eBay 2003 Annual Report Download - page 95

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
the investees' operations is included in other income. As of December 31, 2003, we did not have any
equity method investments. Investments in entities where we hold less than a 20% ownership interest or
where we do not have the ability to signiÑcantly inÖuence the operations of the investee are accounted for
using the cost method of accounting and are included in long-term investments.
Certain prior period balances have been reclassiÑed to conform to the current period presentation.
Fair value of Ñnancial instruments
Cash and cash equivalents are short-term, highly liquid investments with original or remaining
maturities of three months or less when purchased. Our Ñnancial instruments, including cash, cash
equivalents, accounts receivable, and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments.
Short and long-term investments, which include marketable equity securities, municipal, government
and corporate bonds, are classiÑed as available-for-sale and reported at fair value using the speciÑc
identiÑcation method. Realized gains and losses are included in earnings and were immaterial in all periods
presented. Unrealized gains and losses are excluded from earnings and reported as a component of other
comprehensive income (loss), net of related estimated tax provisions or beneÑts. Additionally, we assess
whether an other-than-temporary impairment loss on our investments has occurred due to declines in fair
value or other market conditions. Declines in fair value that are considered other than temporary are
recorded as an impairment of certain equity investments in the consolidated statement of income.
Derivative instruments
We recognize all derivative instruments on the balance sheet at fair value. Changes in the fair value
(i.e., gains or losses) of the derivatives are recorded each period in the consolidated statement of income
or other comprehensive income (loss). For a derivative designated as a cash Öow hedge, the gain or loss
on the derivative is initially reported as a component of other comprehensive income (loss) and
subsequently reclassiÑed into the statement of income when the hedged transaction aÅects earnings. For
derivatives recognized as a fair value hedge, the gain or loss on the derivative in the period of change and
the oÅsetting loss or gain of the hedged item attributed to the hedged risk, are recognized in the
consolidated statement of income. For derivatives not recognized as hedges, the gain or loss on the
derivative in the period of changes is recognized as other income.
Concentrations of credit risk
Our cash, cash equivalents, investments and accounts receivable are potentially subject to
concentration of credit risk. Cash, cash equivalents and investments are placed with Ñnancial institutions
that management believes are of high credit quality. Our accounts receivable are derived from revenue
earned from customers located in the U.S. and internationally. Accounts receivable balances are typically
settled through customer credit cards and, as a result, the majority of accounts receivable are collected
upon processing of credit card transactions. We maintain an allowance for doubtful accounts receivable
and authorized credits based upon our historical experience. Historically, such losses have been within our
expectations. However, unexpected or signiÑcant future changes in trends could result in a material impact
to future statements of income or cash Öows. Generally, due to the relatively small dollar amount of
individual accounts receivable, we do not require collateral on these balances. The provision for doubtful
accounts is recorded as a charge to operating expense, while the provision for authorized credits is
recognized as a reduction of revenues.
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