eBay 2003 Annual Report Download - page 41

Advertising and Other Non-Transaction Revenues
A portion of our net revenues result from fees associated with advertising and other non-transaction
services in our U.S., International and Payments segments. Net revenues from advertising are derived
principally from the sale of online banner and sponsorship advertisements for cash and through barter
arrangements. Other non-transaction net revenues are derived principally from contractual arrangements
with third parties that provide transaction services to eBay users and from oÉine services provided by
wholly-owned subsidiaries that were divested in the second half of 2002. Advertising and other non-
transaction net revenues, including barter transactions, totaled 20%, 9% and 2% of our consolidated net
revenues for the years ended December 31, 2001, 2002 and 2003, respectively, and were primarily
generated by our U.S. segment. Revenue from barter arrangements totaled $10.4 million in 2001,
$10.1 million in 2002 and $10.1 million in 2003. Certain judgments are involved in the determination of
the appropriate revenue recognition, including, but not limited to, the assessment and allocation of fair
values in multiple element arrangements and the appropriateness of gross or net revenue recognition. Our
advertising and other non-transaction net revenues may be aÅected by the Ñnancial condition of the parties
with whom we have these relationships and by the success of online services and promotions in general.
Unlike our transaction revenues, advertising and other non-transaction net revenues are derived from a
highly concentrated customer base. During the years ended December 31, 2001, 2002 and 2003, all
advertising and other non-transaction net revenues, excluding oÉine revenues, were derived from
approximately 40, 50 and 110 customers, respectively.
Business Combinations
In accordance with the provisions of SFAS 141, the purchase price of an acquired company is
allocated between intangible assets and the net tangible assets of the acquired business with the residual of
the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired
involves certain judgments and estimates. These judgments can include, but are not limited to, the cash
Öows that an asset is expected to generate in the future, the appropriate weighted average cost of capital,
and the cost savings expected to be derived from acquiring an asset.
At December 31, 2003 our goodwill totaled $1.7 billion and our identiÑable intangible assets totaled
$274.1 million. In accordance with the provisions of SFAS 142, we assess the impairment of goodwill and
identiÑable intangible assets of our reportable units annually, or more often if events or changes in
circumstances indicate that the carrying value may not be recoverable. This assessment is based upon a
discounted cash Öow analysis and analysis of our market capitalization. The estimate of cash Öow is based
upon, among other things, certain assumptions about expected future operating performance and an
appropriate discount rate determined by our management. Our estimates of discounted cash Öows may
diÅer from actual cash Öows due to, among other things, economic conditions, changes to its business
model or changes in operating performance. SigniÑcant diÅerences between these estimates and actual
cash Öows could materially aÅect our future Ñnancial results. We completed our annual goodwill
impairment test as of August 31, 2003 and determined that no adjustment to the carrying value of
goodwill for any of our reportable units was required. We have determined that no events have occurred
during the four months ended December 31, 2003 that would require updated analysis.
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