eBay 2002 Annual Report Download - page 35

We receive tax deductions from the gains realized by employees on the exercise of certain non-
qualiÑed stock options for which the beneÑt is recognized as a component of stockholders' equity. We have
provided a full valuation allowance on the deferred tax assets relating to these stock option deductions due
to the uncertainties associated with our future stock price and the timing of employee stock option
exercises. To the extent that additional stock option deductions are not generated in future years, we will
have the ability, subject to carryforward limitations, to utilize up to $207.3 million of additional deferred
tax assets to reduce future income tax liabilities. When recognized, the tax beneÑt of tax deductions
related to stock options are accounted for as a credit to additional paid-in capital rather than a reduction
of the income tax provision.
Minority Interests in Consolidated Companies
Percent Percent
2000 Change 2001 Change 2002
(in thousands, except percent changes)
Minority interests in consolidated
companies ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,062 145% $7,514 (131)% $ (2,296)
As a percentage of net revenue ÏÏÏÏÏÏÏÏÏÏÏ 1% 1% 0%
Minority interests in consolidated companies represents the minority investor's percentage share of
income or losses from subsidiaries in which we hold a majority ownership interest and consolidate the
subsidiaries' results in our Ñnancial statements.
Third parties held minority interests in Billpoint and eBay Japan in 2000; in Billpoint, Internet
Auction, and eBay Japan in 2001; in Billpoint for part of 2002 and Internet Auction for all of 2002. The
decrease in minority interests from 2001 to 2002 primarily resulted from Internet Auction generating net
income for the Ñrst time in 2002. Additionally, our January 2002 acquisition of the remaining 35%
minority interest in Billpoint previously held by Wells Fargo Bank also contributed to the decrease. We
expect that minority interests in consolidated companies will continue to Öuctuate in future periods. If
Internet Auction, our majority-owned South Korean subsidiary, continues to be proÑtable, the minority
interests adjustment on the statement of income will continue to decrease our net income by the minority
investor's share of Internet Auction's net income.
Impact of Foreign Currency Translation
The growth in our international operations has increased our exposure to foreign currency Öuctuations.
We have foreign currency denominated net revenues, costs and expenses. These income statement amounts
are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the
U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated
transactions results in increased net revenues, operating expenses and net income. Similarly, our net
revenues, operating expenses and net income will decrease when the U.S. dollar strengthens against foreign
currencies.
A signiÑcant portion of our international net revenues, operating expenses and net income are
denominated in Euros. During the year ended December 31, 2002, the U.S. dollar weakened against the
Euro and our weighted-average translation rate used to convert Euro denominated transactions into
U.S. dollar equivalents, decreased by approximately 6% compared to the weighted-average translation rate
for the year ended December 31, 2001. This weighted-average translation rate change for the Euro resulted
in increased net revenues of approximately $11.0 million and increased operating expenses of
approximately $5.0 million during the year ended December 31, 2002.
We expect our international operations will continue to grow in signiÑcance as we develop and deploy
our global marketplace. As a result, foreign currency Öuctuations in future periods could become more
signiÑcant or even have a negative impact on our net revenues and net income.
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