eBay 2004 Annual Report Download - page 30

Charges associated with various legal matters recorded in general and administrative expense totaled
$8.6 million. PayPal's payment transaction loss increased $28.6 million in 2003, reÖecting a full year of
consolidated operations.
In February 2004, we began migrating eBay users from our legacy billing system to a newly implemented
billing system. As we managed this migration, we delayed billing cycles to facilitate the migration process and
to allow additional time for quality assurance reviews. The delay in billing cycles continued for the remainder
of the year and resulted in an increase in the average days our customer account balances were outstanding.
Although we believe this change in account balance aging is a temporary condition, our historical experience
indicates an increased risk of collection for aged accounts receivable balances. Accordingly, our provision for
doubtful accounts during the year ended December 31, 2004 increased to a total of $85.4 million, or 2.6% of
net revenues, compared to $44.3 million, or 2.0% of net revenues, during the year ended December 31, 2003.
The allowance for doubtful accounts receivable at December 31, 2004 was $67.9 million.
Patent Litigation Expense
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Patent litigation expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ Ì N/A $29,965 N/A $ Ì
As a percentage of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ N/A 1.4% N/A
Patent litigation expense during 2003 relates to the accrual of an August 6, 2003 court judgment
resulting from the MercExchange patent infringement lawsuit. See ""Note 10 Ì Commitments and Contin-
gencies'' to our consolidated Ñnancial statements included elsewhere in this Annual Report on Form 10-K.
Payroll Tax on Employee Stock Options
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Payroll tax on employee stock options ÏÏÏÏÏÏÏÏÏ $4,015 139% $9,590 82% $17,479
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.3% 0.4% 0.5%
We are subject to employer payroll taxes on employee gains from the exercise of non-qualiÑed stock
options. These employer payroll taxes are recorded as a charge to operations in the period in which such
options are exercised and sold based on actual gains realized by employees. The increases in 2004 and 2003 as
compared to the respective prior years were primarily a result of larger individual gains recognized on stock
option exercises by our employees during periods in which our stock price was high relative to historic levels.
Our results of operations and cash Öows could vary signiÑcantly depending on the actual period that stock
options are exercised by employees and, consequently, the amount of employer payroll taxes assessed. In
general, we expect payroll taxes on employee stock option gains to increase during periods in which our stock
price is high relative to historic levels.
Amortization of Acquired Intangible Assets
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Amortization of acquired intangible assets ÏÏÏ $15,941 218% $50,659 30% $65,927
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏÏÏÏ 1.3% 2.3% 2.0%
From time to time we have purchased, and we expect to continue purchasing, assets or businesses to
accelerate category and geographic expansion, increase the features, functions, and formats available to our
users and maintain a leading role in online trading. These purchase transactions generally result in the creation
of acquired intangible assets and lead to a corresponding increase in the amortization expense in future
periods.
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