eBay 1998 Annual Report Download - page 68

eBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Comprehensive income
Effective January 1, 1998 the Company adopted the provisions of SFAS No. 130, “Reporting Comprehensive
Income.” SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-
owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive
income.
Segment information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information.” The Company identifies its operating segments based on
business activities, management responsibility and geographical location. During the years ended December 31,
1996, 1997 and 1998, the Company operated in a single business segment operating an online person-to-person
trading community in an auction format, primarily in the United States. Through December 31, 1998, foreign
operations have not been significant in either revenue or investment in long-lived assets.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current period
presentation.
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants issued SOP No. 98-1, “Software for
Internal Use,” which provides guidance on accounting for the cost of computer software developed or obtained for
internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998.
The Company does not expect that the adoption of SOP No. 98-1 will have a material impact on its consolidated
financial statements.
Note 2—Acquisition:
Effective June 30, 1998, the Company acquired all the outstanding shares of Jump, which provides a forum
where Internet users can buy and sell items in an online auction format. The acquisition has been accounted for
using the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date.
The fair value of intangible assets was determined using a combination of methods, including replacement cost
estimates for acquired research and development and completed technology, a risk-adjusted income approach for the
acquired customer list and the amounts paid for covenants not to compete.
The total purchase price of approximately $2.3 million consisted of 428,544 shares of the Company’ s Common
Stock with an estimated fair value of approximately $2.0 million and other acquisition related expenses of
approximately $335,000, consisting primarily of payments for non-compete agreements totaling approximately
$208,000 and legal and other professional fees. Of the total purchase price, approximately $150,000 was allocated to
in-process technology and was immediately charged to operations because such in-process technology had not
reached the stage of technological feasibility at the acquisition date and had no alternative future use. The remainder
of the purchase price was allocated to net tangible liabilities assumed ($31,000) and intangible assets, including
completed technology ($500,000), customer list ($1.5 million), covenants not to compete ($208,000) and goodwill
($24,000). The intangible assets are being amortized over their estimated useful lives of eight to 24 months.