eBay 1999 Annual Report Download - page 78

Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences of
differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax
rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and
liabilities consist of the following, (in thousands):
December 31,
1998 1999
Deferred tax assets:
Net operating loss .......................................... $ — $83,894
Accruals and reserves ....................................... 171 5,077
Depreciation .............................................. 61 2,617
State income taxes ......................................... 43 —
Goodwill ................................................ — 5,944
Amortization ............................................. 17 237
Gross deferred tax assets ..................................... 292 97,769
Valuation allowance ............................................ — (83,894)
292 13,875
Deferred tax liabilities:
Accruals and reserves not currently deductible ..................... (1,724) —
Depreciation .............................................. (261) —
Net unrealized gains on marketable securities ..................... — (3,731)
State income taxes ......................................... — (88)
(1,985) (3,819)
$(1,693) $ 10,056
As of December 31, 1999, the Company’s federal and state net operating loss carryforwards for income tax
purposes were approximately $192.9 million and $99.1 million, respectively. If not utilized, the federal net
operating loss carryforwards will begin to expire in 2019, and the state net operating loss carryforwards will
begin to expire in 2004. Deferred tax assets of approximately $83.9 million at December 31, 1999 pertain to
certain net operating loss carryforwards resulting from the exercise of employee stock options. When recognized,
the tax benefit of these losses are accounted for as a credit to additional paid-in capital rather than a reduction on
the income tax provision.
In connection with the acquisition of Butterfield & Butterfield by eBay, Butterfield & Butterfield’s status as
an S Corporation was terminated and B&B became subject to federal and state income taxes. The supplemental
pro forma information below includes an increase to the provisions for income taxes based upon a combined
federal and state tax rate of 42%. This amount approximates the statutory tax rates that would have been applied
if B&B had been taxed as a C Corporation during the periods prior to its acquisition. Because the acquisition of
the B&B companies has been accounted for as a pooling of interests, there has been no adjustment to the
historical carrying values of the real estate holdings. However, these properties are subject to increases in tax
basis which will result in a higher depreciable basis for income and property tax purposes. As a result, a deferred
tax asset and a corresponding increase to stockholder’s equity of approximately $8.8 million was recorded in the
second quarter of 1999 for the difference between the financial statement carrying amounts and the tax basis of
the related net assets upon the closing of the transaction.
eBAY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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