weighted average shares of common stock - diluted
1,064

 
1,144

 
1,220

Income (loss) per share - basic:
 
 
 
 
 
Continuing operations
$
(0.95
)
 
$
6.43

 
$
1.61

Discontinued operations

 
(0.02
)
 
(0.18
)
Net income (loss) per share - basic
$
(0.95
)
 
$
6.41

 
$
1.43

Income (loss) per share - diluted:
 
 
 
 
 
Continuing operations
$
(0.95
)
 
$
6.37

 
$
1.60

Discontinued operations

 
(0.02
)
 
(0.18
)
Net income (loss) per share - diluted
$
(0.95
)
 
$
6.35

 
$
1.42

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
46

 
8

 
2

v3.8.0.1
Business Combinations
12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
Business Combinations Business Combinations

Business Combinations

Acquisition activity in 2017 was immaterial. During 2016, we completed six acquisitions – Cargigi Inc., Expertmaker, SalesPredict, Ticketbis, Ticket Utils and Corrigon Ltd. – for an aggregate purchase consideration of approximately $212 million, consisting of cash. We believe these acquisitions will help us build a better user experience, improve discoverability and grow our international presence.

The consolidated financial statements include the operating results of acquired businesses from the date of each acquisition. Pro forma results of operations for these acquisitions have not been presented because the effect of the acquisitions were not material to our financial results.

The aggregate purchase consideration of our 2016 acquisitions was allocated as follows (in millions):
 
Ticketbis
 
Other
 
Total
Purchased intangible assets
$
48

 
$
28

 
$
76

Goodwill
128

 
57

 
185

Net liabilities
(35
)
 
(14
)
 
(49
)
Total
$
141

 
$
71

 
$
212



These allocations have been prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. We generally do not expect goodwill to be deductible for income tax purposes.
v3.8.0.1
Discontinued Operations
12 Months Ended
Dec. 31, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations Discontinued Operations

On June 26, 2015, our Board approved the separation of PayPal through the Distribution. To consummate the Distribution, our Board declared a pro rata dividend of PayPal Holdings, Inc. common stock to eBay’s stockholders of record as of the close of business on July 8, 2015 (the “Record Date”). Each eBay stockholder received one (1) share of PayPal Holdings, Inc. common stock for every share of eBay common stock held at the close of business on the Record Date. The Distribution occurred on July 17, 2015. Immediately following the Distribution, PayPal became an independent, publicly traded company listed on The NASDAQ Stock Market under the ticker “PYPL.” eBay continues to trade on The NASDAQ Stock Market under the ticker “EBAY.” We classified the financial results of PayPal as discontinued operations in our consolidated statement of income. Additionally, the related assets and liabilities associated with the discontinued operations were classified as discontinued operations in our consolidated balance sheet. In connection with the Distribution, we reviewed our capital allocation strategy to ensure that each of PayPal and eBay would be well capitalized at Distribution. As part of this strategy, we contributed approximately $3.8 billion of cash to PayPal in 2015.

In 2015, our Board approved a plan to sell Enterprise. Based on the expected sales proceeds, we recorded a goodwill impairment of $786 million in 2015. On July 16, 2015, we signed a definitive agreement to sell Enterprise for $925 million and on November 2, 2015, the sale closed. We recorded a loss of $35 million upon closing included within income (loss) from discontinued operations, net of income taxes. We classified the results of Enterprise as discontinued operations in our consolidated statement of income. Additionally, the related assets and liabilities were classified as discontinued operations in our consolidated balance sheet.

The financial results of PayPal and Enterprise are presented as income (loss) from discontinued operations, net of income taxes in our consolidated statement of income. The following table presents financial results of PayPal and Enterprise (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015 (1)
PayPal income (loss) from discontinued operations, net of income taxes
$
(4
)
 
$
(10
)
 
$
516

Enterprise loss from discontinued operations, net of income taxes

 
(9
)
 
(738
)
Income (loss) from discontinued operations, net of income taxes
$
(4
)
 
$
(19
)
 
$
(222
)
 
(1)
Includes PayPal financial results from January 1, 2015 to July 17, 2015 and Enterprise financial results from January 1, 2015 to November 2, 2015.

The following table presents cash flows of PayPal and Enterprise (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015 (1)
PayPal net cash provided by (used in) discontinued operating activities
$

 
$
(1
)
 
$
1,252

Enterprise net cash provided by (used in) discontinued operating activities

 

 
(96
)
Net cash provided by discontinued operating activities
$

 
$
(1
)
 
$
1,156

 
 
 
 
 
 
PayPal net cash used in discontinued investing activities
$

 
$

 
$
(3,725
)
Enterprise net cash provided by (used in) discontinued investing activities

 

 
787

Net cash used in discontinued investing activities
$

 
$

 
$
(2,938
)
 
 
 
 
 
 
PayPal net cash provided by (used in) discontinued financing activities (2)
$

 
$

 
$
(1,594
)
Enterprise net cash used in discontinued financing activities

 

 

Net cash provided by (used in) discontinued financing activities
$

 
$

 
$
(1,594
)
 
(1)
Includes PayPal financial results from January 1, 2015 to July 17, 2015 and Enterprise financial results from January 1, 2015 to November 2, 2015.
(2)
Includes $1.6 billion of PayPal cash and cash equivalents as of July 17, 2015.

PayPal

The following table presents financial results of PayPal (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015 (1)
Net revenues
$

 
$

 
$
4,793

Cost of net revenues

 

 
1,918

Gross profit

 

 
2,875

Operating expenses:
 
 
 
 
 
Sales and marketing

 

 
534

Product development

 

 
527

General and administrative

 
23

 
741

Provision for transaction and loan losses

 

 
418

Amortization of acquired intangible assets

 

 
30

Total operating expenses

 
23

 
2,250

Income (loss) from operations of discontinued operations

 
(23
)
 
625

Interest and other, net

 

 
1

Income (loss) from discontinued operations before income taxes

 
(23
)
 
626

Income tax benefit (provision)
(4
)
 
13

 
(110
)
Income (loss) from discontinued operations, net of income taxes
$
(4
)
 
$
(10
)
 
$
516

 
(1)
Includes PayPal financial results from January 1, 2015 to July 17, 2015.

Enterprise

The following table presents financial results of Enterprise (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015 (1)
Net revenues
$

 
$

 
$
904

Cost of net revenues

 

 
654

Gross profit

 

 
250

Operating expenses:
 
 
 
 
 
Sales and marketing

 

 
95

Product development

 

 
91

General and administrative

 
8

 
118

Provision for transaction losses

 

 
12

Amortization of acquired intangible assets

 

 
70

Goodwill impairment

 

 
786

Total operating expenses

 
8

 
1,172

Loss from operations of discontinued operations

 
(8
)
 
(922
)
Interest and other, net

 

 
1

Pretax loss on disposal of the discontinued operation

 

 
(35
)
Loss from discontinued operations before income taxes

 
(8
)
 
(956
)
Income tax benefit (provision)

 
(1
)
 
218

Loss from discontinued operations, net of income taxes
$

 
$
(9
)
 
$
(738
)
 
(1)
Includes Enterprise financial results from January 1, 2015 to November 2, 2015.
v3.8.0.1
Goodwill and Intangible Assets
12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets Goodwill and Intangible Assets

Goodwill

The following table presents goodwill activity for the years ended December 31, 2017 and 2016 (in millions):
 
December 31,
2015
 
Goodwill Acquired
 
Adjustments
 
December 31,
2016
 
Goodwill
Acquired
 
Adjustments
 
December 31,
2017
Goodwill
$
4,451

 
185

 
(135
)
 
$
4,501

 
10

 
262

 
$
4,773



The adjustments to goodwill during the years ended December 31, 2017 and 2016 were primarily due to foreign currency translation. There were no impairments to goodwill in 2017 and 2016.

Intangible Assets

The components of identifiable intangible assets are as follows (in millions, except years): 
 
December 31, 2017
 
December 31, 2016
 
Gross Carrying Amount  
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
Gross Carrying Amount 
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
458

 
$
(430
)
 
$
28

 
5
 
$
434

 
$
(393
)
 
$
41

 
5
Marketing-related
607

 
(587
)
 
20

 
5
 
568

 
(555
)
 
13

 
5
Developed technologies
273

 
(258
)
 
15

 
3
 
263

 
(229
)
 
34

 
3
All other
156

 
(150
)
 
6

 
4
 
154

 
(140
)
 
14

 
4
Total
$
1,494

 
$
(1,425
)
 
$
69

 
 
 
$
1,419

 
$
(1,317
)
 
$
102

 
 

  
Amortization expense for intangible assets was $64 million, $56 million and $66 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Expected future intangible asset amortization as of December 31, 2017 is as follows (in millions):
Fiscal year:
 
2018
$
45

2019
17

2020
7

2021

Thereafter

Total
$
69

v3.8.0.1
Segments
12 Months Ended
Dec. 31, 2017
Segment Reporting [Abstract]  
Segments Segments

We have one operating and reportable segment. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. In 2015, we classified the results of Enterprise, formerly our Enterprise segment, and the results of PayPal, formerly our Payments segment, as discontinued operations in our consolidated statement of income. See “Note 4 - Discontinued Operations” for additional information. The following table sets forth the breakdown of net revenues by type for the periods presented (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Net revenues by type:
 
 
 
 
 
Net transaction revenues:
 
 
 
 
 
Marketplace
$
6,450

 
$
6,107

 
$
6,103

StubHub
1,010

 
937

 
725

Total net transaction revenues
7,460

 
7,044

 
6,828

Marketing services and other revenues:
 
 
 
 
 
Marketplace
1,192

 
1,137

 
1,078

Classifieds
897

 
791

 
703

StubHub, Corporate and other
18

 
7

 
(17
)
Total marketing services and other revenues
2,107

 
1,935

 
1,764

Total net revenues
$
9,567

 
$
8,979

 
$
8,592



The following tables summarize the allocation of net revenues and long-lived tangible assets based on geography (in millions):  
 
Year Ended December 31,
 
2017
  
2016
  
2015
Net revenues by geography:
 
 
 
 
 
U.S.
$
4,091

  
$
3,866

  
$
3,624

United Kingdom
1,359

  
1,315

  
1,403

Germany
1,450

  
1,340

  
1,310

Rest of world
2,667

  
2,458

  
2,255

Total net revenues
$
9,567

 
$
8,979

 
$
8,592


 
As of December 31,
 
2017
  
2016
Long-lived tangible assets by geography:
 
 
 
U.S.
$
1,603

  
$
1,643

International
160

  
154

Total long-lived tangible assets
$
1,763

  
$
1,797



Net revenues, inclusive of the effects of foreign exchange during each period, are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider, or customer, as the case may be, is located. Long-lived assets attributed to the U.S. and international geographies are based upon the country in which the asset is located or owned.
v3.8.0.1
Investments
12 Months Ended
Dec. 31, 2017
Investments [Abstract]  
Investments Investments
The following tables summarize the unrealized gains and losses and estimated fair value of our investments classified as available-for-sale as of December 31, 2017 and 2016 (in millions):
 
December 31, 2017
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
20

  
$

  
$

 
$
20

Corporate debt securities
3,726

  
1

  
(4
)
 
3,723

 
$
3,746

  
$
1

  
$
(4
)
 
$
3,743

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
5,458

  
12

  
(24
)
 
5,446

 
$
5,458

  
$
12

  
$
(24
)
 
$
5,446

 
 
December 31, 2016
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
19

  
$

  
$

 
$
19

Corporate debt securities
5,203

  
44

  
(1
)
 
5,246

Government and agency securities
63

  
5

  

 
68

 
$
5,285

 
$
49

 
$
(1
)
 
$
5,333

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
3,848

  
15

  
(12
)
 
3,851

 
$
3,848

  
$
15

  
$
(12
)
 
$
3,851



Restricted cash is held primarily in interest bearing accounts for letters of credit primarily related to our global sabbatical program and various lease arrangements. Our fixed-income investments consist of predominantly investment grade corporate debt securities and government and agency securities. The corporate debt and government and agency securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies.

The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We regularly review investment securities for other-than-temporary impairment using both qualitative and quantitative criteria. We presently do not intend to sell any of the securities in an unrealized loss position and expect to realize the full value of all these investments upon maturity or sale.

Investment securities in a continuous loss position for greater than 12 months had an estimated fair value $360 million and an immaterial amount of unrealized losses as of December 31, 2017 and an estimated fair value of $123 million and an immaterial amount of unrealized losses as of December 31, 2016. As of December 31, 2017, these securities had a weighted average remaining duration of approximately 12 months. Refer to “Note 17 - Accumulated Other Comprehensive Income” for amounts reclassified to earnings from unrealized gains and losses.

In the fourth quarter of 2016, we sold our equity holdings of MercadoLibre, Inc., which was included in our short-term marketable equity instruments for net proceeds of $1.3 billion. The pre-tax gain of $1.3 billion was reclassified out of accumulated other comprehensive income into interest and other, net on our consolidated statement of income.

 

The estimated fair values of our short-term and long-term investments classified as available-for-sale by date of contractual maturity as of December 31, 2017 are as follows (in millions):  
 
December 31,
2017
One year or less (including restricted cash of $20)
$
3,743

One year through two years
2,391

Two years through three years
1,870

Three years through four years
575

Four years through five years
472

Thereafter
138

Total
$
9,189



Equity and cost method investments

Our equity and cost method investments are reported in long-term investments on our consolidated balance sheet. As of December 31, 2017 and 2016, our equity and cost method investments totaled $885 million and $118 million, respectively.

In 2017, we made a cost method investment of $50 million. In addition, we received a 5.44% ownership interest in Flipkart in exchange for our eBay India business and a $500 million cash investment, resulting in a cost method investment of $725 million. The gain on disposal of our eBay India business of $167 million was recorded in interest and other, net on our consolidated statement of income.

In 2017, we recorded a $61 million impairment charge to write-down our cost method investment in Jasper Infotech Private Limited (“Snapdeal”).  The investment was measured at fair value due to events and circumstances that we identified as having significant impact on its fair value. The fair value measurement of the impaired investment was measured using significant unobservable inputs. The impairment charge, representing the difference between the net book value and the fair value, was recorded to interest and other, net. In 2016, we sold a portion of our equity interest in Snapdeal. The resulting gain was recorded in interest and other, net on our consolidated statement of income.
v3.8.0.1
Fair Value Measurement of Assets and Liabilities
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures [Abstract]  
Fair Value Measurement of Assets and Liabilities Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 (in millions):
 
December 31, 2017
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
Assets:
 
 
 
 
 
Cash and cash equivalents
$
2,120

 
$
2,120

 
$

Short-term investments:
 
 
 
 
 
Restricted cash
20

 
20

 

Corporate debt securities
3,723

 

 
3,723

Total short-term investments
3,743

 
20

 
3,723

Derivatives
28

 

 
28

Long-term investments:
 
 
 
 
 
Corporate debt securities
5,446

 

 
5,446

Total long-term investments
5,446

 

 
5,446

Total financial assets
$
11,337

 
$
2,140

 
$
9,197

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Derivatives
$
29

 
$

 
$
29


 
December 31, 2016
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
Assets:
 
 
 
 
 
Cash and cash equivalents
$
1,816

 
$
1,816

 
$

Short-term investments:
 
 
 
 
 
Restricted cash
19

 
19

 

Corporate debt securities
5,246

 

 
5,246

Government and agency securities
68

 

 
68

Total short-term investments
5,333

 
19

 
5,314

Derivatives
154

 

 
154

Long-term investments:
 
 
 
 
 
Corporate debt securities
3,851

 

 
3,851

Total long-term investments
3,851

 

 
3,851

Total financial assets
$
11,154

 
$
1,835

 
$
9,319

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Derivatives
$
48

 
$

 
$
48

 
Our financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments, identical instruments in less active markets, or models using market observable inputs. The majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and currency rates. We did not have any transfers of financial instruments between valuation levels during 2017 or 2016.

Other financial instruments, including accounts receivable and accounts payable are carried at cost, which approximates their fair value because of the short-term nature of these instruments.
v3.8.0.1
Derivative Instruments
12 Months Ended
Dec. 31, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use any of our derivative instruments for trading purposes.

We use foreign currency exchange contracts to reduce the volatility of cash flows related to forecasted revenues, expenses, assets and liabilities denominated in foreign currencies. These contracts are generally one month to one year in duration, but with maturities up to 18 months. The objective of the foreign exchange contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. We evaluate the effectiveness of our foreign exchange contracts on a quarterly basis.

We use interest rate swaps to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024. These interest rate swaps had the economic effect of modifying the fixed interest obligations associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became variable based on London InterBank Offered Rate (“LIBOR”) plus a spread. The duration of these interest rate contracts matches the duration of the fixed rate notes due 2019, 2021 and 2024.

Cash Flow Hedges

For derivative instruments that are designated as cash flow hedges, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. The ineffective portion of the unrealized gains and losses on these contracts, if any, is recorded immediately in earnings. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Unrealized gains and losses in AOCI associated with such derivative instruments are immediately reclassified into earnings. As of December 31, 2017, we have estimated that approximately $53 million of net derivative loss related to our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

The amounts recognized in earnings related to the ineffective portion of our derivative instruments designated as cash flow hedges were not material in 2017 and 2016. We did not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness.

Fair Value Hedges

We have designated the interest rate swaps used to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024 as qualifying hedging instruments and are accounting for them as fair value hedges. These transactions are designated 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.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets or liabilities, including intercompany balances denominated in non-functional currencies. The gains and losses on our derivatives not designated as hedging instruments are recorded in interest and other, net, partially offset by the foreign currency gains and losses on the related assets and liabilities that are also recorded in interest and other, net.

Fair Value of Derivative Contracts

The fair values of our outstanding derivative instruments as of December 31, 2017 and 2016 were as follows (in millions):
 
Balance Sheet Location
 
December 31,
2017
 
December 31,
2016
Derivative Assets:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Assets
 
$
16

 
$
67

Foreign exchange contracts not designated as hedging instruments
Other Current Assets
 
10

 
64

Interest rate contracts designated as fair value hedges
Other Assets
 
2

 
23

Total derivative assets
 
 
$
28

 
$
154

 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Liabilities
 
$
18

 
$
3

Foreign exchange contracts not designated as hedging instruments
Other Current Liabilities
 
11

 
45

Total derivative liabilities
 
 
$
29

 
$
48

 
 
 
 
 
 
Total fair value of derivative instruments
 
 
$
(1
)
 
$
106


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, 2017, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $21 million, resulting in net derivative assets of $5 million and net derivative liabilities of $8 million.

Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following tables present the activity of derivative contracts that qualify for hedge accounting as of December 31, 2017 and 2016, and the impact of these derivative contracts on AOCI for the years ended December 31, 2017 and 2016 (in millions):
 
December 31, 2016
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
(Effective Portion) 
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
(Effective Portion)
 
December 31, 2017
Foreign exchange contracts designated as cash flow hedges
$
54

 
(104
)
 
7

 
$
(57
)

 
December 31, 2015
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
(Effective Portion) 
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
(Effective Portion) (1)
 
December 31, 2016
Foreign exchange contracts designated as cash flow hedges
$
36

 
126

 
108

 
$
54



(1)
In 2016, we reclassified $16 million in gains into earnings as a result of the discontinuance of certain cash flow hedges because it was probable the forecasted transaction would not occur by the end of the originally specified time period. 

Effect of Derivative Contracts on Consolidated Statement of Income

The following table provides a summary of the total gain (loss) recognized in the consolidated statement of income from our foreign exchange derivative contracts by location (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
(28
)
 
$

 
$

Foreign exchange contracts designated as cash flow hedges recognized in cost of net revenues and operating expenses
11

 
7

 
71

Foreign exchange contracts desig