eBay 2001 Annual Report Download - page 74

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (CONTINUED)
success of online promotions in general. Additionally, end-to-end services and promotions revenues are also
concentrated among a small customer base. During the year ended December 31, 1999, end-to-end
services and promotions revenues were negligible. End-to-end services and promotions revenues were
derived from approximately 10 customers in 2000 and from approximately 20 customers in 2001.
OÉine revenue represents seller commissions, buyer premiums, bidder registration fees, and auction-
related services including appraisal and authentication derived from the traditional auction services
provided by ButterÑelds Auctioneers Corporation (""ButterÑelds'') and Kruse, Inc. d/b/a Kruse
International.
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.
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.
Website development costs
We expense costs related to the planning and post implementation phases of our website development
eÅorts. Direct costs incurred in the development phase are capitalized and amortized over the product's
estimated useful life of one to three years as charges to cost of net revenues. Costs associated with minor
enhancements and maintenance for the website are included in cost of net revenues in the accompanying
consolidated statement of income.
Advertising expense
We expense the costs of producing advertisements at the time production occurs, and expense 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 on a straight-line basis over the term of the contract. Advertising expenses totaled
$46.1 million, $85.4 million, and $127.1 million during the years ended December 31, 1999, 2000, and
2001, respectively.
Stock-based compensation
We account for stock-based employee compensation arrangements based on the diÅerence, if any, on
the date of the grant, between the fair value of eBay's stock and the exercise price. We account for stock-
based arrangements issued to non-employees based on the fair value of the stock granted using the Black-
Scholes option pricing model at the date of grant.
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
70