eBay 2006 Annual Report Download - page 56

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December 31, 2006, of which, approximately 450 employees were added to support our consumer protection
programs. Transaction loss rate in our Payments segment, which is the transaction loss expense as a percentage of
total payment volume, increased to 0.33% in 2006 compared to 0.27% in 2005, causing an increase in expense of
approximately $52.7 million. The increase in the transaction loss rate was primarily due to higher levels of credit
card chargebacks from unauthorized credit card transactions. The higher levels of credit card chargebacks is due to
strategically entering into new customer segments (new countries and direct card processing) which have higher
loss rates. Stock-based compensation expense of $106.4 million was included in general and administrative expense
in 2006 compared to $14.7 million in 2005. Stock-based compensation expense increased due to our implemen-
tation of FAS 123(R) at the beginning of 2006.
General and administrative expenses increased in total and remained consistent as a percentage of net revenues
in 2005 as compared to the prior year. The dollar increase was due primarily to employee related and facilities costs.
Employee-related costs increased by approximately $111.3 million during 2005 as compared to the prior year. We
increased our general and administrative employees from approximately 2,700 at December 31, 2004 to approx-
imately 4,200 at December 31, 2005. This increase related primarily to the addition of employees in our trust and
safety and corporate functions. Facilities costs increased by approximately $48.2 million during 2005 as compared
to the prior year. PayPal’s transaction loss expense increased by approximately $23.3 million, to $73.8 million
during the year ended December 31, 2005, reflecting the increase in activity in the Payments segment in addition to
the expansion of our PayPal Buyer Protection Program. PayPal’s transaction loss expense rate, which is the
transaction loss expense as a percentage of PayPal’s total payment volume, was constant at 0.27% in 2005 and 2004.
With our continued investment across all areas of our business and related corporate functions, particularly in
our consumer protection programs, we expect general and administrative expenses to increase during 2007, but
decrease as a percentage of net revenues as general and administrative expenses are expected to grow slower than
net revenues.
Amortization of Acquired Intangible Assets
2004 2005 2006
(In thousands, except percentages)
Amortization of acquired intangible assets ................. $65,927 $128,941 $197,078
As a percentage of net revenues ......................... 2.0% 2.8% 3.3%
From time to time we have purchased, and we expect to continue purchasing, assets or businesses to accelerate
category and geographic expansion, increase the features, functions, and formats available to our users and maintain
a leading role in online e-commerce, payments and communications. These purchase transactions generally result
in the creation of acquired intangible assets with finite lives and lead to a corresponding increase in the amortization
expense in future periods. We amortize intangible assets over the period of estimated benefit, using the straight-line
method and estimated useful lives ranging from one to eight years. The increase in amortization of acquired
amortizable intangibles during 2006 and 2005 compared to prior years is due to the business acquisitions
consummated during 2006, 2005 and 2004.
Amortization of acquired intangible assets may increase should we make additional acquisitions in the future.
Interest and Other Income, Net
2004 2005 2006
(In thousands, except percentages)
Interest and other income, net........................... $77,867 $111,148 $130,021
As a percentage of net revenues ......................... 2.4% 2.4% 2.2%
Interest and other income, net consists primarily of interest earned on cash, cash equivalents and investments as
well as foreign exchange transaction gains and losses and other non-operating transactions.
Our interest and other income, net increased in total and remained relatively constant as a percentage of net
revenues during 2006 as compared to the prior year, primarily as a result of increased interest income due to
increased cash, cash equivalents and investments balances and higher interest rates offset by the lower cash balances
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