eBay 2005 Annual Report Download - page 119

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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,
2004 2005
Deferred tax assets:
Net operating loss and credits ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 165,673 $ 64,905
Accruals and allowances ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 57,648 78,665
Net unrealized (gains) losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6,596) 9,616
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 216,725 153,186
Valuation allowanceÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (158,602) (16,946)
58,123 136,240
Deferred tax liabilities:
Acquisition-related intangibles ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (129,310) (212,702)
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (54,357) (79,946)
(183,667) (292,648)
$(125,544) $(156,408)
As of December 31, 2005, our federal net operating loss carryforwards for income tax purposes were
approximately $123.8 million. If not utilized, the federal net operating loss carryforwards will begin to expire
in 2019. As of December 31, 2005, our federal and state tax credit carryforwards for income tax purposes were
approximately $70.1 million and $67.5 million, respectively. If not utilized, the federal tax credit carryforwards
will begin to expire in 2019, and the state tax credit carryforwards will begin to expire in 2015.
We receive tax deductions from the gains realized by employees on the exercise of certain non-qualified
stock options for which the benefit is recognized as a component of stockholders' equity. Historically, we have
evaluated the deferred tax assets relating to these stock option deductions along with our other deferred tax
assets and concluded that a valuation allowance is not required for that portion of the total deferred tax assets
that are not considered more likely than not to be realized in future periods. To the extent that the deferred tax
assets with a valuation allowance become realizable in future periods, we will have the ability, subject to
carryforward limitations, to benefit from these amounts. When realized, the tax benefits of tax deductions
related to stock options are accounted for as an increase to additional paid-in capital rather than a reduction of
the income tax provision. Our profitability coupled with the level of stock option deductions generated during
2005 resulted in the utilization of net operating losses related to deferred tax assets for stock option deductions.
Accordingly the valuation allowance related to these deferred tax assets was eliminated in 2005, resulting in an
increase of $166.3 million in additional paid-in capital. Beginning in 2006, deferred tax assets related to stock
option deductions will be recognized in the periods when the benefit is received.
We have not provided for U.S. federal income and foreign withholding taxes on $974.2 million of
non-U.S. subsidiaries' undistributed earnings as of December 31, 2005, because such earnings are intended to
be indefinitely reinvested in the operations and potential acquisitions of our International Marketplaces
segment. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to
U.S. income taxes (subject to an adjustment for foreign tax credits). It is not practicable to determine the
income tax liability that might be incurred if these earnings were to be distributed.
115