eBay 2005 Annual Report Download - page 71

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2005, and is not intended to provide a range of exposure or expected deviation (in thousands, except per share
data):
¿5 Basis °5 Basis
Points 2005 Points
Transaction loss expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 60,030 $ 73,773 $ 87,516
Income from operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,455,450 1,441,707 1,427,964
Net incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,095,786 1,082,043 1,068,300
Diluted earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.79 $ 0.78 $ 0.77
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 8 Ì Commitments and Contingencies Ì Litigation and Other Legal
Matters'' to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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 plaintiffs were to prevail on certain claims, we might be forced to pay significant
damages and licensing fees, modify our business practices or even be prohibited from conducting a significant
part of our business. Any such results could materially harm our business and could result in a material
adverse impact on the financial position, results of operations or cash flows 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
differences 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 differences between
the book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and
amortization. The tax effect of these temporary differences and the estimated tax benefit from our tax net
operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also
assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent
we believe that it is more likely than not that some portion, or all of, the deferred tax asset will not be realized,
we establish a valuation allowance. At December 31, 2005, we have a valuation allowance on certain foreign
net operating losses based on our assessment that it is more likely than not that the deferred tax asset will not
be realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect
the change with a corresponding increase or decrease in our tax provision in our consolidated statement of
income. Where the change in the valuation allowance relates to the tax deduction for employee stock option
exercises, the change is reflected in additional paid-in capital. Beginning in 2006, any remaining deferred tax
asset related to stock option deductions will be recognized in the periods when the benefit is received and, as
such, a valuation allowance will not be required.
Our U.S. businesses generate sufficient cash flow to fully fund their operating requirements, and we
expect that profits earned outside the U.S. will be fully utilized to fund our continued international expansion.
Accordingly, we have not provided for U.S. federal income and foreign withholding taxes on
non-U.S. subsidiaries' undistributed earnings as of December 31, 2005, because such earnings are intended to
be reinvested indefinitely. In the event that our future international expansion plans change and such amounts
are not reinvested indefinitely, we would be subject to U.S. income taxes partially offset by foreign tax credits.
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