eBay 2006 Annual Report Download - page 104

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Employee Savings Plans
We have a savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating
employees may contribute up to 25% of their annual salary, but not more than statutory limits. In 2004, 2005 and
2006, we contributed one dollar for each dollar a participant contributed, with a maximum contribution of
$1,500 per employee. Our non-U.S. employees are covered by various other savings plans. Our expenses for these
plans were $5.6 million in 2004, $8.6 million in 2005 and $14.9 million in 2006.
Stock-Based Compensation
We adopted FAS 123(R) using the modified prospective transition method beginning January 1, 2006.
Accordingly, during 2006, we recorded stock-based compensation expense for awards granted prior to, but not yet
vested, as of January 1, 2006, as if the fair value method required for pro forma disclosure under FAS 123 were in
effect for expense recognition purposes, adjusted for estimated forfeitures. For these awards, we have continued to
recognize compensation expense using the accelerated amortization method under FIN 28. For stock-based awards
granted after January 1, 2006, we have recognized compensation expense based on the estimated grant date fair
value method using the Black-Scholes valuation model. For these awards, we have recognized compensation
expense using a straight-line amortization method. As FAS 123(R) requires that stock-based compensation expense
be based on awards that are ultimately expected to vest, stock-based compensation for 2006 has been reduced for
estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of
actual option forfeitures.
Valuation Assumptions
We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing
model. The following weighted-average assumptions were used for each respective period:
2004 2005 2006
Year Ended December 31,
Risk-free interest rates.................................... 2.5% 3.8% 4.7%
Expected life .......................................... 3years 3 years 3 years
Dividend yield ......................................... 0% 0% 0%
Expected volatility . ..................................... 49% 36% 36%
Our computation of expected volatility for 2006 was based on a combination of historical and market-based
implied volatility from traded options on our stock. Prior to 2006, our computation of expected volatility was based
on historical volatility. Our computation of expected life was determined based on historical experience of similar
awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations
of future employee behavior. The interest rate for periods within the contractual life of the award is based on the
U.S. Treasury yield curve in effect at the time of grant.
100
eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)