eBay 2006 Annual Report Download - page 81

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — The Company and Summary of Significant Accounting Policies:
The Company
eBay Inc. (“eBay”) was incorporated in California in May 1996, and reincorporated in Delaware in April 1998.
eBay’s purpose is to pioneer new communities around the world, built on commerce, sustained by trust, and inspired
by opportunity. eBay brings together millions of buyers and sellers every day on a local, national and international
basis through an array of websites. eBay provides online marketplaces for the sale of goods and services, online
payment services and online communication offerings to a diverse community of individuals and businesses.
eBay has three operating segments: Marketplaces, Payments and Communications. The Marketplaces segment
enables online commerce through a variety of different platforms, including the traditional eBay auction site, our
classifieds websites, and our comparison shopping site, Shopping.com. The Payments segment, which consists of
our PayPal, Inc. (“PayPal”) business, enables individuals or businesses to securely, easily and quickly send and
receive payments online. The Communications segment, which consists of our Skype Technologies SA (“Skype”)
business, enables Voice over Internet Protocol (VoIP) calls between Skype users, as well as provides low-cost
connectivity to traditional fixed-line and mobile telephones.
When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation
(eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries.
Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our
estimates, including those related to provisions for doubtful accounts and authorized credits, the provision for
transaction losses, legal contingencies, income taxes, advertising and other non-transaction revenues, and goodwill
and intangible assets. We base our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Principles of consolidation and basis of presentation
The accompanying financial statements are consolidated and include the financial statements of eBay and our
majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in
consolidation.
The consolidated financial statements include 100% of the assets and liabilities of these majority-owned
subsidiaries and the ownership interests of minority investors are recorded as minority interests. Investments in
entities where we hold more than a 20% but less than a 50% ownership interest and have the ability to significantly
influence the operations of the investee are accounted for using the equity method of accounting and the investment
balance is included in long-term investments, while our share of the investees’ results of operations is included in
interest and other income, net. Investments in entities where we hold less than a 20% ownership interest and where
we do not have the ability to significantly influence 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 reclassified to conform to the current period presentation.
Fair value of financial instruments
Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of
three months or less when purchased. Our financial instruments, including cash, cash equivalents, accounts
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