eBay 2000 Annual Report Download - page 64

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Billpoint was reincorporated in Delaware and sold 350 shares of common stock and 1,399,965 shares of
Series A preferred stock to Wells Fargo which represented approximately 35% ownership in Billpoint.
Simultaneously, eBay exchanged 25,999,350 of Billpoint's common shares for 2,599,935 shares of Series A
preferred stock. eBay continues to consolidate the Ñnancial statements of Billpoint and reÖects a minority
interest for the equity interest of Wells Fargo.
NEC
On February 17, 2000, eBay Japan Inc., a wholly owned subsidiary of eBay, entered into a shareholder
and marketing services agreement with NEC Corporation. In accordance with the shareholder agreement,
NEC acquired 30% of eBay Japan and eBay retained the remaining 70% interest of eBay Japan. eBay will
continue to consolidate the Ñnancial statements of eBay Japan due to a majority ownership interest and will
reÖect a minority interest for the equity interest of NEC.
In accordance with the marketing agreement, NEC provided marketing and services to eBay Japan in an
eÅort to deliver a minimum level of conÑrmed registered users. As compensation for the marketing and other
services performed by NEC, eBay Japan paid NEC an annual up-front fee of approximately $1.5 million. The
Ñrst payment was made in April, 2000, and additional payments will be payable on the anniversary of such
date in each of the subsequent three years as long as the contract is in eÅect. If NEC is unable to deliver the
minimum level of conÑrmed registered users, then eBay will have the right to repurchase shares of eBay Japan
from NEC.
Use of estimates
The preparation of consolidated Ñnancial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that aÅect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated Ñnancial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could diÅer from those estimates.
Principles of consolidation and basis of presentation
The Ñnancial statements as of December 31, 1999 and 2000 and for the three years ended December 31,
2000 are consolidated and include eBay and its majority owned subsidiaries. All signiÑcant intercompany
balances and transactions have been eliminated in consolidation. Certain prior period balances have been
reclassiÑed to conform to the current period presentation.
Investments in subsidiaries and general partnerships
Subsidiaries and general partnerships in which eBay holds more than 50 percent ownership are
consolidated. The consolidated accounts include 100 percent of the assets and liabilities of these subsidiaries
and general partnerships and the ownership interests of minority investors are recorded as minority interests.
Investments in entities and general partnerships where eBay holds more than 20 percent ownership but less
than 50 percent ownership and has the ability to signiÑcantly inÖuence the operations of the investee are
accounted for using the equity method of accounting, are recorded as investments in partnerships or equity
investees and are included within other assets.
Investments by third parties in the stock of eBay subsidiaries are evaluated for their impact on the
carrying amount of eBay's interest at the date such investments are made. To the extent the proceeds from
these investments diÅer from the carrying amount of the third party's ownership interest in the net equity of
the subsidiary, such diÅerences are recognized as a component of stockholders' equity.
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