eBay 2002 Annual Report Download - page 44

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and is not intended to provide a range of exposure or expected deviation (in thousands, except per share
data):
Management's
2002
¿1% Estimate °1%
Provision for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $142,105 $145,946 $150,022
Income before income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 395,837 395,837 395,837
Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 253,732 249,891 245,815
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.87 0.85 0.84
Third-party Advertising Revenues
Our third-party advertising revenues are derived principally from the sale of online banner and
sponsorship advertisements for cash and through barter arrangements. To date, the duration of our banner
and sponsorship advertising contracts has ranged from one week to three years, but is generally one week
to three months. Advertising revenues on both banner and sponsorship contracts are recognized as
""impressions'' (i.e., the number of times that an advertisement appears in pages viewed by users of our
websites) are delivered or ratably over the term of the agreement where such agreements provide for
minimum monthly or quarterly advertising commitments or where such commitments are Ñxed throughout
the term. Barter transactions are valued based on amounts realized in similar cash transactions occurring
within six months prior to the date of the barter transaction. To the extent that signiÑcant delivery
obligations remain at the end of a period or collection of the resulting account receivable is not considered
probable, revenues are deferred until the obligation is satisÑed or the uncertainty is resolved. These
amounts are included in deferred revenue in our balance sheet. Third-party advertising net revenues,
including barter transactions, totaled 3%, 11% and 5% of our consolidated net revenues for the years ended
December 31, 2000, 2001 and 2002, respectively and were primarily from our U.S. segment. Revenue from
barter arrangements totaled $2.5 million in 2000, $10.4 million in 2001, and $10.1 million in 2002.
Third-party advertising revenues may be aÅected by the Ñnancial condition of our customers and by
the success of online promotions in general. Recently, the industry pricing of online advertisements has
deteriorated. Our third-party advertising revenue is dependent in signiÑcant part on the performance of
AOL Time Warner, Inc., or AOL, over which we do not have control. Reduction in third-party
advertising, whether due to softening of the demand for online advertising in general or particular problems
facing parties with whom we have contractual arrangements, would adversely aÅect our operating results.
Unlike our transaction revenues, third-party advertising revenues are derived from a highly concentrated
customer base. During the years ended December 31, 2000 and 2001, third-party advertising revenues were
all attributable to approximately 20 customers each year. During the year ended December 31, 2002, third-
party advertising revenues were all derived from approximately 30 customers. We continue to view our
business as primarily transaction driven and we expect third-party advertising revenues in future periods to
decrease as a percentage of total net revenues, and in absolute dollars. Additionally, our advertising sales
representative agreement with AOL has not been extended or renewed and is scheduled to terminate on
March 31, 2003, with AOL to continue its electronic delivery of our online advertisements for a speciÑed
wind-down period. After March 31, 2003, our third-party advertising revenues will be dependent on the
eÅorts of our existing internal sales staÅ.
End-to-End Services Revenues
Our end-to-end services revenues are derived principally from contractual arrangements with third
parties that provide transaction services to eBay users. To date, the duration of our end-to-end services
contracts has ranged from one to three years. End-to-end services revenues are recognized as the
contracted services are delivered to end-users. To the extent that signiÑcant obligations remain at the end
of a period or collection of the resulting receivable is not considered probable, revenues are deferred until
42