<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-24821
eBay Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0430924
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2145 HAMILTON AVENUE
SAN JOSE, CALIFORNIA 95125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(408) 558-7400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 23, 2000, there were 267,897,498 shares of the Registrant's
Common Stock outstanding.
================================================================================
<PAGE> 2
This 10-Q/A is being filed to amend Part I, Item 1, Note 5 "Segment
Information" for an erroneous header. Other than the change to this header, all
other information included in the initial filing is unchanged.
PART I: FINANCIAL INFORMATION
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 221,801 $ 130,558
Short-term investments ...................................... 181,086 302,542
Accounts receivable, net .................................... 36,538 49,226
Other current assets ........................................ 25,882 40,419
----------- -----------
Total current assets ........................... 465,307 522,745
Long-term investments .............................................. 373,988 317,489
Property and equipment, net ........................................ 112,202 122,054
Restricted cash and investments .................................... -- 126,390
Deferred tax assets ................................................ 5,639 10,887
Intangible and other assets, net ................................... 12,689 14,581
----------- -----------
$ 969,825 $ 1,114,146
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 32,133 $ 18,796
Accrued expenses ............................................ 32,675 56,995
Deferred revenue and customer advances ...................... 5,997 5,170
Debt and leases, short-term ................................. 15,781 8,965
Income taxes payable ........................................ 6,455 7,966
Other current liabilities ................................... -- 3,867
----------- -----------
Total current liabilities ...................... 93,041 101,759
Debt and leases, long-term ......................................... 15,023 22,887
Other liabilities .................................................. 5,900 5,881
Minority interests ................................................. 1,732 14,740
----------- -----------
115,696 145,267
=========== ===========
Stockholders' equity:
Common Stock, $0.001 par value; 900,000 shares authorized;
262,087 and 267,387 shares issued and outstanding ........ 263 267
Additional paid-in capital .................................. 831,120 920,655
Notes receivable from stockholders .......................... (11) (11)
Unearned compensation ....................................... (8,704) (1,843)
Retained earnings ........................................... 26,367 50,727
Accumulated other comprehensive income (loss) ............... 5,094 (916)
----------- -----------
Total stockholders' equity ..................... 854,129 968,879
----------- -----------
$ 969,825 $ 1,114,146
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 3
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues ....................................................... $ 58,525 $ 113,377 $ 150,805 $ 297,416
Cost of net revenues ............................................... 17,081 23,912 36,003 71,499
--------- --------- --------- ---------
Gross profit ................................................. 41,444 89,465 114,802 225,917
--------- --------- --------- ---------
Operating expenses:
Sales and marketing .......................................... 27,278 41,137 67,152 117,728
Product development .......................................... 6,958 15,783 14,597 41,721
General and administrative ................................... 11,914 17,341 29,616 54,143
Payroll expense on employee stock options .................... -- 17 -- 1,752
Amortization of acquired intangibles ......................... 328 264 983 879
Merger related costs ......................................... -- 607 4,359 1,431
--------- --------- --------- ---------
Total operating expenses ................................ 46,478 75,149 116,707 217,654
--------- --------- --------- ---------
Income (loss) from operations ...................................... (5,034) 14,316 (1,905) 8,263
Interest and other income, net ..................................... 7,598 11,674 14,927 34,223
Interest expense ................................................... (449) (958) (1,491) (2,836)
--------- --------- --------- ---------
Income before income taxes, minority interest and equity
interest in partnership income ............................. 2,115 25,032 11,531 39,650
Provision for income taxes ......................................... (858) (10,141) (5,720) (16,815)
Minority interest in consolidated companies ........................ (85) 320 (175) 1,594
Equity interest in partnership income .............................. 14 -- 131 --
--------- --------- --------- ---------
Net income ................................................... $ 1,186 $ 15,211 $ 5,767 $ 24,429
========= ========= ========= =========
Net income per share:
Basic ...................................................... $ 0.01 $ 0.06 $ 0.03 $ 0.10
========= ========= ========= =========
Diluted ..................................................... $ 0.00 $ 0.05 $ 0.02 $ 0.09
========= ========= ========= =========
Weighted average shares (Note 1):
Basic ....................................................... 227,975 255,741 212,488 249,070
Diluted ..................................................... 276,179 280,297 271,476 280,567
Supplemental pro forma information:
Income before income taxes, minority interest and equity
interest in partnership income ....................... 2,115 25,032 11,531 39,650
Provision for income taxes ................................... (858) (10,141) (5,720) (16,815)
Pro forma adjustment to provision for income taxes (Note 4)... -- -- (677) --
Minority interest in consolidated companies .................. (85) 320 (175) 1,594
Equity interest in partnership income......................... 14 -- 131 --
--------- --------- --------- ---------
Pro forma net income ............................................... $ 1,186 $ 15,211 $ 5,090 $ 24,429
========= ========= ========= =========
Pro forma net income per share:
Basic ...................................................... $ 0.01 $ 0.06 $ 0.02 $ 0.10
========= ========= ========= =========
Diluted ..................................................... $ 0.00 $ 0.05 $ 0.02 $ 0.09
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 4
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 2000 1999 2000
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net income ......................................................... $ 1,186 $ 15,211 $ 5,767 $ 24,429
Other comprehensive income:
Foreign currency translation adjustments ...................... (20) 1,428 13 988
Unrealized gains (losses) on securities, net .................. (32,295) (3,147) 6,893 (11,663)
Estimated tax benefit (provision) on change in other
comprehensive income .......................................... 13,564 1,259 (2,895) 4,665
--------- -------- -------- ---------
Net change in other comprehensive income (loss) .................... (18,751) (460) 4,011 (6,010)
--------- -------- -------- ---------
Comprehensive income (loss) ........................................ $(17,565) $ 14,751 $ 9,778 $ 18,419
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 5
eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 2000
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 5,767 $ 24,429
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts and authorized credits .... 5,458 2,690
Depreciation and amortization ............................. 10,849 27,207
Amortization of unearned compensation ..................... 3,655 6,784
Tax benefit on employee stock options ..................... 5,841 20,943
Minority interest in consolidated companies ............... 133 (912)
Loss on impairment of asset held for sale ................. 100 126
Equity interest in partnership net loss ................... -- (19)
Changes in assets and liabilities:
Accounts receivable ................................... (20,622) (15,042)
Other assets .......................................... (24,556) (21,042)
Accounts payable ...................................... 12,892 (13,338)
Accrued expenses ...................................... 16,467 26,244
Income taxes payable .................................. 3,079 1,511
Other liabilities ..................................... 736 6,102
--------- ---------
Net cash provided by operating activities .......................... 19,799 65,683
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment .......................... (47,568) (36,224)
Net sales and purchases of short-term investments ............ (99,005) (121,456)
Net sales and purchases of long-term investments ............ (363,700) 49,711
Purchase of restricted investments ........................... -- (126,390)
Purchases of intangible assets and other non-current assets... (2,625) --
--------- ---------
Net cash used in investing activities .............................. (512,898) (234,359)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock, net ......................... 708,642 39,215
Proceeds from issuance of stock by subsidiaries .............. -- 37,736
Stockholder loan repayments .................................. 712 --
Discount on convertible note ................................. -- 6
Proceeds from long-term debt ................................. 7 --
Principal payments on long-term debt and leases .............. (4,105) (512)
Stockholder distributions .................................... (3,892) --
Stockholder contributions .................................... 3,275 --
--------- ---------
Net cash provided by financing activities .......................... 704,639 76,445
--------- ---------
Effect of exchange rates on cash ................................... -- 988
--------- ---------
Net change in cash and cash equivalents ............................ 211,540 (91,243)
Cash and cash equivalents at beginning of period ................... 37,285 221,801
--------- ---------
Cash and cash equivalents at end of period ......................... $ 248,825 $ 130,558
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 6
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
eBay Inc. ("eBay") was incorporated in California in May 1996,
reincorporated in Delaware in April 1998 and as of September 30, 2000 had
operations in the United States, Switzerland, United Kingdom, Germany,
Australia, Canada, and Japan. eBay pioneered online personal trading by
developing a web-based community in which buyers and sellers are brought
together to buy and sell almost anything. The eBay online service permits
sellers to list items for sale, buyers to bid on items of interest and all eBay
users to browse through listed items in a fully-automated, topically-arranged
service that is available online seven-days-a-week. Through eBay's recent
acquisition of Half.com, Inc. ("Half.com"), eBay also offers an online
marketplace to buy and sell using a fixed-price trading platform. eBay engages
in the traditional auction business through its subsidiaries, Butterfield and
Butterfield Auctioneer Corporation ("Butterfields") and Kruse International
("Kruse"), and in online payment processing through eBay's Billpoint, Inc.
("Billpoint") subsidiary.
Stock split
On April 19, 2000, eBay's Board of Directors approved a two-for-one Common
Stock split. Stockholders of record on May 9, 2000 received one additional share
for each share owned on May 24, 2000. All share and per share amounts in these
condensed consolidated financial statements and notes thereto reflect the stock
split for all periods presented.
Wells Fargo Bank
On February 24, 2000, Billpoint and Wells Fargo Bank ("Wells Fargo")
entered into an agreement whereby Wells Fargo became the exclusive provider of
Internet payment services of domestic transactions for Billpoint's customers.
The service agreement expires February 28, 2007.
Billpoint was reincorporated in Delaware and sold 350 shares of common
stock and 1,399,965 shares of Series A Preferred stock to Wells Fargo which
represented approximately 35% ownership in Billpoint. Simultaneously, eBay
exchanged 25,999,350 of Billpoint's common shares for 2,599,935 shares of Series
A Preferred stock. eBay continues to consolidate Billpoint due to a majority
ownership interest and reflects a minority interest for the equity interest of
Wells Fargo.
Use of estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of consolidation and basis of presentation
The accompanying condensed consolidated financial statements as of December
31, 1999 are derived from audited financial statements, and the condensed
consolidated financial statements as of September 30, 2000, and for the three
and nine months ended September 30, 1999 and 2000, are unaudited. The unaudited
interim condensed consolidated financial statements have been prepared on the
same basis as the annual consolidated financial statements and, in the opinion
of management, reflect all adjustments, which include only normal recurring
adjustments, necessary to present fairly our financial position, as of September
30, 2000, the results of operations for the three and nine months ended
September 30, 1999 and 2000 and cash
<PAGE> 7
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
flows for the nine months ended September 30, 1999 and 2000. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with our audited consolidated financial statements and related notes
included in eBay's Report on Form 10-K for the year ended December 31, 1999. The
results for the three and nine months ended September 30, 2000 are not
necessarily indicative of the expected results for the year ending December 31,
2000.
Fair value of financial instruments
eBay's cash, cash equivalents, accounts receivable, and accounts payable
are carried at cost, which approximates their fair value because of the
short-term maturity of these instruments. Capital lease obligations are carried
at cost, which approximates fair value due to the proximity of the implicit
rates of these financial instruments and the prevailing market rates for similar
instruments.
Short and long-term investments, which include marketable equity
securities, municipal, government and corporate bonds, are classified as
available-for-sale and reported at fair value. Realized gains and losses are
included in earnings. Unrealized gains and losses are excluded from earnings and
reported as a component of stockholders' equity, net of estimated tax provisions
and benefits.
Related party transactions
A subsidiary of eBay entered into a service contract with a related party
whereby the subsidiary agreed to provide services with respect to the design of
the related party's system. The related party remitted payment totaling $1.5
million to the subsidiary of which $35,000 was treated as a cost reimbursement
for product development expenses, and the remainder was accounted for as income.
Both amounts are included in the accompanying consolidated statement of income.
eBay purchased shares representing a beneficial interest of less than five
percent of a company affiliated with a director of eBay. In connection with the
transaction, eBay received a warrant that would, if exercised, increase eBay's
beneficial interest to less than ten percent of the company. eBay recorded the
investment at cost. Separately, eBay entered into a commercial agreement whereby
eBay provided approximately $510,000 of advertising services to the related
party. The amount is included in the accompanying consolidated statement of
income.
eBay had also entered into an agreement whereby eBay purchased shares
representing a beneficial interest of less than five percent of a company
affiliated with a director of eBay. Additionally, eBay received a warrant that,
if exercised, eBay's beneficial interest would remain at less than five percent.
eBay recorded the investment at cost. Separately, eBay entered into a commercial
agreement whereby eBay provided approximately $600,000 of advertising services
to the related party. The amount is included in the accompanying consolidated
statement of income.
In a commercial agreement entered into with a company that is affiliated
with a director of eBay, eBay recorded approximately $2.6 million in income
relating to advertising services. eBay also entered into an agreement whereby
eBay purchased shares representing less than one percent of the related party's
total shares outstanding. Additionally, eBay received a warrant that, if
exercised, its beneficial interest would remain at less than one percent.
Investments in subsidiaries and general partnerships
Interests in subsidiaries and general partnerships in which eBay holds more
than 50 percent ownership is consolidated. The consolidated accounts include 100
percent of the assets and liabilities of these subsidiaries and general
partnerships and the ownership interests of minority investors are recorded as
minority interests. Investments in entities and general partnerships where we
hold more than 20 percent
<PAGE> 8
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ownership but less than 50 percent ownership and exert significant influence are
accounted for using the equity method of accounting, are recorded as investment
in partnerships or equity investees and are included within other assets.
Third party investments in a subsidiary of eBay are considered for their
impact on the dilution of eBay's interest at the date these investments are
made. To the extent the proceeds of these investments differ from the third
party's percent ownership in the net equity of the subsidiary, eBay will record
these differences as a capital transaction and accordingly will reflect eBay's
share of the difference within additional paid-in-capital.
Impairment of long-lived assets
eBay evaluates the recoverability of long-lived assets in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS No. 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets.
Revenue recognition
Online transaction revenues are derived primarily from placement fees
charged for the listing of items on the eBay website, success fees calculated as
a percentage of the final sales transaction value for both eBay and Half.com,
and to a lesser extent, online advertising.
Listing and featured item fee revenue is recognized ratably over the
estimated period of the auction while revenues related to success fees are
recognized at the time that the transaction is successfully concluded. A
transaction is considered successfully concluded when at least one buyer has bid
above the seller's specified minimum price or reserve price, whichever is
higher, at the end of the transaction term. Advertising revenues, which are
principally derived from the sale of banners or sponsorship on the eBay site,
are recognized as the impressions are delivered, or ratably over the term of the
agreement where such agreements provide for minimum monthly or quarterly
advertising commitments or such commitments are fixed throughout the term.
Provisions for doubtful accounts and authorized credits to sellers are made at
the time of revenue recognition based upon our historical experience.
Kruse auction revenues are derived primarily from entry fees on auction
items, bidder registration fees and commission fees calculated as a percentage
of the final auction sales transaction value. Revenues related to these fees are
recognized upon the completion of an auction. Revenues are also derived from
sponsorship fees paid by various corporations. Sponsorship fee revenues are
recognized over the term of the sponsorship agreement. Advertising revenues and
auctioneer tuition fees do not represent a significant source of revenues and
are recognized as advertising and auctioneer training services are provided.
Butterfields auction revenues are derived primarily from auction
commissions and fees from the sale of property through the auction process.
Revenues from these sources are recognized at the date the related auction is
concluded. Service revenues are derived from financial, appraisal and other
related services and are recognized as such services are rendered. Rental
revenues are derived from property rentals to third parties.
To date, barter advertising has accounted for less than 1% of eBay's
revenue. eBay records barter revenue in accordance with Emerging Issues Task
Force ("EITF") Issue No. 99-17, "Accounting for Advertising Barter Transactions"
that required that barter transactions be recognized at the fair value of the
advertising surrendered only when an entity has a historical practice of
receiving cash for similar
<PAGE> 9
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
advertising transactions. Consequently, most barter transactions have not
resulted in recognizing any revenue.
Website development costs
eBay recognizes website development costs in accordance with EITF Issue No.
00-02, "Accounting for Website Development Costs." As such, eBay expenses all
costs incurred that relate to the planning and post implementation phases of
development of its website. Direct costs incurred in the development phase are
capitalized and recognized over the product's estimated useful life. In general,
costs associated with repair or maintenance for the website are included in cost
of sales in the accompanying consolidated statement of income.
Comprehensive income
eBay accounts for comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. The change in comprehensive income
resulted from foreign currency translation gains and losses and unrealized gains
and losses on securities.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-- Deferral of the Effective Date
of FASB Statement No. 133," which deferred the effective date until the first
fiscal year ending on or after June 30, 2000. In June 2000, the FASB issued SFAS
Statement No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities-an Amendment of SFAS 133." SFAS No. 138 amends certain terms
and conditions of SFAS 133. SFAS 133 requires that all derivative instruments be
recognized at fair value as either assets or liabilities in the statement of
financial position. The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of hedging
relationship. eBay will adopt SFAS No. 133, as amended, in its quarter ending
March 31, 2001, and eBay is currently assessing the impact, if any, on its
consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation - an
Interpretation of APB 25." This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 is effective July 1, 2000; however,
certain conclusions in this Interpretation cover specific events that occur
after either December 15, 1998, or January 12, 2000. To the extent that this
Interpretation covers events occurring during the period after December 15,
1998, or January 12, 2000, but before the effective date of July 1, 2000, the
effects of applying this Interpretation will be recognized on a prospective
basis from July 1, 2000. eBay adopted FIN 44, and such adoption did not have a
material impact on its consolidated financial statements.
In July 2000, the EITF reached a consensus with respect to EITF Issue No.
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent." EITF
99-19 addressed whether a company should report revenue based on the gross
amount billed to a customer because it has earned revenue from the sale
<PAGE> 10
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the goods or services or the net amount retained (that is, the amount billed
to the customer less the amount paid to a supplier) because it has earned a
commission or fee. eBay adopted EITF 99-19, and such adoption did not have a
material impact on its consolidated financial statements.
In March 2000, the EITF reached a consensus on EITF Issue No. 00-14,
"Accounting for Certain Sales Incentives." This consensus provides guidance on
the recognition, measurement, and income statement classification of sales
incentives which are offered voluntarily by a vendor without charge to customers
that can be used in, or that are exercisable by a customer as a result of, a
single exchange transaction. eBay evaluated the provisions of the EITF and
concluded that it will not impact eBay's consolidated financial statements.
In July 2000, the EITF issued EITF Issue No. 00-15 "Classification in the
Statement of Cash Flows of the Income Tax Benefit Realized by a Company upon
Employee Exercise of a Non-qualified Stock Option." EITF. 00-15 addresses the
cash flow statement presentation of the tax benefit associated with nonqualified
stock options. eBay receives an income tax deduction for the difference between
the exercise price and the market price of a nonqualified stock option upon
exercise by the employee. EITF 00-15 concludes that the income tax benefit
realized by us upon employee exercise should be classified in the operating
section of the cash flow statement. The EITF is effective for all quarters
ending after July 20, 2000. eBay adopted EITF 00-15, and such adoption did not
have a material impact on its consolidated financial statements.
In July 2000, the EITF issued EITF Issue No. 00-16 "Recognition and
Measurement of Employer Payroll Taxes on Employee Stock-Based Compensation."
This Issue addresses how an entity should account for employer payroll taxes on
stock-based compensation under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and SFAS No. 123, "Accounting for
Stock-Based Compensation." This Issue addresses eBay's timing for recognizing
our payroll tax liability and requires that this liability be recognized when
the tax obligation is triggered. eBay adopted EITF 00-16 effective July 31,
2000, however, such adoption did not have a material impact on its consolidated
financial statements.
NOTE 2 -- NET INCOME PER SHARE:
The following table sets forth the computation of basic and diluted net
income per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1999 2000 1999 2000
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Numerator:
Net income........................................................ $ 1,186 $ 15,211 $ 5,767 $ 24,429
========= ========= ========= =========
Denominator (Note 1):
Weighted average shares........................................... 259,377 267,213 253,871 266,272
Weighted average common shares subject to repurchase agreements... (31,402) (11,472) (41,383) (17,202)
--------- --------- --------- ---------
Denominator for basic calculation.................................... 227,975 255,741 212,488 249,070
Weighted average effect of dilutive securities:
Warrants.......................................................... -- 94 -- 94
Weighted average common shares subject to repurchase agreements... 31,402 11,472 41,383 17,202
Employee stock options............................................ 16,802 12,990 17,605 14,201
--------- --------- --------- ---------
Denominator for diluted calculation.................................. 276,179 280,297 271,476 280,567
========= ========= ========= =========
Net income per share:
Basic............................................................. $ 0.01 $ 0.06 $ 0.03 $ 0.10
========= ========= ========= =========
Diluted........................................................... $ 0.00 $ 0.05 $ 0.02 $ 0.09
========= ========= ========= =========
</TABLE>
<PAGE> 11
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3 -- ACQUISITION
Half.com
On July 11, 2000, eBay acquired Half.com. Half.com was incorporated in
Pennsylvania in June 1999 and provides a fixed-price, person-to-person
e-commerce site that allows people to buy and sell previously owned goods at
discounted prices.
In connection with the merger, eBay issued, or reserved for issuance, a
total of approximately 5,484,000 shares of eBay common stock to Half.com's
existing shareholders, option holders and warrant holders as consideration for
all shares of capital stock, options and warrants of Half.com held immediately
prior to consummation of the merger. The merger was accounted for as a
pooling-of-interests.
The results of operations previously reported by eBay and Half.com and the
combined amounts presented in the accompanying condensed consolidated financial
statements are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------- ------------
1999 2000 1999
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
eBay ........... $ 92,280 $ 183,152 $ 224,724
Half.com ....... -- 887 --
--------- --------- ---------
$ 92,280 $ 184,039 $ 224,724
========= ========= =========
Net income (loss):
eBay ........... $ 4,581 $ 17,878 $ 10,828
Half.com ....... -- (8,661) (1,261)
--------- --------- ---------
$ 4,581 $ 9,217 $ 9,567
========= ========= =========
</TABLE>
There were no adjustments required to conform the accounting policies of
Half.com to those of eBay.
NOTE 4 -- INCOME TAXES:
Prior to the acquisition by eBay in 1999, Butterfields was taxed as an S
Corporation. In connection with the acquisition, Butterfields' status as an S
Corporation was terminated, and Butterfields became subject to Federal and state
income taxes designated as a C Corporation. The supplemental pro forma financial
information presented in the financial 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
Butterfields was taxed as a C Corporation prior to the date of the acquisition.
NOTE 5 -- SEGMENT INFORMATION:
eBay reports segment-related information in accordance with the provisions
of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes the standards for reporting information
about operating segments in annual financial statements and requires that
certain selected information about operating segments be reported in interim
financial reports. It also establishes standards for related disclosures about
products and services and geographic areas. Operating
<PAGE> 12
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
segments are defined as components of an enterprise about which separate
financial information is evaluated regularly by the chief decision-maker in
order to allocate resources and in assessing performance.
eBay has identified two primary operating segments: online services and
offline, traditional auction services. The online services segment consists of
the operations of eBay, including all international subsidiaries, Billpoint, and
Half.com. The offline, traditional auction segment consists of the current
operations of Butterfields and Kruse.
Segment selection is based upon the internal organization structure, the
manner in which these operations are managed and their performance evaluated by
management, the availability of separate financial information, and overall
materiality considerations. Segment performance measurement is based on
operating income before income taxes, amortization of intangibles, stock
compensation and merger related costs. The operating information for the two
segments identified are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
---------------------------------- ------------------------------------
ONLINE OFFLINE CONSOLIDATED ONLINE OFFLINE CONSOLIDATED
--------- -------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues from external customers........... $ 49,496 $ 9,029 $ 58,525 $ 102,839 $ 10,538 $ 113,377
========= ======== ========= =========== ======== ===========
Operating income (loss) before amortization
of acquired intangibles, stock
compensation, and merger related costs...... $ (3,028) $ (199) $ (3,227) $ 18,868 $ (321) $ 18,547
Interest and other income, net................. 7,404 208 7,612 11,451 223 11,674
Interest expense............................... (30) (419) (449) (284) (674) (958)
Amortization of acquired intangibles, stock
compensation, and merger related costs...... (1,705) (102) (1,807) (4,137) (94) (4,231)
--------- -------- --------- ----------- -------- -----------
Income (loss) before income taxes, excluding
minority interest, as reported.............. $ 2,641 $ (512) $ 2,129 $ 25,898 $ (866) $ 25,032
========= ======== ========= =========== ======== ===========
Total assets................................... $ 839,524 $ 72,563 $ 912,087 $ 1,023,054 $ 91,092 $ 1,114,146
========= ======== ========= =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 2000
---------------------------------- ------------------------------------
ONLINE OFFLINE CONSOLIDATED ONLINE OFFLINE CONSOLIDATED
--------- -------- ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues from external customers........... $ 121,698 $ 29,107 $ 150,805 $ 268,850 $ 28,566 $ 297,416
========= ======== ========= =========== ======== ===========
Operating income (loss) before amortization
of acquired intangibles, stock compensation,
and merger related costs.................... $ 5,313 $ 2,003 $ 7,316 $ 20,311 $ (3,018) $ 17,293
Interest and other income, net................. 14,621 437 15,058 33,659 564 34,223
Interest expense............................... (32) (1,459) (1,491) (1,026) (1,810) (2,836)
Amortization of acquired intangibles, stock
compensation, and merger related costs...... (4,830) (4,391) (9,221) (8,130) (900) (9,030)
--------- -------- --------- ----------- -------- -----------
Income (loss) before income taxes, excluding
minority interest, as reported.............. $ 15,072 $ (3,410) $ 11,662 $ 44,814 $ (5,164) $ 39,650
========= ======== ========= =========== ======== ===========
Total assets................................... $ 839,524 $ 72,563 $ 912,087 $ 1,023,054 $ 91,092 $ 1,114,146
========= ======== ========= =========== ======== ===========
</TABLE>
NOTE 6 -- INVESTMENTS:
At December 31, 1999 and September 30, 2000, short and long-term
investments were classified as available-for-sale securities and are reported at
fair value as follows (in thousands):
<PAGE> 13
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Short-term investments:
Municipal bonds and notes ....................... $ 75,442 $ -- $ (55) $ 75,387
Corporate bonds ................................. 44,356 -- (5) 44,351
Government securities ........................... 59,820 -- (492) 59,328
Other ........................................... 2,034 -- (14) 2,020
--------- -------- -------- ---------
Total ...................................... $ 181,652 $ -- $ (566) $ 181,086
========= ======== ======== =========
Long-term investments:
Municipal bonds and notes ....................... $ 322,144 $ -- $ (3,425) $ 318,719
Corporate bonds ................................. 2,353 -- (26) 2,327
Government securities ........................... 28,112 -- (392) 27,720
Other ........................................... 11,913 13,309 -- 25,222
--------- -------- -------- ---------
Total ...................................... $ 364,522 $ 13,309 $ (3,843) $ 373,988
========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------------------------
GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Short-term investments:
Municipal bonds and notes........................ $ 106,403 $ -- $ (212) $ 106,191
Corporate bonds.................................. 21,482 17 (9) 21,490
Government securities............................ 168,226 306 -- 168,532
Other............................................ 6,335 -- (6) 6,329
--------- -------- -------- ---------
Total....................................... $ 302,446 $ 323 $ (227) $ 302,542
========= ======== ======== =========
Long-term investments:
Municipal bonds and notes........................ $ 199,315 $ -- $ (1,506) $ 197,809
Government securities............................ 223,649 437 (634) 223,452
Other............................................ 24,088 33 (1,503) 22,618
--------- -------- -------- ---------
Total....................................... $ 447,052 $ 470 $ (3,643) $ 443,879
========= ======== ======== =========
</TABLE>
Restricted cash of $126,390 is included within the $197,809 of municipal
bonds and notes classified as long-term investments.
The estimated fair value of short and long-term investments classified by
date of contractual maturity are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Due within one year or less...................... $ 247,513 $ 302,542
Due after one year through two years............. 128,455 421,261
Due after two years through three years.......... 153,884 --
Equity investments............................... 25,222 22,618
--------- ---------
$ 555,074 $ 746,421
========= =========
</TABLE>
NOTE 7 -- DEBT:
Notes payable consists of amounts payable to various financial institutions
and a former shareholder, which are collateralized by specific properties and
are as follows (in thousands):
<PAGE> 14
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Mortgage notes, prime plus 1%, due September 30, 2002......... $ 1,797 $ 1,716
Mortgage notes, LIBOR plus 1.75%, due July 15, 2001........... 3,501 3,389
Mortgage notes, 8.25%, due October 15, 2002................... 11,980 11,804
Mortgage notes, 5.2% variable, due August 1, 2003............. 9,300 9,300
Convertible note, prime plus 1%, due April 3, 2000............ 3,496 --
10.5% loan on foreclosed property due October 2010............ 549 558
6%-10.5% notes, due October 2000 through January 2003......... 176 --
------- --------
Subtotal.............................................. 30,799 26,767
Less: Current portion of debt................................. (15,781) (4,657)
-------- --------
$ 15,018 $ 22,110
======== ========
</TABLE>
Mortgage notes outstanding are on property owned by Butterfields. The notes
have variable interest rates and are collateralized by certain land, buildings
and improvements. The notes are repayable in equal monthly installments over six
to ten year terms, with final installments consisting of all remaining unpaid
principal and accrued interest at the end of the term.
The mortgage notes bearing an interest rate of 8.25% were originally due on
May 15, 2000. The maturity was extended to October 15, 2002.
The convertible note was related to Half.com and was used as a bridge loan
until funding was received from their preferred stock issuance. The convertible
note was converted to preferred stock in January 2000.
Lease arrangement
On March 1, 2000, eBay entered into a five-year lease for general office
facilities located in San Jose, California. Payments under this lease, which
commenced during 2000, are based on a spread over the London Interbank Offering
Rate ("LIBOR") applied to the $126.4 million cost of the facility funded by the
lessor. eBay has an option to renew the lease for up to two five-year extensions
subject to specific conditions. Under the terms of the lease agreement, eBay was
required to place $126.4 million of cash and investment securities as collateral
for the term of the lease. The cash and investment securities are restricted as
to their withdrawal from the third party trustee and are classified as long-term
restricted cash in the accompanying balance sheet.
eBay entered into two interest rate swaps on June 19 and July 20, 2000
totaling $95 million to reduce the impact of changes in interest rates on a
portion of the floating rate operating lease for our facilities. The interest
rate swaps allow eBay to receive floating rate receipts based on LIBOR in
exchange for making fixed rate payments which effectively amends the interest
rate exposure on our operating lease from a floating rate to a fixed rate on $95
million of the total $126.4 million operating lease. The interest rate swaps
have been accounted for under the accrual method of accounting.
NOTE 8 -- CONTINGENCIES:
Lawsuits
On September 1, 1999, eBay was served with a lawsuit filed by Randall
Stoner, on behalf of the general public, in San Francisco Superior Court (No.
305666). The lawsuit alleges that eBay violated Section 17200 of the California
Business & Professions Code, a statute that relates to unfair competition, based
upon the listing of "bootleg" or "pirate" recordings by eBay's users, allegedly
in violation of
<PAGE> 15
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
California penal statutes relating to the sale of unauthorized audio recordings.
The lawsuit seeks declaratory and injunctive relief, restitution and legal fees.
eBay filed a general demurrer, which was sustained by the court with leave to
amend. The plaintiff filed an amended complaint. Discovery has commenced. eBay
filed a motion for summary judgement. On November 7, 2000, eBay's motion for
summary judgement was granted.
On December 10, 1999, eBay sued Bidder's Edge, Inc. in the United States
District Court for the Northern District of California alleging trespass, unfair
competition, violation of the computer fraud and abuse act, misappropriation,
false advertising, trademark dilution, injury to business reputation,
interference with prospective economic advantage, and unjust enrichment. On
February 7, 2000, Bidder's Edge denied these claims and counterclaimed against
eBay alleging that eBay violated the antitrust laws by monopolizing or
attempting to monopolize a market, was competing unfairly and interfered with
their contract with eBay magazine. Bidder's Edge is seeking treble damages, an
injunction and its fees and costs. Discovery in this case has commenced. A
motion to dismiss on the antitrust counterclaim has been denied. On May 24,
2000, the court granted eBay a preliminary injunction against the use by
Bidder's Edge of robotic means to copy the eBay site. Bidder's Edge has appealed
this ruling. eBay intends to prosecute its claims and defend itself against
Bidder's Edge's counterclaims vigorously. However, this lawsuit has been and is
expected to continue to be costly, and eBay's business would be harmed if it
were to lose.
On April 25, 2000, eBay was served with a lawsuit, Gentry et.al. v. eBay,
Inc. et.al, filed in Superior Court in San Diego, California. The lawsuit is
filed on behalf of a purported class of eBay users who purchased allegedly
forged autographed sports memorabilia on eBay. The lawsuit claims eBay was
negligent in permitting certain named (and other unnamed) defendants to sell
allegedly forged autographed sports memorabilia on eBay. In addition, the
lawsuit claims eBay violated Section 17200 and a section of the California Civil
Code which prohibits "dealers" from selling sports memorabilia without a
"Certificate of Authenticity." The lawsuit seeks class action certification,
compensatory damages, a civil penalty of ten times actual damages, interest,
costs and fees and injunctive relief. Discovery in this case has commenced. eBay
filed a demurrer to three of the counts, which the court sustained with leave to
amend. The plaintiffs have filed an amended complaint. eBay believes it has
meritorious defenses to this lawsuit and intend to defend itself vigorously.
However, even if successful, this defense has been and is expected to be costly.
If eBay loses this lawsuit, it would harm its business.
From time to time, eBay is involved in disputes which have arisen in the
ordinary course of business. Management believes that the ultimate resolution of
these disputes will not have a material adverse impact on eBay's financial
position or results of operations.
Minimum Auction Guarantees
From time to time eBay, through its Butterfields subsidiary, guarantees the
minimum net proceeds with respect to the sale of properties at future auctions.
Such guaranteed proceeds are often advanced to the CONSIGNOR prior to the
completion of the auction. eBay is responsible for the shortfall, if any,
between the guaranteed minimum proceeds and the actual net proceeds upon the
completion of the auction. Losses, if any, are recognized at the conclusion of
the auction. In 2000, Butterfields had entered into two such agreements with
guaranteed net proceeds of $1.25 million and $2.0 million. The $2.0 million
agreement is shared with another auction service, half of which is guaranteed by
each party. In June 2000, the auction associated with the $2.0 million agreement
took place, and at the conclusion of the auction, the minimum net proceed amount
was not obtained. Butterfields recognized an insignificant loss for the
shortfall between the minimum proceeds it guaranteed and the actual net proceeds
received.
<PAGE> 16
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GO.com
On February 6, 2000, eBay entered into a four-year marketing agreement with
GO.com. In accordance with the agreement, GO.com provided eBay with online and
offline promotion, eBay and GO.com developed a co-branded version of the eBay
service and both companies developed a site featuring merchandise from GO.com
affiliates. These affiliates include but are not limited to The Walt Disney
Company, ESPN and ABC. In consideration for this agreement, eBay will pay a
minimum of $30 million to GO.com over the four-year term.
NEC
On February 17, 2000, eBay Japan Inc., a wholly owned subsidiary of eBay,
entered into a shareholder and marketing services agreement with NEC
Corporation. In accordance with the shareholder agreement, NEC acquired 30% of
eBay Japan and eBay retained the remaining 70% interest of eBay Japan. eBay will
continue to consolidate eBay Japan due to a majority ownership interest and will
reflect a minority interest for the equity interest of NEC.
In accordance with the marketing agreement, NEC provided marketing and
services to eBay Japan in an effort to deliver a minimum level of confirmed
registered users. As compensation for the marketing and other services performed
by NEC, eBay Japan paid NEC an annual up-front fee of approximately $1.5
million. The first payment was made in April, 2000, and additional payments will
be payable on the anniversary of such date in each of the subsequent three years
as long as the contract is in effect. If NEC is unable to deliver the minimum
level of confirmed registered users, then eBay will have the right to repurchase
shares of eBay Japan from NEC.
AutoTrader.com
On March 6, 2000, eBay and Autotrader.com LLC ("Autotrader") entered into a
marketing and services agreement whereby eBay and Autotrader developed a
co-branded site, and Autotrader will refer customers desiring an auction pricing
format to eBay for a referral fee. Under the terms of the agreement, we have
committed to provide certain marketing expenditures for the promotion of the
eBay service and additional automobile related services offered by Autotrader.
In consideration for these expenditures, eBay is committed to pay $29 million
over the 3.5-year term.
Under the agreement, eBay acquired approximately a 3% equity investment in
Autotrader representing 1,173,876 Autotrader.com Class A units in exchange for
cash proceeds of $10.3 million or $8.77 per unit.
AOL
In March 1999, eBay expanded the scope of its strategic relationship with
AOL. Under the amended agreement, eBay was granted a prominent presence
featuring it as the preferred provider of person-to-person trading services on
AOL's proprietary services (both domestic and international), AOL.com, Digital
Cities, ICQ, CompuServe (both domestic and international) and Netscape. In
addition, eBay has developed or will develop a co-branded version of its service
for each AOL property which will prominently feature each party's brand. AOL
will be entitled to all advertising revenue from the co-branded site. eBay will
pay $75 million over the four-year term of the contract. We are recognizing
these fees as sales and marketing expense over the greater of: i) the ratio of
the number of impressions delivered over the total number of contracted
impressions, or ii) a straight-line basis beginning with the initial delivery of
impressions and extending over the term of the contract. At September 30, 2000,
we had advanced $37.5 million under the amended agreement, and had recognized
$21.5 million as advertising expense commencing with the launch of the
co-branded program and delivery of advertising impressions.
<PAGE> 17
eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In conjunction with the expanded strategic relationship, AOL terminated its
original contract with eBay in August of 1999. As a result, the remaining $8.0
million commitment associated with the original agreement has been waived. AOL
continued to deliver impressions under the original agreement through August
1999.
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
eBay Inc.
Date: November 14, 2000
By: /s/ Gary F. Bengier
-------------------------------------
Gary F. Bengier
Vice President and
Chief Financial Officer
