eBay 2011 Annual Report Download - page 76

principles. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service, as well as various
state and foreign tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the
adequacy of our provision for income taxes.
Based on our results for the year ended December 31, 2011 , a one-percentage point change in our provision for income taxes as a
percentage of income before taxes would have resulted in an increase or decrease in the provision of approximately $39.1 million , resulting in an
approximate $0.03 change in diluted earnings per share.
Revenue Recognition
We may enter into certain revenue transactions, primarily related to advertising contracts, that are considered multiple element
arrangements (arrangements with more than one deliverable). We also may enter into arrangements to purchase goods and/or services from certain
customers. As a result, significant interpretation and judgment is sometimes required to determine the appropriate accounting for these
transactions including: (1) how the arrangement consideration should be allocated among potential multiple deliverables; (2) developing an
estimate of the stand-alone selling price of each deliverable; (3) whether revenue should be reported gross (as eBay is acting as a principal), or net
(as eBay is acting as an agent); (4) when we provide cash consideration to our customers, determining whether we are receiving an identifiable
benefit that is separable from the customer's purchase of our products and/or services and for which we can reasonably estimate fair value; and (5)
whether the arrangement would be characterized as revenue or reimbursement of costs incurred. Changes in judgments with respect to these
assumptions and estimates could impact the timing or amount of revenue recognition.
Goodwill and Intangible Assets
The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with
the residual of the purchase price recorded as goodwill. The determination of the value of the intangible assets acquired involves certain
judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and
the appropriate weighted average cost of capital.
At December 31, 2011 , our goodwill totaled $8.4 billion and our identifiable intangible assets, net totaled $1.4 billion . We assess the
impairment of goodwill of our reporting units annually, or more often if events or changes in circumstances indicate that the carrying value may
not be recoverable. This assessment is based upon a discounted cash flow analysis and analysis of our market capitalization. The estimate of cash
flow is based upon, among other things, certain assumptions about expected future operating performance and an appropriate discount rate
determined by our management. Our estimates of discounted cash flows may differ from actual cash flows due to, among other things, economic
conditions, changes to our business model or changes in operating performance. Significant differences between these estimates and actual cash
flows could materially adversely affect our future financial results. These factors increase the risk of differences between projected and actual
performance that could impact future estimates of fair value of all reporting units. We conducted our annual impairment test of goodwill as of
August 31, 2011 and 2010. As a result of this test we determined that no adjustment to the carrying value of goodwill for any reporting units was
required. See “Note 5 - Goodwill and Intangible Assets” to the consolidated financial statements included in this report. As of December 31,
2011 , we determined that no events or circumstances from August 31, 2011 through December 31, 2011 indicated that a further assessment was
necessary.
Stock-Based Compensation
We measure and recognize stock-based compensation expense based on the fair value measurement for all share-based payment awards
made to our employees and directors, including employee stock options, employee stock purchases and restricted stock awards over the service
period for awards expected to vest. Stock-based compensation expense recognized for 2011 , 2010 and 2009 was $457.2 million , $381.5 million
and $394.8 million , respectively. See “Note 17 - Stock-Based and Employee Savings Plans” to the consolidated financial statements included in
this report.
We calculated the fair value of each restricted stock award based on our stock price on the date of grant. We calculated the fair value of
each stock option award on the date of grant using the Black-
Scholes option pricing model. The determination of fair value of stock option awards
on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of additional variables
described below. The use of a Black-Scholes model requires extensive actual employee exercise behavior data and a number of assumptions,
including expected life, expected volatility, risk-free interest rate and dividend yield. As a result, future stock-based compensation expense may
differ from our historical amounts. The weighted-average grant-date fair value of stock options granted during 2011 , 2010 and 2009 was $9.87 ,
$6.77 and $4.59 per share, respectively, using the Black-Scholes model with the following weighted-average assumptions:
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