eBay 2002 Annual Report Download - page 32

result of gains from the exercise of PayPal options assumed in the merger. In general, we expect payroll
taxes on employee stock option gains to increase during periods in which our stock price is high relative to
historic levels.
Amortization of Acquired Intangible Assets
Percent Percent
2000 Change 2001 Change 2002
(in thousands, except percent changes)
Amortization of acquired intangible assets $1,433 2,453% $36,591 (56)% $15,941
As a percentage of net revenues ÏÏÏÏÏÏÏÏÏ 0% 5% 1%
From time to time we have purchased, and we expect to continue purchasing, assets or businesses to
accelerate category and geographic expansion, increase the features and functions available to our users
and maintain a leading role in online trading. These purchase transactions may result in the creation of
acquired intangible assets and lead to a corresponding increase in the amortization expense in future
periods.
Intangible assets are comprised of purchased customer lists, developed technologies, trade names, and
other intangible assets. Intangible assets, excluding goodwill, are being amortized using the straight-line
method over estimated useful lives ranging from two to seven years. We believe the straight-line method of
amortization best represents the distribution of economic value of the identiÑed intangible assets.
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 SFAS No. 142,
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.
Amortization of acquired intangible assets decreased during 2002, primarily from the elimination of
goodwill amortization as part of our adoption of SFAS No. 142, ""Goodwill and Other Intangible Assets''
on January 1, 2002.
IdentiÑable intangible assets arising from our October 3, 2002 acquisition of PayPal consist of
PayPal's customer list of $196.9 million, its trade name of $63.6 million and developed technologies of
$16.5 million. The acquired intangible assets of PayPal will be amortized over the following estimated
useful lives: customer list Ì seven years; trade name Ì seven years; and developed technologies Ì three
years. This allocation will result in annual amortization of approximately $28.1 million for the customer
list, $9.1 million for the trade name and $5.5 million for the existing technologies. We expect the full year
of amortization from PayPal's acquired intangible assets to result in an increase of amortization expense in
2003.
Merger-related Costs
Percent Percent
2000 Change 2001 Change 2002
(in thousands, except percent changes)
Merger related costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,550 (100)% $0 0% $0
As a percentage of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0% 0% 0%
Merger-related costs were primarily attributed to direct costs associated with mergers accounted for
under the pooling of interests method. These amounts consist primarily of professional services, contract
and facility termination expenses and various registration and Ñling fees. Direct costs associated with
mergers accounted for under the purchase method are capitalized in determining the purchase price.
We incurred direct merger-related transaction costs in 2000 related to the merger with Half.com. Due
to the elimination of the pooling of interests method of accounting, merger-related costs related to
acquisitions after July 2001 were capitalized as a component of purchase price.
30