eBay 2004 Annual Report Download - page 33

Minority Interests
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Minority interests ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $(2,296) (230)% $(7,578) 19% $(6,122)
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏÏÏÏ 0.2% 0.4% 0.2%
Minority interests represents the minority investors' percentage share of income or losses from subsidiar-
ies in which we hold a majority ownership interest and consolidate the subsidiaries' results in our Ñnancial
statements. Third parties held minority interests in various of our subsidiaries during 2004, 2003 and 2002.
The change in minority interests in 2004 is due primarily to our acquisition of an additional 37.9%
ownership interest in Internet Auction.
The change in minority interests in 2003 primarily resulted from the minority interests' portion of the net
income generated by Internet Auction.
Cumulative EÅect of Change in Accounting Principle
In accordance with the provisions of FIN 46, ""Consolidation of Variable Interest Entities,'' we have
included our San Jose headquarters lease arrangement in our consolidated Ñnancial statements eÅective
July 1, 2003. Our consolidated statement of income for the year ended December 31, 2003 reÖects the
reclassiÑcation of lease payments on our San Jose headquarters from operating expense to interest expense,
beginning with the 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 eÅect of the change in accounting principle arising from the adoption of FIN 46 has
been reÖected in net income in 2003.
Impact of Foreign Currency Translation
During 2004, our international net revenues, based upon the country in which the seller, payment
recipient, advertiser or other service provider is located, accounted for approximately 42% of our consolidated
net revenues, as compared to 35% of our net revenues in 2003 and 26% of our net revenues in 2002. The
growth in our international operations has increased our exposure to foreign currency Öuctuations. Net
revenues and related expenses generated from international locations are denominated in the functional
currencies of the local countries, and include Euros, British pounds, Korean won, Canadian dollars, Taiwanese
dollars, and Australian dollars. The results of operations and certain of our inter-company balances associated
with our international locations are exposed to foreign exchange rate Öuctuations. The statements of income of
our international operations are translated into U.S. dollars at the average exchange rates in each applicable
period. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign
currency denominated transactions results in increased consolidated net revenues, operating expenses and net
income. Similarly, our consolidated net revenues, operating expenses and net income will decrease when the
U.S. dollar strengthens against foreign currencies.
During 2004, the U.S. dollar weakened against the foreign currencies listed above. Using the weighted-
average foreign currency exchange rates from 2003, our net revenues for 2004 would have been lower than we
reported using the actual exchange rates for 2004 by approximately $129.9 million, of which $117.0 million
and $12.9 million relate to our International Marketplace and Payments segments, respectively. In addition, if
the weighted-average foreign currency exchange rates from 2003 were applied to our cost of revenues and
operating expenses for 2004, these costs of revenues and operating expenses would have been lower in total
than we reported using the actual exchange rates for 2004 by approximately $58.4 million. The majority of this
impact relates to the relative strength of the Euro against the U.S. dollar.
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