eBay 2007 Annual Report Download

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Table of contents

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  • Page 7
    ... check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes n No ¥ As of June 29, 2007, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was $34,609,300,000 based on the closing sale price as reported...

  • Page 8

  • Page 9
    ... ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions and Director Independence ...Principal Accounting Fees and Services ...PART IV Exhibits and Financial Statement Schedules ... 1 12 38 38 38 41...

  • Page 10
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  • Page 11
    ...or "eBay" in this Annual Report on Form 10-K, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries. When we refer to "eBay.com," we mean the online marketplace located at www.ebay.com and its localized counterparts. When...

  • Page 12
    ...fees and advertising fees. eBay.com Platform Our Marketplaces core platform, eBay.com, includes our traditional auction-style format and fixed-price formats such as Buy-It-Now and eBay Stores. We offer the core platform on localized websites in 28 countries. In 2007, our auction-style listing format...

  • Page 13
    ... along with consumer product reviews through Epinions.com, which help users make informed buying decisions. Retailers pay a fee to Shopping.com for shoppers directed to their sites by Shopping.com. StubHub StubHub is a leading U.S. ticket marketplace, enabling fans to buy and sell tickets to a large...

  • Page 14
    ... unauthorized. Customer Support We devote significant resources to providing personalized, accurate and timely support services to our community of users. Buyers and sellers can contact us through a variety of means, including email, online text chat and, in certain circumstances, telephone. We...

  • Page 15
    ...which helps eBay users bid and buy from anywhere on the Internet; • eBay Sales Reports and eBay Sales Reports Plus, which provide sales and fee information to sellers; • eBay Marketplace Research, which enables sellers to analyze sales in categories across the site; • Reviews and Guides, which...

  • Page 16
    ... with PayPal's Seller Protection Policy. PayPal Overview Joining the Network PayPal offers three types of accounts: Personal, Business and Premier. A new account holder typically opens an account to send money for an eBay purchase or a purchase on another website, a payment for services rendered...

  • Page 17
    ...sign-up process asks each new account holder to provide PayPal his or her name, street address, phone number and email address. The account holder's email address serves as the unique account identifier. PayPal also offers certain customers who sell on their own websites the ability to accept credit...

  • Page 18
    ... of products and services available to our account holders and have begun offering financial products such as the following: • PayPal Buyer Credit, a personal credit account issued by GE Money Bank, which allows users to buy now and pay later for their PayPal purchases; • PayPal ATM/Debit Card...

  • Page 19
    ...that MasterCard is accepted (including websites that do not accept PayPal); • PayPal Pay Later, which is a personal transactional credit account issued by GE Money Bank that allows users to finance PayPal purchases; and • PayPal Money Market Fund, which allows participants to earn a yield on the...

  • Page 20
    ... of alternative means, including other online payment services, offline payment methods such as cash, check or money order, and traditional online or offline credit card merchant accounts. For our Communications segment, our users may choose to use their local telephone companies, cable providers...

  • Page 21
    ... procedures. We actively pursue the registration of our trademarks, copyrights, patents and domain names in the U.S. and international jurisdictions. The expansion of our business has required us to protect our trademarks, patents and domain names in an increasing number of jurisdictions, a process...

  • Page 22
    ... to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Available Information Our Internet address is www.ebay.com. Our investor relations website is located at http://investor.ebay.com. We make available free of charge on our investor relations website under...

  • Page 23
    ... the acceptance of PayPal by online merchants outside of our Marketplaces platforms, which may require long implementation cycles and incentives to merchants that are initially dilutive; • our ability to integrate, manage, and profitably expand and more effectively monetize the Skype business...

  • Page 24
    ... and with maintaining and enhancing our websites, customer support, transaction loss rate, user protection programs, product development and international expansion; • maintain sufficient transaction volume to attract buyers and sellers; • cost effectively increase the awareness of our brands...

  • Page 25
    ... extent that intellectual property rights owners bring legal action against PayPal based upon the use of PayPal's payment services in a transaction involving the sale of infringing items, including on our websites, our business could be harmed. Litigation and negative publicity has increased as our...

  • Page 26
    ... of these laws and regulations on PayPal's business is uncertain. These regulations could impose significant costs on PayPal and make it more difficult for new customers to join its network. PayPal could be required to learn more about its customers before opening an account, to obtain additional...

  • Page 27
    ... protection programs to users. We are likely to receive additional inquiries from regulatory agencies in the future, which may lead to action against us. We have responded to all inquiries from regulatory agencies by describing our current and planned antifraud efforts, customer support procedures...

  • Page 28
    ... have been defrauded by other users, although users who pay through PayPal may have reimbursement rights from their credit card company or bank, which in turn will seek reimbursement from PayPal. eBay also periodically receives complaints from buyers as to the quality of the goods purchased. We 18

  • Page 29
    ... Internet companies, have been and will continue to be targeted by parties using fraudulent "spoof" and "phishing" emails to misappropriate passwords, credit card numbers, or other personal information or to introduce viruses through "trojan horse" programs to our users' computers. These emails...

  • Page 30
    ...requires its own resources, increasing the costs of our branding efforts. Brand promotion activities may not yield increased revenues, and even if they do, any increased revenues may not offset the expenses incurred in building our brands. Also, major search engine operators that we use to advertise...

  • Page 31
    ... products and services. In particular, these established businesses have raised concerns relating to pricing, parallel imports, professional seller obligations, stolen goods, copyrights, trademarks and other intellectual property rights, and the liability of the provider of an Internet marketplace...

  • Page 32
    ... have a U.S. bank account. These limitations affect PayPal's ability to grow in these markets. PayPal also offers customers the ability to send or receive payments denominated in 17 currencies. Of the 190 markets whose residents can use the PayPal service, 31 (27 countries plus four French overseas...

  • Page 33
    ...order PayPal (Europe) to conduct its activities in the local country through a branch office. Any such responses from these regulators could increase the cost of, or delay, PayPal's plans for expanding its business. In markets other than the U.S., EU, Australia and China, PayPal serves its customers...

  • Page 34
    ... account information to PayPal. In addition, some of PayPal's newer offerings, including the ability to make a limited number of payments without opening an account, have a higher rate of credit card funding than PayPal's basic product offering. In September 2006, PayPal entered into a settlement...

  • Page 35
    ... selling, distance selling, data protection, banking, and money transmitting, that may limit or prevent the offering of our services in some jurisdictions, prevent enforceable agreements between sellers and buyers, prohibit the listing of certain categories of goods, require product changes, require...

  • Page 36
    ... in collecting accounts receivable; • potentially adverse tax consequences, including local taxation of our fees or of transactions on our websites; • higher telecommunications and Internet service provider costs; • different and more stringent user protection, data protection, privacy and...

  • Page 37
    ... joint venture. Our business and users may be subject to sales tax and other taxes. The application of indirect taxes (such as sales and use tax, value-added tax, or VAT, goods and services tax, business tax, and gross receipt tax) to ecommerce businesses such as eBay and to our users is a complex...

  • Page 38
    ... tax requirements in the numerous markets in which eBay conducts or will conduct business. The current regulatory environment for Voice over Internet Protocol (VoIP) is uncertain, and Skype's business could be harmed by new regulations or the application of existing regulations to its products...

  • Page 39
    ... by applicable law. In addition, Internet service providers could attempt to charge us each time our customers use our offerings. Worldwide, a number of companies have announced plans to take such actions or are selling products designed to facilitate such actions. Interference with our offerings or...

  • Page 40
    ... motivate employees. Problems with or price increases by third parties who provide services to us or to our users could harm our business. A number of parties provide services to us or to our users that benefit us. Such services include seller tools that automate and manage listings, merchant tools...

  • Page 41
    ... other cases we have none. PayPal is dependent on the processing companies and banks that link PayPal to the credit card and bank clearing networks. Financial, regulatory, or other problems that prevent these companies from providing services to us or our users could reduce the number of listings on...

  • Page 42
    ... uniformity in product pricing. In addition, sellers are increasingly acquiring new customers by paying for search-related advertisements on search engine sites such as Google and Yahoo!. We use product search engines and paid search advertising to channel users to our sites, but these services also...

  • Page 43
    ... point for online shopping, and as the costs of operating an online store decline, online sellers may increasingly sell goods through multiple channels, which could reduce the number and value of transactions these sellers conduct through our sites. PayPal The market for PayPal's product is emerging...

  • Page 44
    ...online payment of merchants using credit cards. Some of these competitors have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, greater name recognition, or a larger base of customers in affiliated businesses than PayPal. PayPal...

  • Page 45
    ... a result of site usability issues could lead to a loss of customers or impair our ability to add customers, either of which would harm our business. • Website Stability. We must constantly add new hardware, update software and add new engineering personnel to accommodate the increased use of our...

  • Page 46
    ... would harm our business and our ability to collect revenue. • Customer Support. We are expanding our customer support operations to accommodate the increased number of users and transactions on our websites and the increased level of user protection activity we provide worldwide. If we are...

  • Page 47
    ... protect our trademarks, patents, and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful in every location. For example, Skype is in the process of applying to register the Skype name as a trademark worldwide. In the EU, Skype's application...

  • Page 48
    ... 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc. and eBay International AG. The complaint alleges that we violated French tort law by negligently broadcasting listings posted by third parties offering counterfeit items...

  • Page 49
    ... 2006, Mangosoft Intellectual Property, Inc. filed a lawsuit in the U.S. District Court for the Eastern District of Texas (No. 2-06CV-390) alleging that eBay Inc., Skype Technologies S.A., and Skype Software S.a.r.l. infringed a patent owned by Mangosoft relating to dynamic directory services...

  • Page 50
    ... infringed its patent relating to search methods. The suit seeks an injunction against continuing infringement, unspecified damages, interest, costs, and fees. The defendants have moved to transfer venue and the parties are conducting discovery. Fact discovery cutoff is scheduled for July 2009...

  • Page 51
    ... number and significance of these disputes and inquiries are increasing as our business expands and our company grows larger. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time...

  • Page 52
    ...are a significantly larger number of beneficial owners of our common stock. Dividend Policy We have never paid cash dividends on our stock and do not anticipate paying cash dividends in the foreseeable future. Equity Compensation Plan Information The following table gives information about shares of...

  • Page 53
    ... average exercise price. (3) Includes 5,212,281 shares of our common stock remaining reserved for future issuance under our 1998 Employee Stock Purchase Plan, or the ESPP, as of December 31, 2007. Our ESPP contains an "evergreen" provision that automatically increases, on each January 1, the number...

  • Page 54
    ... providers, Internet software and service companies and ecommerce companies. Our stock price performance shown in the graph below is not indicative of future stock price performance. The following graph and related information shall not be deemed "soliciting material" or be deemed to be "filed" with...

  • Page 55
    ... ended December 31, 2007 was as follows: Total Number of Shares Purchased(2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value that May Yet be Purchased Under the Programs(1) Period October 1, 2007-October 31, 2007 ...November...

  • Page 56
    ...31, 2004 2005 2006(2) (in thousands, except per share amounts) 2007(2) Consolidated Statement of Income Data(1): Net revenues ...$2,165,096 $3,271,309 $4,552,401 Cost of net revenues ...416,058 614,415 818,104 Gross profit ...Operating expenses: Sales and marketing ...Product development ...General...

  • Page 57
    ... the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features or services, or management strategies...

  • Page 58
    ... customer account balances. Revenues are attributed to U.S. and international geographies based upon the country in which, as the case may be, the seller, payment recipient, Skype user's Internet protocol address, online property that generates advertising, or other service provider, is located...

  • Page 59
    ...largest markets, as growth of listings, active users and GMV on the eBay.com platform in those countries has slowed. In January 2008, we announced our plan to implement changes to our fee structure, seller incentives and standards and feedback system, all of which may impact our Marketplaces revenue...

  • Page 60
    ...2005 Net revenues ...Current quarter vs prior quarter ...2006 Net revenues ...Current quarter vs prior quarter ...2007 Net revenues ...Current ...activity patterns on our websites to increasingly mirror general consumer buying patterns, both online and offline, as our business expands, with the ...

  • Page 61
    ... 31, 2005 2006 2007 (in millions) Supplemental Operating Data: Marketplaces Segment:(1) Active users(2) ...Number of listings(3) ...Gross merchandise volume(4) . Payments Segment: Active registered accounts(5) . . Net total payment volume(6) . . Communications Segment: Registered Users(7) ... ...71...

  • Page 62
    ... websites), which continued to grow faster than our overall Marketplaces businesses. GMV increased 13% during 2007 compared to 2006, and was due primarily to an increase in conversion rates and average selling prices, a weaker U.S. dollar, and inclusion of our StubHub results (which we acquired...

  • Page 63
    ...in our Merchant Services business as the number of merchants integrating PayPal on their websites increases and as we build consumer preference for PayPal. In addition, we expect our Payments business to benefit from growth in Marketplaces GMV and increased penetration of PayPal on eBay Marketplaces...

  • Page 64
    ... related to equity awards and employee stock purchases for 2005, 2006 and 2007 was allocated as follows (in thousands): 2005 2006 2007 Cost of net revenues ...Sales and marketing ...Product development...General and administrative ...Total stock-based compensation expense ...Tax benefit ...Stock...

  • Page 65
    ... our lower gross margin businesses, particularly PayPal and Skype. The increase in cost of net revenues of $438.7 million during 2006 was due primarily to an increase in payment processing costs, Skype telecommunication costs, the development and expansion of our customer support and site operations...

  • Page 66
    ... our Marketplaces segment. Sales and marketing expenses increased in total and as a percentage of total net revenues in 2006 due to our continued investment in growing our global user base and the effect of stock-based compensation expense related to equity awards and employee stock purchases under...

  • Page 67
    ... doubtful accounts, employer payroll taxes on employee stock-based compensation, insurance and professional fees. The increase in general and administrative expenses of $177.7 million during 2007 was due primarily to an increase in employee-related costs, facilities costs, professional services, and...

  • Page 68
    ... part of our strategic planning cycle conducted annually during our third quarter. Our estimates of future operating results for our Communications reporting unit are for an early stage business with limited financial history, as well as developing revenue models. These factors increase the risk of...

  • Page 69
    ... Communications reporting unit which is non-deductible for tax purposes, partially offset by a tax benefit from a ruling issued by a tax authority related to prior periods. The lower effective tax rates in 2006 as compared to 2005 resulted primarily from the expansion of our international businesses...

  • Page 70
    ... of StubHub. In 2006, we acquired Tradera.com. In 2005, acquisition activity primarily consisted of Rent.com, certain international classifieds websites, Shopping.com, Skype and VeriSign's payment gateway business. In 2008, we expect to continue to purchase property and equipment and expect...

  • Page 71
    ... of our customers are not reflected in our consolidated balance sheets. These funds include funds on behalf of U.S. customers that are deposited in bank accounts insured by the Federal Deposit Insurance Corporation and funds that U.S. customers choose to invest in the PayPal Money Market Fund, which...

  • Page 72
    ... indemnities mainly related to various intellectual property rights. In our PayPal business, we have provided an indemnity to our payment processors in the event of certain third-party claims or card association fines against the processor arising out of conduct by PayPal or PayPal customers. It is...

  • Page 73
    ... losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery of goods or services, Automated Clearing House ("ACH") returns, buyer protection program claims and debit card overdrafts. These allowances...

  • Page 74
    ... 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...

  • Page 75
    ... transaction services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances. Advertising and other net revenues, including barter transactions, totaled 4% of our consolidated net revenues for 2007 and 3% in 2005 and 2006, and were primarily generated by...

  • Page 76
    ... subjective variables. The use of a Black-Scholes model requires extensive actual employee exercise behavior data and a number of complex assumptions including expected life, expected volatility, risk-free interest rate and dividend yield. As a result, the future stock-based compensation expense may...

  • Page 77
    ... money market funds. These securities are generally classified as available for sale and consequently are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of estimated tax. Investments...

  • Page 78
    ... in market value. Foreign Currency Exposures We are a growing company, with an increasing proportion of our operations conducted outside the U.S. Our foreign currency exposure continues to evolve as we grow internationally. The objective of our foreign exchange exposure management program is...

  • Page 79
    ... international revenues as well as costs denominated in foreign currencies, subjecting us to foreign currency risk. In addition, we charge our international subsidiaries on a monthly basis for their use of intellectual property and technology and for certain corporate services provided by eBay...

  • Page 80
    ... Statement for our 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2007. Code of Ethics, Governance Guidelines and Committee Charters We have adopted a Code of Business Conduct and Ethics that applies to all eBay employees...

  • Page 81
    ... AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from our Proxy Statement for our 2008 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 2007. ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES...

  • Page 82
    ... AND FINANCIAL STATEMENT SCHEDULE (a) The following documents are filed as part of this report: 1. Consolidated Financial Statements: Page Number Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheet ...Consolidated Statement of Income ...Consolidated Statement of...

  • Page 83
    All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. 3. Exhibits. No. Exhibit Description Filed with this 10-K Form Incorporated by Reference File No. Date Filed Sale and Purchase ...

  • Page 84
    ...as Administrative Agent, and other lenders named from time to time therein. Form of Earn Out Settlement Agreement dated as of September 28, 2007 among Registrant, Skype Luxembourg Holdings S.a.r.l., Skype Technologies S.A., Herho Holdings B.V. and each Earn out Seller. List of Subsidiaries. 10-K 10...

  • Page 85
    ... Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002. X X X X X X + Indicates a management contract or compensatory plan or arrangement (b) See the Exhibits listed under Item 15 (a) (3) above. (c) The financial statement schedules required by this item are listed under Item 15...

  • Page 86
    ... in which it accounts for stock-based compensation in 2006. As discussed in Note 13 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertainty in income taxes in 2007. A company's internal control over financial reporting is a process designed to...

  • Page 87
    eBay Inc. CONSOLIDATED BALANCE SHEET December 31, December 31, 2006 2007 (in thousands, except par value amounts) ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net ...Funds receivable ...Other current assets...Total current assets ...Long-term ...

  • Page 88
    eBay Inc. CONSOLIDATED STATEMENT OF INCOME Year Ended December 31, 2005 2006 2007 (in thousands, except per share amounts) Net revenues ...$4,552,401 Cost of net revenues ...818,104 Gross profit ...Operating expenses: Sales and marketing ...Product development ...General and administrative ......

  • Page 89
    eBay Inc. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2005 Year Ended December 31, 2006 2007 (in thousands) Net income ...$1,082,043 Other comprehensive (loss) income: Foreign currency translation ...Unrealized gains on investments ...Unrealized gains (losses) on cash flow hedges ...Estimated ...

  • Page 90
    eBay Inc. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 2005 Year Ended December 31, 2006 (in thousands) 2007 Common stock: Balance, beginning of year...$ 1,347 Common stock issued ...65 Balance, end of year ...1,412 Additional paid-in-capital: Balance, beginning of year...4,855,983 Common stock ...

  • Page 91
    ... ...Deferred revenue and customer advances ...Income taxes payable and other tax liabilities ...Net cash provided by operating activities ...Cash flows from investing activities: Purchases of property and equipment, net...Proceeds from sale of corporate aircraft ...Purchases of investments...

  • Page 92
    ... of buyers and sellers every day on a local, national and international basis through an array of websites. eBay provides online marketplaces for the sale of goods and services, online payment services and online communication offerings to a diverse community of individuals and businesses. eBay has...

  • Page 93
    ... losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant related chargebacks due to non-delivery of goods or services, Automated Clearing House ("ACH") returns, buyer protection program claims and debit card overdrafts. These allowances...

  • Page 94
    ... in bank accounts insured by the Federal Deposit Insurance Corporation and funds that customers choose to invest in the PayPal Money Market Fund. The PayPal Money Market Fund is invested in a portfolio managed by Barclays Global Fund Advisors. Property and equipment Property and equipment are stated...

  • Page 95
    ... generated from lead referral fees based on the number of times a user clicks through to a merchant's website from our websites. Lead referral fees are recognized in the period in which the user clicks through to the merchant's website. Our Payments segment earns transaction revenues from processing...

  • Page 96
    ... promotional activities which result in payments to our users. Our other revenues are derived principally from contractual arrangements with third parties that provide transaction services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances. Revenues...

  • Page 97
    ... for the indirect effects of stock-based compensation on the research tax credit and the foreign tax credit through the income statement. Income taxes We account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current...

  • Page 98
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) treated as part of the cost of the acquisition. FAS 141(R) also establishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. FAS 141(R) applies prospectively to ...

  • Page 99
    ... stock options assumed was determined using a BlackScholes model. StubHub is an online marketplace that facilitates the resale of event tickets and is included within our Marketplaces segment. We accounted for the acquisition as a taxable purchase transaction and, accordingly, the purchase price...

  • Page 100
    ... part of our strategic planning cycle conducted annually during our third quarter. Our estimates of future operating results for our Communications reporting unit are for an early stage business with limited financial history, as well as developing revenue models. These factors increase the risk of...

  • Page 101
    ...) Gross Carrying Amount December 31, 2007 Net Accumulated Carrying Amortization Amount Weighted Average Useful Economic Life (years) Intangible assets: Customer lists and user base ...$ 545,527 Trademarks and trade names ...Developed technologies ...All other ...480,358 103,351 58,115 $1,187,351...

  • Page 102
    ...direct costs. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, bank charges, site operations...

  • Page 103
    ...,430 $1,018,317 $1,018,645 142,537 $1,161,182 Net revenues attributed to the U.S. and international geographies are based upon the country in which the seller, payment recipient, advertiser or end-to-end service provider is located, as the case may be. Long-lived assets attributed to the U.S. and...

  • Page 104
    ... in money market funds and interest bearing accounts for letters of credit related primarily to various lease arrangements. Effective during 2007, we began to account for our investment in MercadoLibre as an available-for-sale marketable equity security due to MercadoLibre's initial public offering...

  • Page 105
    ... using the equity and cost method of accounting totaling $65.5 million in 2006 and $112.9 million in 2007. The total of these investments, including identifiable intangible assets, deferred tax liabilities and goodwill, are classified on our balance sheet as long-term investments. Our consolidated...

  • Page 106
    ... international revenues as well as costs denominated in foreign currencies, subjecting us to foreign currency risk. In addition, we charge our international subsidiaries on a monthly basis for their use of intellectual property and technology and for certain corporate services provided by eBay...

  • Page 107
    ... $79.6 million and $110.6 million of software development costs, respectively, the majority of which relates to site and other product development efforts. Total depreciation expense on our property and equipment was $240.6 million in 2005, $324.6 million in 2006 and $372.5 million in 2007. December...

  • Page 108
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Certain transactions that result in overdrafts of customer accounts are included in the transaction loss reserve and are recorded as an offset to other current assets. As of December 31, 2006 and December 31, 2007, these balances ...

  • Page 109
    ... 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc. and eBay International AG. The complaint alleges that we violated French tort law by negligently broadcasting listings posted by third parties offering counterfeit items...

  • Page 110
    ... 2006, Mangosoft Intellectual Property, Inc. filed a lawsuit in the U.S. District Court for the Eastern District of Texas (No. 2-06CV-390) alleging that eBay Inc., Skype Technologies S.A., and Skype Software S.a.r.l. infringed a patent owned by Mangosoft relating to dynamic directory services...

  • Page 111
    ... infringed its patent relating to search methods. The suit seeks an injunction against continuing infringement, unspecified damages, interest, costs, and fees. The defendants have moved to transfer venue and the parties are conducting discovery. Fact discovery cutoff is scheduled for July 2009...

  • Page 112
    ...indemnities mainly related to various intellectual property rights. In our PayPal business, we have provided an indemnity to our payment processors in the event of certain third-party claims or card association fines against the processor arising out of conduct by PayPal or PayPal's customers. It is...

  • Page 113
    ... for future issuance under our deferred stock unit plan, and approximately 5.2 million shares of common stock available for future issuance under our employee stock purchase plan. Treasury Stock In June 2006, our Board of Directors authorized a stock repurchase program for $2.0 billion of our common...

  • Page 114
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Our stock repurchase programs may be limited or terminated at any time without prior notice. Stock repurchases under these programs may be made through a variety of open market and privately negotiated transactions, including ...

  • Page 115
    ...NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) 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 2005 and 2006, we...

  • Page 116
    ... STATEMENTS - (Continued) Stock-Based Compensation Stock-based compensation expense related to equity awards and employee stock purchases for 2005, 2006 and 2007 was allocated as follows (in thousands, except per share amounts): 2005 2006 2007 Cost of net revenues ...Sales and marketing ...Product...

  • Page 117
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock Option Activity The following table summarizes stock option activity under our equity incentive plans as of and for the year ended December 31, 2007 (in thousands, except per share amounts): Weighted Average Exercise Price ...

  • Page 118
    ...at an average exercise price of $0.39. There were no shares remaining available under these non-stockholder approved plans for future grants as of December 31, 2007. Note 13 - Income Taxes: The components of pretax income in consolidated companies for the years ended December 31, 2005, 2006 and 2007...

  • Page 119
    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The provision for income taxes is composed of the following (in thousands): 2005 Year Ended December 31, 2006 2007 Current: Federal ...State and local ...Foreign ...Deferred: Federal ...State and local ...Foreign ... $382,925 89,717...

  • Page 120
    ... operating loss carryforwards, or NOLs, for income tax purposes were approximately $44.8 million, $543.4 million, and $49.5 million, respectively. The utilization of a portion of the NOLs is subject to an annual limitation under Section 382 of the Internal Revenue Code due to a change of ownership...

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    eBay Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The total liabilities for unrecognized tax benefits, and the increase in these liabilities in 2007 relates primarily to the allocations of revenue and costs among our global operations. Our liabilities for unrecognized tax benefits ...

  • Page 122
    ... Consolidated Financial Statements and includes all adjustments necessary to state fairly the information for the periods presented. Quarterly Financial Data (Unaudited, in thousands, except per share amounts) March 31 Quarter Ended June 30 September 30 December 31 2006 Net revenues ...Gross profit...

  • Page 123
    eBay Inc. FINANCIAL STATEMENT SCHEDULE The Financial Statement Schedule II - VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual Report on Form 10-K. Balance at Beginning of Period Charged/ Credited to Net Income Charged to Other Account (in thousands) Charges Utilized/ Write-offs ...

  • Page 124
    ... the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Jose, State of California, on the 28th day of February, 2008. eBay Inc...

  • Page 125
    .../s/ Edward W. Barnholt Edward W. Barnholt Director By: /s/ Scott D. Cook Scott D. Cook Director By: /s/ Rajiv Dutta Rajiv Dutta President, eBay Marketplaces & Director By: /s/ Robert C. Kagle Robert C. Kagle Director By: /s/ David M. Moffett David M. Moffett Director By: /s/ Thomas J. Tierney Thomas...

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