eBay 2002 Annual Report Download - page 41

obligations for the foreseeable future. However, if during that period or thereafter we are not successful in
generating suÇcient cash Öows from operations or in raising additional capital when required in suÇcient
amounts and on terms acceptable to us, our business could suÅer.
Critical Accounting Policies, Judgments and Estimates
The following description of critical accounting policies and estimates should be read in conjunction
with our Consolidated Financial Statements and other disclosures included in this Annual Report on
Form 10-K for the year ended December 31, 2002. Senior management and the Audit Committee of our
Board of Directors regularly review the appropriateness of the methodologies and estimates used in
connection with the application of our critical accounting policies.
Provisions for Doubtful Accounts and Authorized Credits
Our U.S. and International segments are exposed to losses due to uncollectible accounts and credits
to sellers. Provisions for these items represent our estimate of actual losses and credits based on our
historical experience, are monitored monthly, and are made at the time the related revenue is recognized.
The provision for doubtful accounts is recorded as a charge to operating expense, while the provision for
authorized credits is recorded as a reduction of revenues. The following table illustrates the provision for
doubtful accounts and authorized credits as a percentage of net revenues for 2000, 2001, and 2002 (in
thousands, except percents).
2000 2001 2002
Net revenues from the U.S. and International segments ÏÏÏ $426,385 $731,173 $1,118,732
Provision for doubtful accounts and authorized credits ÏÏÏÏÏ 18,237 25,243 25,455
Provision for doubtful accounts and authorized credits as a
% of net revenues from the U.S. and International
segments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.3% 3.5% 2.3%
Historically, our actual losses and credits have been consistent with these provisions. However,
unexpected or signiÑcant future changes in trends could result in a material impact to future statements of
income and cash Öows. Based on our results for the year ended December 31, 2002, a 25 basis point
deviation from our estimates would have resulted in an increase or decrease in expense and/or net
revenues of approximately $3 million. The following analysis demonstrates the potential eÅect a 25 basis
point deviation from our estimates would have upon our Ñnancial statements and is not intended to provide
a range of exposure or expected deviation (in thousands, except per share data):
Management's
¿25 Basis 2002 °25 Basis
Points Estimate Points
Provision for doubtful accounts and authorized
credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 22,934 $ 25,455 $ 28,528
Income from operationsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 356,718 354,197 351,124
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 251,482 249,891 247,951
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.86 0.85 0.85
Provision for Transaction Losses
Our Payments segment is exposed to transaction losses due to fraud, as well as non-performance of
third parties and customers. We establish allowances for estimated losses arising from processing customer
transactions, such as charge-backs for unauthorized credit card use and merchant related charge-backs due
to non-delivery of goods or services, ACH returns, and debit card overdrafts. These allowances represent
an accumulation of the estimated amounts, using an actuarial technique, necessary to provide for
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