eBay 2006 Annual Report Download - page 105

Stock-Based Compensation
Stock-based compensation expense related to stock options and employee stock purchases for 2004, 2005 and
2006 was allocated as follows (in thousands, except per share amounts):
2004 2005 2006
Cost of net revenues .................................. $ 233 $ 1,881 $ 32,981
Sales and marketing .................................. 136 8,696 96,547
Product development .................................. 654 6,468 81,489
General and administrative ............................. 4,809 14,727 106,393
Total stock-based compensation expense ................... 5,832 31,772 317,410
Tax benefit ......................................... (4,117) (13,023) (97,572)
Stock-based compensation expense, net of tax ............... $1,715 $ 18,749 $219,838
Prior to adopting FAS 123(R), we presented all tax benefits resulting from the exercise of stock options as
operating cash flows in our statements of cash flows. FAS 123(R) requires cash flows resulting from excess tax
benefits to be classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits
from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs
for such options. As a result of adopting FAS 123(R), $92.4 million of excess tax benefits for the year ended
December 31, 2006 have been classified as a financing cash inflow. Cash received from option exercises under all
share-based payment arrangements for the years ended December 31, 2004, 2005 and 2006, was $650.6 million,
$599.8 million and $313.5 million, respectively. Total stock-based compensation costs included in capitalized
development costs was $8.8 million for the year ended December 31, 2006. There was no stock-based compensation
costs included in capitalized development costs during 2005 and 2004.
Prior to the adoption of FAS 123(R), the intrinsic value of Skype’s and Shopping.com’s unvested common
stock options assumed in the acquisition were recorded as unearned stock-based compensation. Upon the adoption
of FAS 123(R) in January 2006, the unearned stock-based compensation balance of $45.5 million was reclassified
to additional paid-in capital.
Pro Forma Information for Periods Prior to the Adoption of FAS 123(R)
Pro forma information regarding option grants made to our employees and directors and employee stock
purchases is as follows (in thousands, except per share amounts):
2004 2005
Year Ended December 31,
Net income, as reported ...................................... $778,223 $1,082,043
Add: Amortization of stock-based compensation expense determined
under the intrinsic value method, net of tax ..................... 1,715 18,749
Deduct: Total stock-based compensation expense determined under fair
value based method, net of tax ............................... (190,935) (248,260)
Pro forma net income ....................................... $589,003 $ 852,532
Earnings per share:
Basic — Reported ........................................ $ 0.59 $ 0.79
Pro forma ............................................ $ 0.45 $ 0.63
Diluted — Reported ....................................... $ 0.57 $ 0.78
Pro forma ............................................ $ 0.43 $ 0.61
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eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)