eBay 2005 Annual Report Download - page 69

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Indemnification Provisions
In the ordinary course of business we have included limited indemnification provisions in certain of our
agreements with parties with whom we have commercial relations, including our standard marketing,
promotions and application-programming-interface license agreements. Under these contracts, we generally
indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the
indemnified party in connection with claims by any third party with respect to domain names, trademarks,
logos and other branding elements to the extent that such marks are applicable to our performance under the
subject agreement. In a limited number of agreements, including agreements under which we have developed
technology for certain commercial parties, we have provided an indemnity for other types of third-party
claims, substantially all of which are indemnities related to our copyrights, trademarks, and patents. To date,
no significant costs have been incurred, either individually or collectively, in connection with our indemnifica-
tion provisions.
Critical Accounting Policies, Judgments and Estimates
General
The preparation of our consolidated financial statements and related notes requires us to make
judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Our senior management has discussed the development, selection and
disclosure of these estimates with the Audit Committee of our Board of Directors. Actual results may differ
from these estimates under different assumptions or conditions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on
assumptions about matters that are highly uncertain at the time the estimate is made, and if different
estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the consolidated financial statements. We believe the
following critical accounting policies reflect the more significant estimates and assumptions used in the
preparation of the consolidated financial statements. The following descriptions of critical accounting policies,
judgments and estimates should be read in conjunction with our consolidated financial statements and other
disclosures included in this report.
Provisions for Doubtful Accounts and Authorized Credits
Our U.S. Marketplaces and International Marketplaces segments are exposed to losses due to uncollecti-
ble accounts and credits to sellers. Provisions for these items represent our estimate of actual losses and credits
based on our historical experience, are monitored monthly, and are made at the time the related revenue is
recognized. The provision for doubtful accounts is recorded as a charge to operating expense, while the
authorized credits are recorded as a reduction of revenues. The following table illustrates the provision related
to doubtful accounts and authorized credits as a percentage of net revenues for 2003, 2004, and 2005 (in
thousands, except percentages).
Years Ended December 31,
2003 2004 2005
Net revenues from the U.S. and International segments $1,727,474 $2,573,607 $3,499,137
Doubtful accounts and authorized credits ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 46,049 $ 90,942 $ 89,499
Provision for doubtful accounts and authorized credits
as a % of net revenues from the U.S. and
International segmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.67% 3.53% 2.56%
Historically, our actual losses and credits have been consistent with these provisions. However, future
changes in trends could result in a material impact to future consolidated statements of income and cash flows.
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