eBay 2004 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2004 eBay annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 134

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134

The following table illustrates the provision for transaction loss expense as a percentage of total payment
volume from PayPal operations for the period from October 3, 2002 (date of acquisition of PayPal) through
December 31, 2002 and for the years ended December 31, 2003 and 2004 (in thousands, except percentages).
Period from
October 3, 2002
through Year Ended Year Ended
December 31, 2002 December 31, 2003 December 31, 2004
Total payment volume ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,138,000 $12,226,000 $18,915,000
Transaction loss expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 7,832 $ 36,401 $ 50,459
As a % of total payment volume ÏÏÏÏÏÏÏÏ 0.37% 0.30% 0.27%
The establishment of appropriate allowances for transaction losses is an inherently uncertain process, and
ultimate losses may vary from the current estimates. We regularly update our allowance estimates as new facts
become known and events occur that may impact the settlement or recovery of losses. The allowances are
maintained at a level we deem appropriate to adequately provide for losses incurred at the balance sheet date.
Based on our results for the year ended December 31, 2004, a Ñve basis point deviation from our estimates
would have resulted in an increase or decrease in our operating expenses of approximately $9.5 million. The
following analysis demonstrates, for illustrative purposes only, the potential eÅect a Ñve basis point deviation
from our estimates would have upon our consolidated Ñnancial statements for the year ended December 31,
2004, and is not intended to provide a range of exposure or expected deviation (in thousands, except per share
data):
¿5 Basis °5 Basis
Points 2004 Points
Transaction loss expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 41,003 $ 50,459 $ 59,915
Income from operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,068,698 1,059,242 1,049,786
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 787,679 778,223 768,767
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.58 $ 0.57 $ 0.56
Legal Contingencies
In connection with certain pending litigation and other claims, we have estimated the range of probable
loss and provided for such losses through charges to our consolidated statement of income. These estimates
have been based on our assessment of the facts and circumstances at each balance sheet date and are subject
to change based upon new information and future events.
From time to time, we are involved in disputes that arise in the ordinary course of business, and we do not
expect this trend to change in the future. We are currently involved in certain legal proceedings as discussed in
""Item 3: Legal Proceedings'' and ""Note 10 Ì Commitments and Contingencies Ì Litigation and Other
Legal Matters'' to our consolidated Ñnancial statements, which we incorporate herein. We believe that we
have meritorious defenses to the claims against us, and we will defend ourselves vigorously. However, even if
successful, our defense against certain actions will be costly and could divert our management's time. If the
plaintiÅs were to prevail on certain claims, we might be forced to pay signiÑcant damages and licensing fees,
modify our business practices or even be prohibited from conducting a signiÑcant part of our business. Any
such results could materially harm our business and could result in a material adverse impact on the Ñnancial
position, results of operations or cash Öows of all or any of our three segments.
Accounting for Income Taxes
We are required to recognize a provision for income taxes based upon the taxable income and temporary
diÅerences for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes
payable under currently enacted tax laws around the world and an analysis of temporary diÅerences between
the book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and
amortization. The tax eÅect of these temporary diÅerences and the estimated tax beneÑt from our tax net
operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also
38