eBay 1998 Annual Report Download - page 25

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25
Interest and Other Income, Net
Interest and other income, net, consists of interest earned on cash, cash equivalents and short-term investments
offset by interest expense. Interest and other income, net, increased in absolute dollars in the third quarter of 1997,
due primarily to interest earned on the proceeds from the June 1997 sale of Series B Preferred Stock and warrants
and remained relatively constant until the second quarter of 1998. The increase in the second quarter of 1998 was a
result of interest earned on proceeds from the May 1998 exercise of these warrants and interest earned from loans
made to employees in connection with the exercise of their stock options. The increase in the third quarter of 1998
reflected a full quarter of these earnings. The increase in the fourth quarter of 1998 resulted from income from
investment of the proceeds from the Company’ s initial public offering at the end of the third quarter of 1998. In
addition, the Company repaid all borrowings under its line of credit in the fourth quarter of 1998.
Provision for Income Taxes
eBay’ s effective federal and state income tax rate was approximately 43.0% in each quarter of 1997, 92.2% in
the first two quarters of 1998 and 48.7% in the last two quarters of 1998. The 1998 effective tax rate differed from
the combined federal and state statutory rate of approximately 41.8% as a result of the non-deductibility of charges
for stock based compensation and expenses related to the acquisition of Jump. The variations in the quarterly 1998
effective tax rates resulted from quarterly adjustments to the estimated annual effective tax rate based on the
difference between estimated earnings and actual earnings reported. See Note 7 of Notes to Consolidated Financial
Statements.
Stock-Based Compensation
In connection with the grant of certain stock options from May 1997 through June 30, 1998, the Company
recorded aggregate unearned compensation totaling $6.8 million, which amount is being amortized over the four-
year vesting period of such options. Of the total unearned compensation, approximately $25,000, $421,000,
$650,000, $818,000 and $773,000 was amortized in the quarters ended December 31, 1997 and March 31, June 30,
September 30 and December 31, 1998, respectively. The Company expects quarterly amortization of between
approximately $700,000 and $440,000 during 1999, between approximately $400,000 and $270,000 during 2000
and annual amortization of approximately $720,000 during 2001 and approximately $80,000 during 2002 related to
these options. These amortization amounts were allocated among the operational expense categories based upon the
primary activity of the related employees. See Note 10 of Notes to Consolidated Financial Statements.