eBay 2010 Annual Report Download - page 71

Interest and Other Income (Expense), Net
Interest and other income (expense), net, consists of interest earned on cash, cash equivalents and
investments, as well as foreign exchange transaction gains and losses, our portion of operating results from
investments accounted for under the equity method of accounting, interest expense consisting of interest charges
on the amounts drawn under our credit agreement and on our outstanding commercial paper and debt securities
and certain accrued contingencies. Interest and other income (expense), net excludes interest expense related to
Bill Me Later, which is included in cost of net revenues.
Interest and other income (expense), net, decreased $1.4 billion, or 97%, in 2010 compared to 2009. The
decrease was due primarily to the gain on the sale of Skype in 2009, partially offset by lower foreign exchange
transaction losses, an increase in interest income due primarily to a gain on the repayment in full of the Skype
note receivable and senior debt securities and higher average cash, cash equivalents and investment balances in
2010.
Interest and other income (expense), net, increased $1.3 billion, in 2009 compared to 2008. The increase
was due primarily to the $1.4 billion gain on the sale of Skype, partially offset by a decrease in interest income
due to lower interest rates that were earned on lower average cash, cash equivalents and investments balances in
2009.
Provision for Income Taxes
The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rate
due primarily to foreign income with lower tax rates and tax credits, offset by state taxes and other factors.
Our effective tax rate was 14% in 2010 compared to 17% in 2009. The decrease in our effective tax rate for
2010 compared to the prior year was due primarily to the settlement of multiple uncertain tax positions.
Our effective tax rate was 17% in 2009 compared to 19% in 2008. The decrease was due primarily to the
gain resulting from the disposal of Skype (including the impact of the Skype legal settlement), which was not
taxable, as well as a benefit from a ruling issued by a tax authority, partially offset by a tax provision related to a
legal entity restructuring.
From time to time, we engage in certain intercompany transactions and legal entity restructurings. We
consider many factors when evaluating these transactions, including the alignment of our corporate structure with
our organizational objectives and the operational and tax efficiency of our corporate structure, as well as the
long-term cash flows and cash needs of our different businesses. These transactions may impact our overall tax
rate and/or result in additional cash tax payments. The impact in any period may be significant. These
transactions may be complex and the impact of such transactions on future periods may be difficult to estimate.
In 2009, we completed a legal entity restructuring as a result of which we transferred approximately $1.1 billion
in cash to the U.S. The tax impact of this restructuring was included in our 2009 provision for income taxes. As a
result of this transaction, we made cash payment for taxes of approximately $207.4 million during the first
quarter of 2010. See “Liquidity and Capital Resources — Cash Flows — Operating Activities” below.
We are regularly under examination by tax authorities both domestically and internationally. We believe
that adequate amounts have been reserved for any adjustments that may ultimately result from these
examinations, although we cannot assure that this will be the case given the inherent uncertainties in these
examinations.
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