eBay 2005 Annual Report Download - page 100

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
targets, would be payable if the targets are achieved over any four-quarter period commencing on January 1,
2006 through June 30, 2009. Additional bonus earn-out payments of up to an aggregate of approximately
4292 million, or approximately $345 million, weighted equally among the three targets, would be payable if
Skype exceeds the targets during calendar year 2008. Any contingent earn-out payments made will be
accounted for as additional purchase price and will increase goodwill. As any contingent earn-out payments
are to be paid in Euros, the Dollar amounts set forth above were based on the Euro-Dollar exchange rate as of
December 31, 2005.
Skype is a Luxembourg-based company that was established in 2003. Skype has developed software that,
among other things, enables free calls between Skype users online. Skype's premium offerings, which
currently are its primary source of revenue, provide low-cost connectivity to traditional fixed-line and mobile
telephones. We believe that Skype can increase the velocity of trade on our websites, especially in categories
that require more involved communications, as well as enable us to develop and provide new e-commerce
offerings.
The intrinsic value of Skype's unvested common stock options assumed in the acquisition totaled
approximately $55.2 million and was recorded as unearned stock-based compensation. The unearned stock-
based compensation relating to the unvested options will be amortized on an accelerated basis over the
remaining vesting period of approximately three years, consistent with the graded vesting approach under
FASB Interpretation No. 28.
The estimated useful economic lives of the identifiable intangible assets acquired in the Skype acquisition
are five years for registered user technology and trade names, two years for existing technology, and one year
for network access agreements. The final purchase price allocation will depend primarily upon the refinement
of certain estimates and analyses and the final valuation of certain tax attributes.
Supplemental information on an unaudited pro forma basis, as if the Skype acquisition were completed at
the beginning of the years 2004 and 2005, is as follows (in thousands, except per share amounts):
December 31,
2004 2005
(Unaudited)
Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,277,534 $4,594,954
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 684,905 $ 944,057
Diluted income per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.49 $ 0.66
The unaudited pro forma supplemental information is based on estimates and assumptions, which eBay
believes are reasonable. The average foreign exchange rates during years 2004 and 2005 were used in preparing
the supplemental information. The unaudited pro forma supplemental information prepared by management is
not necessarily indicative of the condensed consolidated financial position or results of income in future
periods or the results that actually would have been realized had eBay and Skype been a combined company
during the specified periods.
VeriSign's Payment Gateway Business
On November 18, 2005, we acquired VeriSign's payment gateway business for a purchase price of
approximately $373.8 million, consisting of $370.0 million in cash and $3.8 million in estimated acquisition-
related expenses. The payment gateway is a real-time, scalable Internet payment platform that allows
merchants to authorize, process and manage online payments. Additionally, we have signed a multi-year
security technology agreement with VeriSign, Inc. that calls for us to invest in the deployment of its
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