eBay 2000 Annual Report Download - page 67

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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Kruse auction revenues are derived primarily from entry fees on auction items, bidder registration fees
and commission fees calculated as a percentage of the Ñnal auction sales transaction value. Revenues related
to these fees are recognized upon the completion of an auction. Revenues are also derived from sponsorship
fees paid by various corporations. Sponsorship fee revenues are recognized over the term of the sponsorship
agreement. Advertising revenues and auctioneer tuition fees do not represent a signiÑcant source of revenues
and are recognized as advertising and auctioneer training services are provided.
ButterÑelds auction revenues are derived primarily from auction commissions and fees from the sale of
property through the auction process. Revenues from these sources are recognized at the date the related
auction is concluded. Service revenues are derived from Ñnancial, appraisal and other related services and are
recognized as such services are rendered. Rental revenues are derived from property rentals to third parties.
To date, barter advertising has accounted for less than 1% of eBay's revenue. eBay records barter revenue
in accordance with Emerging Issues Task Force (""EITF'') Issue No. 99-17, ""Accounting for Advertising
Barter Transactions'' which requires that barter transactions be recognized at the fair value of the advertising
surrendered when an entity has a historical practice of receiving cash or marketable securities for similar
advertising transactions. A period not to exceed six months prior to the date of the barter transaction has been
used to determine whether eBay has a historical practice of receiving cash or marketable securities for similar
advertising. In addition, the recognition of revenue on barter advertising is limited by the dollar amount of the
cash received for similar transactions during the same period.
Website development costs
eBay recognizes website development costs in accordance with EITF Issue No. 00-02, ""Accounting for
Website Development Costs.'' As such, eBay expenses all costs incurred that relate to the planning and post
implementation phases of development of its website. Direct costs incurred in the development phase are
capitalized and recognized over the product's estimated useful life. Costs associated with repair or mainte-
nance for the website are included in cost of net revenues in the accompanying consolidated statement of
income.
Advertising expense
eBay recognizes advertising expenses in accordance with SOP 93-7 ""Reporting on Advertising Costs.'' As
such, eBay expenses the costs of producing advertisements at the time production occurs, and expenses the
cost of communicating advertising in the period during which the advertising space or airtime is used. Internet
advertising expenses are recognized based on the terms of the individual agreements, which is generally over
the greater of the ratio of the number of impressions delivered over the total number of contracted
impressions, or a straight-line basis over the term of the contract. Advertising expenses totaled $15.4 million,
$46.1 million, and $85.4 million during the years ended December 31, 1998, 1999 and 2000, respectively.
Stock-based compensation
eBay accounts for stock-based employee compensation arrangements in accordance with provisions of
Accounting Principles Board (""APB'') Opinion No. 25, ""Accounting for Stock Issued to Employees,'' FASB
Interpretation No. 44 (""FIN 44'') ""Accounting for Certain Transactions Involving Stock Compensation Ì an
Interpretation of APB 25,'' and complies with the disclosure provisions of SFAS No. 123, ""Accounting for
Stock-Based Compensation.'' Under APB No. 25, compensation expense is based on the diÅerence, if any, on
the date of the grant, between the fair value of eBay's stock and the exercise price. eBay accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123 and the EITF Issue No. 96-18,
""Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction
with Selling Goods or Services.''
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