eBay 2000 Annual Report Download - page 33

Amortization of Acquired Intangible Assets
From time to time we have purchased, and expect to continue purchasing, assets or businesses in order to
maintain our leadership role in online trading. These purchases may result in the creation of intangible assets
and lead to a corresponding increase in the amortization in the related periods. Our amortization of acquired
intangible assets increased in absolute dollars from $805,000 or 0.9% of net revenues to $1.1 million or 0.5% of
net revenues for the years ended December 31, 1998 and 1999 and further increased in absolute dollars to
$1.4 million or 0.3% of net revenues in the year ended December 31, 2000. We expect the amortization of
intangible assets to increase in 2001 due to our recent acquisition of Internet Auction in Korea and our
agreement to acquire iBazar S.A. Both acquisitions will be accounted for as purchase business combinations.
Merger-related Costs
In 1999, eBay incurred direct merger related transaction costs of $4.4 million which were primarily
related to the acquisitions of Billpoint, ButterÑelds, Kruse and alando.de.ag. In 2000, eBay incurred direct
merger transaction costs of $1.6 million primarily associated with the acquisition of Half.com. There were no
comparable expenses for the same period in 1998. As opportunities present themselves, eBay may continue to
acquire new companies; such acquisitions could lead to additional direct and indirect expenses which could
negatively aÅect eBay's results of operations.
Interest and Other Income, Net
Interest and other income, net consists of interest earned on cash, cash equivalents, and investments
oÅset by foreign exchange gains or losses. Our interest and other income, net increased from $1.8 million or
2.2% of net revenues to $23.8 million or 10.6% of net revenues for the years ended December 31, 1998 and
1999 and increased to $46.3 million or 10.7% of net revenues in the year ended December 31, 2000. The year-
over-year increases resulted from interest earned on cash, cash equivalents and investments. We expect
interest and other income will continue to exceed interest expense in 2001.
Provision for Income Taxes
Our eÅective federal and state income tax rates were 39.7%, 47.0%, and 40.4% in the years ended
December 31, 1998, 1999 and 2000, respectively. The tax rates in 1998 and 1999 include the eÅects of our
acquisitions. Additionally, we receive tax deductions for gains realized by employees on the exercise of non-
qualiÑed stock options for which the beneÑt is recognized as a component of paid-in capital. We have provided
for a valuation allowance on the deferred tax assets relating to these stock option deductions.
Prior to the acquisition by eBay in 1999, ButterÑelds was taxed as an S Corporation. In connection with
the acquisition, ButterÑelds' status as an S Corporation was terminated, and ButterÑelds became subject to
federal and state income taxes. The supplemental pro forma Ñnancial information presented in the Ñnancial
statements includes an increase to the provisions for income taxes based upon a combined federal and state tax
rate. This rate approximates the statutory tax rate that would have been applied if ButterÑelds were taxed as a
C Corporation prior to the acquisition.
Stock-Based Compensation
In connection with granting certain stock options from May 1997 through May 1999, we recorded
aggregate unearned compensation totaling $13.1 million, which is being amortized over the four-year vesting
period of the options. In connection with certain stock options granted between July 1999 and March 2000 by
companies that we subsequently acquired, we recorded unearned compensation totaling $4.9 million. Of the
total unearned stock compensation, approximately $3.1 million, $4.8 million and $7.1 million was amortized in
1998, 1999 and 2000, respectively. Of the amortization in 2000, approximately $4.8 was related to the
acquisition of Half.com. We expect additional amortization of unearned stock compensation as a result of our
acquisition of Internet Auction and potential acquisition of iBazar S.A.
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