eBay 2004 Annual Report Download - page 102

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The weighted average fair value of options granted in the years ended December 31, 2002, 2003 and 2004,
were $5.60, $8.15 and $12.12, respectively.
We calculated the fair value of each option award on the date of grant using the Black-Scholes option
pricing model. The following weighted average assumptions were used for each respective period:
Year Ended December 31,
2002 2003 2004
Risk-free interest ratesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.0% 1.9% 2.5%
Expected livesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 years 3 years 3 years
Dividend yieldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0% 0% 0%
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 68% 64% 49%
We account for stock-based arrangements issued to non-employees using the fair value based method,
which calculates compensation expense based on the fair value of the stock option granted using the Black-
Scholes option pricing model at the date of grant, or over the period of performance, as appropriate.
Income taxes
We account for income taxes using an asset and liability approach, which requires the recognition of taxes
payable or refundable for the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in our Ñnancial statements or tax returns. The measurement
of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the eÅects of future
changes in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is
reduced by the amount of any tax beneÑts that are not expected to be realized based on available evidence.
Cumulative EÅect of Change in Accounting Principle
In accordance with the provisions of FIN 46, ""Consolidation of Variable Interest Entities,'' we have
included our San Jose corporate headquarters lease arrangement in our consolidated Ñnancial statements
eÅective July 1, 2003. Under this accounting standard, our balance sheet at December 31, 2003 and 2004
reÖects additions for land and buildings totaling $126.4 million, lease obligations of $122.5 million and non-
controlling minority interests of $3.9 million. Our consolidated statement of income for the year ended
December 31, 2003, reÖects the reclassiÑcation of lease payments on our San Jose corporate headquarters
from operating expense to interest expense, beginning with quarters following our adoption of FIN 46 on
July 1, 2003, a $5.4 million after-tax charge for cumulative depreciation for periods from lease inception
through June 30, 2003, and incremental depreciation expense of approximately $400,000, net of tax, per
quarter for periods after June 30, 2003. We have adopted the provisions of FIN 46 prospectively from July 1,
2003, and as a result, have not restated prior periods. The cumulative eÅect of the change in accounting
principle arising from the adoption of FIN 46 has been reÖected in net income in 2003.
Comprehensive income
Comprehensive income includes all changes in equity (net assets) during a period from non-owner
sources. The change in accumulated other comprehensive income for all periods presented resulted from, net
of tax foreign currency translation gains and losses, unrealized and realized gains and losses on investments,
and unrealized gains and losses on cash Öow hedges.
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