eBay 2003 Annual Report Download - page 30

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The increase in absolute dollars in 2003, was primarily the result of increased headcount and
computer equipment depreciation. These increases were partially oÅset by the amounts capitalized in
connection with major site and other product development eÅorts in 2003. The headcount growth was
focused on hiring new employees for various platform development initiatives at eBay and PayPal. Our
development staÅ increased 60% from 635 at December 31, 2002 to 1,007 at December 31, 2003. Product
development expenses are expected to increase in absolute dollars and slightly as a percentage of net
revenues in 2004, as we develop new site features and functionality and continue to improve and expand
operations across all our segments.
The increase in absolute dollars in 2002, was primarily the result of an $18.9 million increase in
employee compensation costs, resulting from the growth in our development staÅ, which increased to 635
at December 31, 2002 from 320 at December 31, 2001, and a $7.3 million increase in maintenance and
depreciation costs for equipment used in product development.
General and Administrative
Percent Percent
2001 Change 2002 Change 2003
(in thousands, except percent changes)
General and administrative ÏÏÏÏÏÏÏÏÏÏ $105,784 62% $171,785 76% $302,703
As a percentage of net revenue ÏÏÏÏÏÏÏ 14% 14% 14%
General and administrative expenses consist primarily of employee compensation, provision for
doubtful accounts, provisions for transaction losses associated with our Payments segment, insurance, fees
for external professional advisors and certain corporate overhead allocations.
The increase in absolute dollars in 2003, was due primarily to employee and facilities related costs,
fees for external professional advisors, payment transaction loss expenses resulting from our acquisition of
PayPal and charges associated with various legal matters. The increases in employee and facilities related
costs resulted from the addition of PayPal employees in various trust and safety functions as well as
continued headcount growth in the Ñnance, human resource and legal departments to meet the demands of
our expanding business, including growing international operations and the integration of acquired
businesses. We increased our general and administrative staÅ from 1,253 at December 31, 2002 to 1,944 at
December 31, 2003. Fees for external professional advisors increased by $10.4 million. Charges associated
with various legal matters recorded in general and administrative expense totaled $8.6 million. PayPal's
payment transaction loss increased $28.6 million in 2003, reÖecting a full year of consolidated operations.
PayPal's payment transaction loss rate, which is the transaction loss expense as a percentage of PayPal's
total payment volume, was 0.30% in 2003. Despite higher transaction loss rates expected to be experienced
as a result of increased patterns of seasonality and the buyer protection program implemented in
September 2003, we expect our full year transaction loss rate will decrease during 2004. With our
continued investment in the infrastructure needed to support our business, primarily in our International
and Payments segments as well as in our corporate functions, we expect general and administrative
expenses to increase in absolute dollars and to remain generally comparable as a percentage of net
revenues during 2004.
The increase in absolute dollars in 2002, was primarily the result of increases of $16.0 million in fees
for external professional advisors, $7.8 million in the provision for transaction losses, and $6.5 million in
facilities costs. These costs increased to meet the demands of our expanding business, including operations
in new countries and the integration of new businesses. To support this growth, we increased our general
and administrative staÅ from 415 at December 31, 2001 to 1,253 at December 31, 2002, which includes
the addition of approximately 360 general and administrative employees resulting from our acquisition of
PayPal. Of these incremental PayPal employees, a substantial number support PayPal's various trust and
safety programs.
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