eBay 2005 Annual Report Download - page 93

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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,
2003 2004 2005
Risk-free interest ratesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.9% 2.5% 3.8%
Expected livesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 years 3 years 3 years
Dividend yieldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0% 0% 0%
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64% 49% 36%
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 financial statements or tax returns. The measurement
of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects 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 benefits that are not expected to be realized based on available evidence.
Cumulative Effect 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 financial statements since
July 1, 2003. Under this accounting standard, our balance sheet at December 31, 2004 reflects 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, reflects
the reclassification 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 effect of the change in accounting principle arising from the adoption of
FIN 46 has been reflected in net income in 2003. As of December 31, 2004, we had $126.4 million included
within current restricted cash and investments relating to our San Jose headquarters lease facility lease
arrangement, which had effectively provided us with full ownership rights to these facilities. In February 2004,
we elected not to extend the lease period, which required us to purchase the facility on March 1, 2005. We
utilized the $126.4 million in restricted cash and investments to complete the purchase of the facility.
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 flow hedges.
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