eBay 2002 Annual Report Download - page 104

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
Goodwill represents the excess of the purchase price over the fair value of the net tangible and
identiÑable intangible assets acquired in a business combination. In accordance with Statement of
Financial Accounting Standards No. 142 or SFAS No. 142, ""Goodwill and Other Intangible Assets,''
goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment
for impairment, applying a fair-value based test.
Impairment of long-lived assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144,
""Accounting for the Impairment or Disposal of Long-Lived Assets.'' An asset is considered impaired if its
carrying amount exceeds the future net cash Öow the asset is expected to generate. If such asset is
considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair market value. We assess the recoverability of our long-lived
and intangible assets by determining whether the unamortized balances can be recovered through
undiscounted future net cash Öows of the related assets. The amount of impairment, if any, is measured
based on projected discounted future net cash Öows using a discount rate reÖecting our average cost of
capital.
We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable. Impairment of goodwill is tested
at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the
fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of
the income, or discounted cash Öows, approach and the market approach, which utilizes comparable
companies' data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered
impaired and a second step is performed to measure the amount of impairment loss, if any.
Due to customers
Customers utilize our payment services to transfer money via the Internet. Any stored value
remaining from transactions in a customer's account represents a liability to the customer. Customers can
elect to sweep their account balances into the PayPal Money Market fund to earn a rate of return;
otherwise, no interest is paid on customer account balances.
Custodial accounts
We deposit all U.S.-based customer funds not transferred to PayPal's Money Market Fund into
Federal Deposit Insurance Corporation insured bank accounts. FDIC insurance is available to PayPal
customers if we (1) place pooled customer funds in bank accounts denominated ""PayPal as Agent for the
BeneÑt of its Customers'' or similar caption, (2) maintain records suÇcient to identify the claim of each
customer in the FDIC-insured account, (3) comply with applicable FDIC recordkeeping requirements,
and (4) truly operate as an agent of our customers. We receive a custodial credit from our service provider
in the form of a reduction in transaction processing fees based upon balances held with each institution.
This credit is recognized as a reduction in processing costs.
Environmental expenditures
As a result of our 1999 merger with ButterÑelds, we own real estate properties that are either used in
our business or leased to unrelated parties for various commercial uses. We have remediation responsibility
for certain environmental and structural deÑciencies. Liabilities are recorded when environmental
assessments are made, remediation obligations are probable, and the costs can be reasonably estimated.
Estimated liabilities of approximately $5.8 million at December 31, 2001 and $404,000 at December 31,
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