eBay 2011 Q2_10Q


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
 
[x]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

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)
 
 
 

Delaware
77-0430924
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
2145 Hamilton Avenue
San Jose, California
95125
(Address of principal executive offices)
(Zip Code)
(408) 376-7400
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
[x]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
(Do not check if a smaller reporting company)
Smaller reporting company
[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]

As of July 18, 2011, there were 1,288,759,170 shares of the registrant's common stock, $0.001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.

 



PART I: FINANCIAL INFORMATION
Item 1:    Financial Statements
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
 
 
June 30,
2011
 
December 31,
2010
 
(In thousands, except par value amounts)
 
(Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,265,826

 
$
5,577,411

Short-term investments
1,131,100

 
1,045,403

Accounts receivable, net
568,860

 
454,366

Loans and interest receivable, net
1,039,887

 
956,189

Funds receivable and customer accounts
3,362,209

 
2,550,731

Other current assets
493,210

 
481,238

Total current assets
9,861,092

 
11,065,338

Long-term investments
3,078,398

 
2,492,012

Property and equipment, net
1,727,081

 
1,523,333

Goodwill
8,263,705

 
6,193,163

Intangible assets, net
1,443,832

 
540,711

Other assets
459,846

 
189,205

Total assets
$
24,833,954

 
$
22,003,762

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 

 
 

Short-term debt
$
1,015,484

 
$
300,000

Accounts payable
246,472

 
184,963

Funds payable and amounts due to customers
3,362,209

 
2,550,731

Accrued expenses and other current liabilities
1,366,636

 
1,343,888

Deferred revenue
105,387

 
96,464

Income taxes payable
47,084

 
40,468

Total current liabilities
6,143,272

 
4,516,514

Deferred and other tax liabilities, net
894,797

 
645,457

Long-term debt
1,530,211

 
1,494,227

Other liabilities
55,792

 
45,385

Total liabilities
8,624,072

 
6,701,583

Commitments and contingencies (Note 9)

 

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 3,580,000 shares authorized; 1,288,414 and 1,297,710 shares outstanding
1,528

 
1,513

Additional paid-in capital
10,870,718

 
10,480,709

Treasury stock at cost, 239,687 and 215,082 shares
(6,872,815
)
 
(6,091,435
)
Retained earnings
10,919,350

 
10,160,078

Accumulated other comprehensive income
1,291,101

 
751,314

Total stockholders' equity
16,209,882

 
15,302,179

Total liabilities and stockholders' equity
$
24,833,954

 
$
22,003,762


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands, except per share amounts)
 
(Unaudited)
Net revenues
$
2,760,274

 
$
2,215,379

 
$
5,305,883

 
$
4,411,436

Cost of net revenues
773,462

 
615,371

 
1,502,440

 
1,221,926

Gross profit
1,986,812

 
1,600,008

 
3,803,443

 
3,189,510

Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
607,954

 
478,236

 
1,140,633

 
924,397

Product development
297,035

 
225,317

 
571,817

 
435,456

General and administrative
391,251

 
262,100

 
684,729

 
538,843

Provision for transaction and loan losses
118,497

 
92,032

 
225,588

 
198,061

Amortization of acquired intangible assets
53,276

 
48,895

 
97,372

 
102,147

Restructuring
(100
)
 
8,863

 
(249
)
 
17,432

Total operating expenses
1,467,913

 
1,115,443

 
2,719,890

 
2,216,336

Income from operations
518,899

 
484,565

 
1,083,553

 
973,174

Loss on divested business
(256,501
)
 

 
(256,501
)
 

Interest and other income (expense), net
28,576

 
14,821

 
32,268

 
20,867

Income before income taxes
290,974

 
499,386

 
859,320

 
994,041

Provision for income taxes
(7,567
)
 
(87,194
)
 
(100,048
)
 
(184,196
)
Net income
$
283,407

 
$
412,192

 
$
759,272

 
$
809,845

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.31

 
$
0.59

 
$
0.62

Diluted
$
0.22

 
$
0.31

 
$
0.58

 
$
0.61

Weighted average shares:
 
 
 
 
 
 
 
Basic
1,296,537

 
1,310,042

 
1,296,792

 
1,305,595

Diluted
1,314,718

 
1,329,618

 
1,317,318

 
1,327,770


The accompanying notes are an integral part of these condensed consolidated financial statements.


3



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
 
(Unaudited)
Net income
$
283,407

 
$
412,192

 
$
759,272

 
$
809,845

Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation
163,390

 
(536,686
)
 
517,411

 
(691,411
)
Unrealized gains (losses) on investments, net
(18,808
)
 
30,019

 
103,066

 
2,132

Unrealized gains (losses) on hedging activities
1,283

 
7,746

 
(42,254
)
 
35,869

Tax benefit (provision) on above items
6,666

 
(14,436
)
 
(38,436
)
 
(3,561
)
Net change in accumulated other comprehensive income (loss)
152,531

 
(513,357
)
 
539,787

 
(656,971
)
Comprehensive income (loss)
$
435,938

 
$
(101,165
)
 
$
1,299,059

 
$
152,874


The accompanying notes are an integral part of these condensed consolidated financial statements.


4



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
Six Months Ended June 30,
 
2011
 
2010
 
(In thousands)
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
759,272

 
$
809,845

Adjustments:
 
 
 
Provision for transaction and loan losses
225,588

 
198,061

Depreciation and amortization
400,684

 
375,839

Stock-based compensation
237,710

 
194,052

Loss on divested business
256,501

 

Gain on acquisition of a business
(17,055
)
 

Changes in assets and liabilities, net of acquisition effects
(380,354
)
 
(433,156
)
Net cash provided by operating activities
1,482,346

 
1,144,641

Cash flows from investing activities:
 

 
 

Purchases of property and equipment, net
(388,351
)
 
(359,457
)
Changes in principal loans receivable, net
(98,650
)
 
(48,110
)
Purchases of investments
(1,229,345
)
 
(1,294,201
)
Maturities and sales of investments
860,498

 
752,906

Acquisitions, net of cash acquired
(2,846,886
)
 
(7,000
)
Repayment of Skype note receivable

 
125,000

Other
(102,901
)
 
(4,773
)
Net cash used in investing activities
(3,805,635
)
 
(835,635
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
156,459

 
99,639

Repurchases of common stock
(781,380
)
 

Excess tax benefits from stock-based compensation
58,608

 
24,457

Tax withholdings related to net share settlements of restricted stock awards and units
(113,794
)
 
(73,733
)
Net borrowings under commercial paper program
700,000

 

Repayment of acquired debt
(186,233
)
 

Funds receivable and customer accounts
(763,153
)
 
(99,040
)
Funds payable and amounts due to customers
763,153

 
99,040

Net cash (used in) provided by financing activities
(166,340
)
 
50,363

Effect of exchange rate changes on cash and cash equivalents
178,044

 
(321,745
)
Net (decrease) increase in cash and cash equivalents
(2,311,585
)
 
37,624

Cash and cash equivalents at beginning of period
5,577,411

 
3,999,818

Cash and cash equivalents at end of period
$
3,265,826

 
$
4,037,442

Supplemental cash flow disclosures:
 

 
 

Cash paid for interest
$
13,685

 
$

Cash paid for income taxes
$
135,564

 
$
448,264

Non-cash investing and financing activities:
 
 
 
Common stock options assumed pursuant to acquisition
$
24,762

 
$

Note receivable from divested business
$
286,800

 
$

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — The Company and Summary of Significant Accounting Policies

The Company

eBay Inc. (“eBay”) was incorporated in California in May 1996, and reincorporated in Delaware in April 1998. eBay's purpose is to pioneer new communities around the world, built on commerce, sustained by trust and inspired by opportunity. eBay brings together millions of buyers and sellers every day on a local, national and international basis through an array of websites. eBay provides online marketplaces for the sale of goods and services as well as other online commerce, or ecommerce, platforms and online payment services to a diverse community of individuals and businesses.

We currently have three business segments: Marketplaces, Payments, and GSI. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the eBay.com platform and its localized counterparts and our other online platforms, such as our online classifieds businesses (including our apartment listing service platform, Rent.com), our secondary tickets marketplace (StubHub), our online shopping comparison website (Shopping.com), and our fixed price media marketplace (Half.com). Our Payments segment is comprised of our online payment solutions PayPal and Bill Me Later. Our GSI segment, which consists of our recently acquired GSI Commerce (GSI) business, offers a comprehensive suite of ecommerce services that enable companies to operate ecommerce businesses, integrate their ecommerce businesses with their multi-channel offerings and exploit digital marketing channels. We added the GSI segment upon the completion of our acquisition of GSI on June 17, 2011, and the results of our new GSI segment have been included in our consolidated results of operations from the acquisition date.

When we refer to “we,” “our,” “us” or “eBay” in this document, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) 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. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and loan losses, bad debts, legal contingencies, income taxes, revenue recognition, stock-based compensation and the recoverability of goodwill and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Principles of consolidation and basis of presentation

The accompanying condensed financial statements are consolidated and include the financial statements of eBay Inc. and our majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

We have evaluated all subsequent events through the date the financial statements were issued.

The condensed consolidated financial statements include 100% of the assets and liabilities of our majority-owned subsidiaries and the ownership interests of minority investors are recorded as a noncontrolling interest. Investments in private entities where we hold 20% or more but less than a 50% ownership interest and exercise significant influence are accounted for using the equity method of accounting, and our share of the investees' results of operations is included in interest and other income (expense), net. Investments in private entities where we hold less than a 20% ownership interest and we do not have the ability to significantly influence the operations of the investee are accounted for using the cost method of accounting, and our share of the investees' results of operations is not included in our condensed consolidated statement of income, except to the extent of earnings distributions actually received from the investee. Our investment balance in private entities is included in long-term investments.


6

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Recent Accounting Pronouncements

In 2011, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that amends some fair value measurement principles and disclosure requirements. The new guidance states that the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets and prohibits the grouping of financial instruments for purposes of determining their fair values when the unit of account is specified in other guidance. We will adopt this accounting standard upon its effective date for periods ending on or after December 15, 2011, and do not anticipate that this adoption will have a significant impact on our financial position or results of operations.

In 2011, the FASB issued new disclosure guidance related to the presentation of the Statement of Comprehensive Income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. We will adopt this accounting standard upon its effective date for periods ending on or after December 15, 2011, and do not anticipate that this adoption will have any impact on our financial position or results of operations.

Note 2 — Net Income Per Share

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive shares. The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
283,407

 
$
412,192

 
$
759,272

 
$
809,845

Denominator:
 
 
 
 
 
 
 
Weighted average common shares - basic
1,296,537

 
1,310,042

 
1,296,792

 
1,305,595

Dilutive effect of equity incentive plans
18,181

 
19,576

 
20,526

 
22,175

Weighted average common shares - diluted
1,314,718

 
1,329,618

 
1,317,318

 
1,327,770

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.22

 
$
0.31

 
$
0.59

 
$
0.62

Diluted
$
0.22

 
$
0.31

 
$
0.58

 
$
0.61

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
17,762

 
34,693

 
15,946

 
32,587



7



Note 3 - Business Combinations:
During the six months ended June 30, 2011, we completed seven acquisitions, including the acquisitions of GSI Commerce, Inc., brands4friends and GittiGidiyor. Allocation of the purchase consideration for the business combinations completed in the first six months of 2011 is summarized as follows (in thousands):
 
Purchase Consideration
Net Tangible Assets Acquired/(Liabilities Assumed)
 
Purchased Intangible Assets
Goodwill
GSI Commerce, Inc.
$
2,377,257

$
74,498

 
$
819,100

$
1,483,659

brands4friends
193,236

(33,146
)
 
76,143

150,239

GittiGidiyor
235,278

(8,787
)
 
52,700

191,365

Other
142,731

(4,832
)
 
44,820

102,743

Total
$
2,948,502

$
27,733

 
$
992,763

$
1,928,006

The purchase consideration for each acquisition was allocated to the tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated purchase consideration recorded as goodwill. The fair value assigned to identifiable intangible assets acquired has been determined primarily by using valuation methods that discount expected future cash flows to present value using estimates and assumptions determined by management. Purchased identifiable intangible assets are amortized on a straight-line basis over the respective useful lives. We generally do not expect goodwill to be deductible for income tax purposes. The estimation of fair values for tangible assets and intangible assets acquired and liabilities assumed was subject to estimates, assumptions and other uncertainties, and it is possible that the allocation of the purchase consideration reflected in the foregoing table may change.
GSI Commerce, Inc. (GSI)
Acquisition
We completed the acquisition of GSI on June 17, 2011. GSI is a leading provider of ecommerce and interactive marketing services. We acquired GSI to utilize its comprehensive integrated suite of online commerce and interactive marketing services to strengthen our ability to connect buyers and sellers worldwide. We paid $29.25 per share, and assumed restricted stock-based awards with a fair value of approximately $24.8 million resulting in total consideration of approximately $2.4 billion. In addition, we paid an amount equal to $0.33 per share or approximately $24.3 million, which was separate and distinct from the per share merger consideration, to certain GSI security holders in connection with the settlement of litigation related to the acquisition of GSI and recorded in general and administrative expense. GSI is reported as a separate segment.
Divestiture
In conjunction with the acquisition of GSI, we immediately divested 100 percent of GSI's licensed sports merchandise business and 70 percent of GSI's ShopRunner and RueLaLa businesses (together, the "divested businesses"). The divested businesses were sold to a newly formed holding company, NRG Commerce, LLC (which we refer to as NRG), led by GSI's former Chairman, President and Chief Executive Officer, Mr. Michael Rubin, for a note receivable with a face value of $467.0 million. The note receivable bears interest at an annual rate equal to 3-month LIBOR plus 1.10%, matures in December 2018, and is secured by certain assets of the divested businesses. The fair value of the note receivable was determined to be $286.8 million based on comparable market interest rates and is recorded in other assets. The difference between the fair value of the note receivable and the carrying value of the divested businesses resulted in a loss of approximately $256.5 million. The loss was recorded in loss on divested business in our condensed consolidated statement of income.
The carrying value of our retained 30 percent stake in the ShopRunner and RueLaLa businesses was $75.2 million and recorded in long-term investments. We will account for our retained interest in the ShopRunner and RueLaLa businesses under the equity method of accounting and record our proportionate share of net income (loss) on a one-quarter lag as a component of interest and other income (expense), net in our condensed consolidated statement of income. Our exposure to loss resulting from our financing arrangement with NRG and equity investment in RueLaLa and ShopRunner is limited to the carrying value of the note receivable and equity investment. We have also entered into a transitional services agreement, pursuant to which GSI will provide to the divested businesses certain transitional

8



services for a limited period, as well as certain other commercial agreements with the newly formed holding company and its affiliates.
Intangible Assets
The following table sets forth the components of intangible assets acquired in connection with the GSI acquisition (excluding intangible assets sold in connection with the divested businesses) (in thousands):
 
Description
Fair Value
Useful Life (Years)
Trademarks
$
8,400

2
User base
667,900

5
Developed technology
142,800

5
Total
$
819,100

 
The allocation of the purchase price for the acquisition has been prepared on a preliminary basis and changes to that allocation may occur as additional information becomes available. We have included the financial results of GSI in our condensed consolidated financial statements from the date of acquisition.
Pro forma financial information
The unaudited pro forma financial information in the table below summarizes the combined results of our operations and those of GSI for the periods shown as though the acquisition of GSI and the sale of the divested businesses had occurred as of the beginning of fiscal 2010. The pro forma financial information for the periods presented includes the business combination accounting effects of the acquisition, including amortization charges from acquired intangible assets. The pro forma financial information as presented below is for informational purposes only, is subject to a number of estimates, assumptions and other uncertainties, and is not indicative of the results of operations that would have been achieved if the acquisition and divestiture had taken place at January 1, 2010. The unaudited pro forma financial information is as follows (in thousands, except per share amounts):
 
Six Months Ended June 30,
 
2011
 
2010
Total revenues
$
5,692,106

 
$
4,764,472

Net income
699,540

 
727,532

Basic earnings per share
$
0.54

 
$
0.56

Diluted earnings per share
$
0.53

 
$
0.55

brands4friends
Brands4friends, an online shopping club for fashion and lifestyle in Germany, was acquired during the first quarter of 2011 for total cash consideration of approximately $193.2 million. This company is included in our Marketplaces segment. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to that allocation may occur as additional information becomes available. Our consolidated financial statements include the operating results of brands4friends from the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to our condensed consolidated results of operations.
GittiGidiyor
In the second quarter of 2011, we acquired additional shares of GittiGidiyor, an online marketplace in Turkey. We previously held a noncontrolling interest in GittiGidiyor, and following the completion of the acquisition of these additional shares, we own approximately 93% of the outstanding shares of GittiGidiyor. The following table summarizes the purchase consideration (in thousands):
Cash paid
$
182,068

Fair value of non-controlling interest
31,495

Fair value of previously held equity interest
21,715

Total purchase consideration
$
235,278


9



This company is included in our Marketplaces segment. As a result of obtaining control over GittiGidiyor, our previously held 10% interest was remeasured to fair value resulting in a gain of $17.1 million. The gain has been recognized in interest and other income (expense), net in our condensed consolidated statement of income. We recorded the remaining non-controlling interest in additional paid in capital in our condensed consolidated balance sheet as the amount is not significant. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to that allocation may occur as additional information becomes available. Our consolidated financial statements include the operating results of GittiGidiyor from the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to our condensed consolidated results of operations.
Other
Other acquisition activity during the six months ended June 30, 2011 consisted of four acquisitions. One acquisition is included in our Marketplaces segment and three acquisitions are included in our Payments segment. The purchase consideration for these acquisitions consisted of cash. The allocations of the purchase price for these acquisition has been prepared on a preliminary basis and changes to those allocations may occur as additional information becomes available. Our consolidated financial statements include the operating results of all of these acquisitions from the respective dates of acquisition. Pro forma results of operations have not been presented because the effect of these acquisitions was not material to our condensed consolidated results of operations.
Recent Acquisition Announcements
On June 6, 2011, we announced our agreement to acquire Magento Inc., which operates an open source ecommerce platform. We currently hold 49.9% of the outstanding shares of Magento, and following the completion of the acquisition, we will own 100 percent of the outstanding shares of Magento. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the third quarter of 2011.
On July 7, 2011, we announced our agreement to acquire Zong, a provider of payments through mobile carrier billing, for total consideration of approximately $240 million, payable in cash. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the third quarter of 2011.

Note 4 — Goodwill and Intangible Assets

Goodwill

The following table presents goodwill balances and adjustments to those balances for each of our reportable segments during the six months ended June 30, 2011:
 
 
December 31,
2010
 
Goodwill
Acquired
 
Adjustments
 
June 30,
2011
 
(In thousands)
Reportable segments:
 
 
 
 
 
 
 
Marketplaces
$
4,071,772

 
$
492,104

 
$
143,194

 
$
4,707,070

Payments
2,148,752

 
128,744

 
(661
)
 
2,276,835

GSI

 
1,307,158

 

 
1,307,158

 
$
6,220,524

 
$
1,928,006

 
$
142,533

 
$
8,291,063


Investments accounted for under the equity method of accounting are classified on our balance sheet as long-term investments. Such investment balances include any related goodwill. As of June 30, 2011 and December 31, 2010, the goodwill related to our equity investments, included above, was approximately $27.4 million.

A portion of the $1.5 billion of goodwill acquired as part of the GSI acquisition was allocated to the marketplaces and payments segments based on synergies expected to be realized. The adjustments to goodwill during the six months ended June 30, 2011 were due primarily to foreign currency translation.


10

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Intangible Assets

The components of identifiable intangible assets are as follows: 
 
June 30, 2011
 
December 31, 2010
 
Gross Carrying Amount  
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
Gross Carrying Amount 
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
(In thousands, except years)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
1,574,625

 
$
(686,130
)
 
$
888,495

 
5
 
$
831,806

 
$
(625,126
)
 
$
206,680

 
6
Trademarks and trade names
753,237

 
(439,914
)
 
313,323

 
5
 
632,899

 
(381,456
)
 
251,443

 
5
Developed technologies
412,511

 
(214,689
)
 
197,822

 
4
 
231,312

 
(192,421
)
 
38,891

 
3
All other
167,148

 
(122,956
)
 
44,192

 
4
 
156,306

 
(112,609
)
 
43,697

 
4
 
$
2,907,521

 
$
(1,463,689
)
 
$
1,443,832

 
 
 
$
1,852,323

 
$
(1,311,612
)
 
$
540,711

 
 

Amortization expense for intangible assets was $65.9 million and $64.7 million for the three months ended June 30, 2011 and 2010, respectively. Amortization expense for intangible assets was $123.2 million and $136.2 million for the six months ended June 30, 2011 and 2010, respectively.

Expected future intangible asset amortization as of June 30, 2011 is as follows (in thousands):

Fiscal Years:
 
2011 (remaining six months)
$
206,118

 
2012
381,872

 
2013
346,373

 
2014
235,424

 
2015
173,262

 
Thereafter
100,783

 
 
$
1,443,832



11

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 5 — Segments

Operating segments are based upon our internal organization structure, the manner in which our operations are managed and the availability of separate financial information. We have three operating segments: Marketplaces, Payments and GSI.

The following tables summarize the financial performance of our operating segments (in the case of our GSI segment, the following information reflects its operating results from June 17, 2011, the date we acquired GSI):

 
Three Months Ended June 30, 2011
 
Marketplaces
 
Payments
 
GSI
 
Consolidated
 
(In thousands)
Net transaction revenues
$
1,349,640

 
$
991,118

 
$
16,060

 
$
2,356,818

Marketing services and other revenues
313,799

 
81,878

 
7,779

 
403,456

Net revenues from external customers
1,663,439

 
1,072,996

 
23,839

 
2,760,274

Direct costs
1,018,675

 
837,898

 
24,042

 
1,880,615

Direct contribution
$
644,764

 
$
235,098

 
$
(203
)
 
879,659

Operating expenses and indirect costs of net revenues
 
 
 
 
 
 
360,760

Income from operations
 
 
 
 
 
 
518,899

Loss on divested business
 
 
 
 
 
 
(256,501
)
Interest and other income (expense), net
 
 
 
 
 
 
28,576

Income before income taxes
 
 
 
 
 
 
$
290,974


 
Three Months Ended June 30, 2010
 
Marketplaces
 
Payments
 
Consolidated
 
(In thousands)
Net transaction revenues
$
1,182,513

 
$
770,755

 
$
1,953,268

Marketing services and other revenues
215,821

 
46,290

 
262,111

Net revenues from external customers
1,398,334

 
817,045

 
2,215,379

Direct costs
834,780

 
654,519

 
1,489,299

Direct contribution
$
563,554

 
$
162,526

 
726,080

Operating expenses and indirect costs of net revenues
 
 
 
 
241,515

Income from operations
 
 
 
 
484,565

Interest and other income (expense), net
 
 
 
 
14,821

Income before income taxes
 
 
 
 
$
499,386




12

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 
Six Months Ended June 30, 2011
 
Marketplaces
 
Payments
 
GSI
 
Consolidated
 
(In thousands)
Net transaction revenues
$
2,634,395

 
$
1,933,827

 
$
16,060

 
$
4,584,282

Marketing services and other revenues
582,306

 
131,516

 
7,779

 
721,601

Net revenues from external customers
3,216,701

 
2,065,343

 
23,839

 
5,305,883

Direct costs
1,942,466

 
1,609,200

 
24,042

 
3,575,708

Direct contribution
$
1,274,235

 
$
456,143

 
$
(203
)
 
1,730,175

Operating expenses and indirect costs of net revenues
 
 
 
 
 
 
646,622

Income from operations
 
 
 
 
 
 
1,083,553

Loss on divested business
 
 
 
 
 
 
(256,501
)
Interest and other income (expense), net
 
 
 
 
 
 
32,268

Income before income taxes
 
 
 
 
 
 
$
859,320


 
Six Months Ended June 30, 2010
 
Marketplaces
 
Payments
 
Consolidated
 
(In thousands)
Net transaction revenues
$
2,355,452

 
$
1,537,327

 
$
3,892,779

Marketing services and other revenues
429,677

 
88,980

 
518,657

Net revenues from external customers
2,785,129

 
1,626,307

 
4,411,436

Direct costs
1,638,744

 
1,281,204

 
2,919,948

Direct contribution
$
1,146,385

 
$
345,103

 
1,491,488

Operating expenses and indirect costs of net revenues
 
 
 
 
518,314

Income from operations
 
 
 
 
973,174

Interest and other income (expense), net
 
 
 
 
20,867

Income before income taxes
 
 
 
 
$
994,041


Direct contribution consists of net revenues from external customers less direct costs. Direct costs include specific costs of net revenues, sales and marketing expenses, and general and administrative expenses, such as advertising and marketing programs, customer support expenses, bank charges, internal interest charges related to Bill Me Later, site operations expenses, product development expenses, billing operations, certain technology and facilities expenses, transaction expenses and provision for transaction and loan losses. Expenses such as our corporate center costs (consisting of certain costs such as corporate management, human resources, finance and legal), amortization of intangible assets, restructuring charges and stock-based compensation expense are excluded from direct costs as they are not included in the measurement of segment performance.


13

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 6 — Fair Value Measurement of Assets and Liabilities

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:

 Description
 
Balance as of
June 30, 2011
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
 
(In thousands)
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
3,265,826

 
$
3,265,826

 
$

Short-term investments:
 
 
 
 
 
 
Restricted cash
 
23,949

 
23,949

 

Corporate debt securities
 
317,861

 

 
317,861

Government and agency securities
 
56,673

 

 
56,673

Time deposits
 
87,895

 

 
87,895

Equity instruments
 
644,722

 
644,722

 

Total short-term investments
 
1,131,100

 
668,671

 
462,429

Derivatives
 
17,739

 

 
17,739

Long-term investments:
 
 
 
 
 
 
Restricted cash
 
1,390

 
1,390

 

Corporate debt securities
 
2,171,405

 

 
2,171,405

Government and agency securities
 
89,434

 

 
89,434

Time deposits and other
 
5,574

 

 
5,574

Total long-term investments
 
2,267,803

 
1,390

 
2,266,413

Total financial assets
 
$
6,682,468

 
$
3,935,887

 
$
2,746,581

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives
 
$
30,748

 
$

 
$
30,748




14

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Description
 
Balance as of
December 31, 2010
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) 
 
Significant Other
Observable Inputs
(Level 2)
 
 
(In thousands)
Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
5,577,411

 
$
5,577,411

 
$

Short-term investments:
 
 
 
 
 
 
Restricted cash
 
20,351

 
20,351

 

Corporate debt securities
 
372,225

 

 
372,225

Government and agency securities
 
66,534

 

 
66,534

Time deposits
 
44,772

 

 
44,772

Equity instruments
 
541,521

 
541,521

 

Total short-term investments
 
1,045,403

 
561,872

 
483,531

Derivatives
 
37,196

 

 
37,196

Long-term investments:
 
 
 
 
 
 
Restricted cash
 
1,332

 
1,332

 

Corporate debt securities
 
1,605,770

 

 
1,605,770

Government and agency securities
 
150,966

 

 
150,966

Time deposits and other
 
4,541

 

 
4,541

Total long-term investments
 
1,762,609

 
1,332

 
1,761,277

Total financial assets
 
$
8,422,619

 
$
6,140,615

 
$
2,282,004

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives
 
$
4,963

 
$

 
$
4,963

 

Our financial assets and liabilities are valued using market prices on both active markets (level 1) and less active markets (level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily available pricing sources for comparable instruments. Our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as equity prices, interest rate yield curves, option volatility and currency rates. Our derivative instruments are short-term in nature, typically one month to one year in duration. Cash and cash equivalents are short-term, highly liquid investments with original or remaining maturities of three months or less when purchased and are mainly comprised of bank deposits and money market funds.

In addition to the long-term investments noted above, we had approximately $810.6 million and $729.4 million of cost and equity method investments included in long-term investments on our condensed consolidated balance sheet at June 30, 2011 and December 31, 2010, respectively. Our long-term equity investments primarily pertain to our retained 30% interest in Skype. On May 10, 2011, Microsoft Corp. announced that it had entered into a definitive agreement to acquire Skype for $8.5 billion, including debt, which is subject to regulatory approvals and other customary closing conditions and is expected to close in the latter half of 2011.

In Europe, we have two cash pooling arrangements with a financial institution for cash management purposes. These arrangements allow for cash withdrawals from this financial institution based upon our aggregate operating cash balances held in Europe within the same financial institution (“Aggregate Cash Deposits”). These arrangements also allow us to withdraw amounts exceeding the Aggregate Cash Deposits up to an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income. As of June 30, 2011, we had a total of $3.4 billion in cash withdrawals offsetting our $3.4 billion in Aggregate Cash Deposits held within the same financial institution under these cash pooling arrangements.

Other financial instruments, including accounts receivable, loans and interest receivable, funds receivable, customer accounts, commercial paper, accounts payable, funds payable and amounts due to customers are carried at cost, which

15

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

approximates their fair value because of the short-term nature of these instruments. Funds receivable include receivables from promotional credit products offered to certain customers that settle within 12 months ($189.0 million as of June 30, 2011).

Note 7 — Derivative Instruments

Fair Value of Derivative Contracts

The fair value of our outstanding derivative instruments was as follows:
 
 
Derivative Assets Reported in Other Current Assets 
 
Derivative Liabilities Reported in Other Current Liabilities
 
June 30,
2011
 
December 31,
2010
 
June 30,
2011
 
December 31,
2010
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges
$
235

 
$
35,853

 
$
21,300

 
$
4,162

Foreign exchange contracts not designated as hedging instruments
8,964

 
1,343

 
9,448

 
801

Other contracts not designated as hedging instruments
8,540

 

 

 

Total fair value of derivative instruments
$
17,739

 
$
37,196

 
$
30,748

 
$
4,963


Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following table summarizes the activity of derivative contracts that qualify for hedge accounting as of June 30, 2011 and December 31, 2010, and the impact of designated derivative contracts on accumulated other comprehensive income for the six months ended June 30, 2011:
 
 
December 31, 2010
 
Amount of gain (loss)
recognized in other
comprehensive income
(effective portion) 
 
Amount of gain (loss)
reclassified from
accumulated other
comprehensive income
to net revenue and operating expense
(effective portion)
 
June 30, 2011
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges
$
13,560

 
$
(40,537
)
 
$
1,717

 
$
(28,694
)


16

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Effect of Derivative Contracts on Condensed Consolidated Statement of Income

The following table provides the location in our financial statements of the recognized gains or losses related to our derivative instruments: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
(10,461
)
 
$
10,437

 
$
(16,942
)
 
$
7,863

Foreign exchange contracts designated as cash flow hedges recognized in operating expenses
(4,791
)
 

 
(4,791
)
 

Foreign exchange contracts not designated as hedging instruments recognized in interest and other income (expense), net
(204
)
 
9,634

 
(6,941
)
 
10,739

Total gain (loss) recognized from derivative contracts in the condensed consolidated statement of income
$
(15,456
)
 
$
20,071

 
$
(28,674
)
 
$
18,602


Note 8 - Debt:
The following table summarizes the carrying value of our outstanding debt (in thousands, except percentages):
 
Coupon Rate
 
June 30, 2011
Effective Interest Rate
 
December 31, 2010
Effective Interest Rate
Long-Term Debt
 
 
 
 
 
 
 
Senior notes due 2013
0.875
%
 
$
399,360

0.946
%
 
$
399,220

0.946
%
Senior notes due 2015
1.625
%
 
598,081

1.703
%
 
597,857

1.703
%
Senior notes due 2020
3.250
%
 
497,296

3.319
%
 
497,150

3.319
%
Total senior notes
 
 
1,494,737

 
 
1,494,227

 
Note payable
 
 
15,802

 
 

 
Capital lease obligations
 
 
19,672

 
 

 
Total long-term debt
 
 
$
1,530,211

 
 
$
1,494,227

 
 
 
 
 
 
 
 
 
Short-Term Debt
 
 
 
 
 
 
 
Commercial paper
 
 
$
1,000,000

 
 
$
300,000

 
Note payable
 
 
1,886

 
 

 
Capital lease obligations
 
 
13,598

 
 

 
Total short-term debt
 
 
1,015,484

 
 
300,000

 
Total Debt
 
 
$
2,545,695

 
 
$
1,794,227

 
Senior Notes
The effective rates for the fixed-rate debt include the interest on the notes and the accretion of the discount. Interest on these notes is payable semiannually on April 15 and October 15. Interest expense associated with these notes including amortization of debt issuance costs during the three and six months ended June 30, 2011 was approximately $8.0 million and $16.0 million, respectively. At June 30, 2011, the estimated fair value of all notes included in long-term debt was approximately $1.4 billion based on market prices on active markets (Level 1).
Note Payable
Note payable is largely comprised of a mortgage note assumed as part of our acquisition of GSI. The mortgage note bears interest at 6.3% per annum and has a maturity date of July 2014.
Capital Lease Obligations
We acquired certain warehouse equipment and computer hardware and software under capital leases as part of our acquisition of GSI. The capital leases have maturity dates from August 2011 to February 2016 and bear interest at rates

17



ranging from 2% to 9% per annum. The present value of future minimum lease payments was as follows (in thousands):
 
June 30, 2011
Gross capital lease obligations
$
35,538

Imputed interest
(2,268
)
Total present value of future minimum lease payments
$
33,270

Commercial Paper
We implemented a $1.0 billion commercial paper program pursuant to which we may issue commercial paper notes with maturities of up to 397 days from the date of issue. As of June 30, 2011, the weighted average interest rate on our outstanding commercial paper notes was 0.18%, and the weighted average remaining term of our commercial paper notes was 26 days.
Credit Agreement
As of June 30, 2011, no borrowings or letters of credit were outstanding under our $1.8 billion credit agreement. As described above, we have a $1.0 billion commercial paper program and maintain $1.0 billion of available borrowing capacity under our credit agreement in order to repay commercial paper borrowings in the event we are unable to repay those borrowings from other sources when they become due. As a result, at June 30, 2011, $0.8 billion of borrowing capacity was available for other purposes permitted by the credit agreement.  
As of June 30, 2011, we were in compliance with all covenants related to our debt.


Note 9 — Commitments and Contingencies


Commitments

 As of June 30, 2011, approximately $8.3 billion of unused credit was available to Bill Me Later accountholders. The individual lines of credit that make up this unused credit are subject to periodic review and termination by the chartered financial institution that is the issuer of Bill Me Later credit products based on, among other things, account usage and customer creditworthiness. Currently, when a consumer makes a purchase using a Bill Me Later credit product issued by a chartered financial institution, the chartered financial institution extends credit to the consumer, funds the extension of credit at the point of sale and advances funds to the merchant. We subsequently purchase the receivables related to the consumer loans extended by the chartered financial institution and, as a result of the purchase, bear the risk of loss in the event of loan defaults. Although the chartered financial institution continues to own each customer account, we own the related receivable, and Bill Me Later is responsible for all servicing functions related to the account.


Litigation and Other Legal Matters
 
Overview

We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. Amounts accrued for legal proceedings for which we believe a loss is probable were not material for the three and six months ended June 30, 2011. Except as otherwise noted, we have concluded that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our accruals are also not material. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact.


18

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 9, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Specific Matters

In August 2006, Louis Vuitton Malletier and Christian Dior Couture filed two lawsuits in the Paris Court of Commerce against eBay Inc. and eBay International AG. Among other things, the complaint alleged that we violated French tort law by negligently broadcasting listings posted by third parties offering counterfeit items bearing plaintiffs' trademarks and by purchasing certain advertising keywords. Around September 2006, Parfums Christian Dior, Kenzo Parfums, Parfums Givenchy, and Guerlain Société also filed a lawsuit in the Paris Court of Commerce against eBay Inc. and eBay International AG. The complaint alleged that we had interfered with the selective distribution network the plaintiffs established in France and the European Union by allowing third parties to post listings offering genuine perfumes and cosmetics for sale on our websites. In June 2008, the Paris Court of Commerce ruled that eBay and eBay International AG were liable for failing to prevent the sale of counterfeit items on its websites that traded on plaintiffs' brand names and for interfering with the plaintiffs' selective distribution network. The court awarded plaintiffs approximately EUR 38.6 million in damages and issued an injunction (enforceable by daily fines of up to EUR 100,000) prohibiting all sales of perfumes and cosmetics bearing the Dior, Guerlain, Givenchy and Kenzo brands over all worldwide eBay sites to the extent that they are accessible from France. We appealed this decision, and in September 2010, the Paris Court of Appeal reduced the damages award to EUR 5.7 million and modified the injunction. We have further appealed this decision to the French Supreme Court. In 2009, plaintiffs filed an action regarding our compliance with the original injunction, and in November 2009, the court awarded the plaintiffs EUR 1.7 million (the equivalent of EUR 2,500 per day) and indicated that as a large Internet company we could do a better job of enforcing the injunction. Parfums Christian Dior has filed another motion relating to our compliance with the injunction. We have taken measures to comply with the injunction and have appealed these rulings, noting, among other things, the modification of the initial injunction. However, these and similar suits may force us to modify our business practices, which could lower our revenue, increase our costs, or make our websites less convenient to our customers. Any such results could materially harm our business. Other brand owners have also filed suit against us or have threatened to do so in numerous different jurisdictions, seeking to hold us liable for, among other things, alleged counterfeit items listed on our websites by third parties, “tester” and other not for resale consumer products listed on our websites by third parties, alleged misuse of trademarks in listings, alleged violations of selective distribution channel laws, alleged violations of parallel import laws, alleged non-compliance with consumer protection laws and in connection with paid search advertisements. We have prevailed in some of these suits, lost in others, and many are in various stages of appeal. We continue to believe that we have meritorious defenses to these suits and intend to defend ourselves vigorously.
In May 2009, the U.K. High Court of Justice ruled in the case filed by L'Oréal SA, Lancôme Parfums et Beauté & Cie, Laboratoire Garnier & Cie and L'Oréal (UK) Ltd against eBay International AG, other eBay companies, and several eBay sellers (No. HC07CO1978) that eBay was not jointly liable with the seller co-defendants as a joint tortfeasor, and indicated that it would certify to the European Court of Justice ("ECJ") questions of liability for the use of L'Oréal trademarks, hosting liability, and the scope of a possible injunction against intermediaries. On July 12, 2011 the ECJ ruled on the questions certified by the U.K. High Court of Justice. It held that (a) brand names could be used by marketplaces as keywords for paid search advertising without violating a trademark owner's rights if it were clear to consumers that the goods reached via the key word link were not being offered by the trademark owner or its designees but instead by third parties, (b) that marketplaces could invoke the limitation from liability provided by Article 14 of the ecommerce directive if they did not take such an active role with respect to the listings in question that the limitation would not be available, but that even where the limitation was available, the marketplace could be liable if it had awareness (through notice or its own investigation) of the illegality of the listings, (c) that a marketplace would be liable in a specific jurisdiction only if the offers on the site at issue were targeting that jurisdiction, a question of fact, (d) that injunctions may be issued to a marketplace in connection with infringing third party content, but that such injunctions must be proportionate and not block legitimate trade and (e) that trademark rights can only be evoked by a rights owner as a result of a seller's commercial activity as opposed to private activity. The matter will now return to the U.K. High Court of Justice for further action in light of the ECJ opinion. The case was originally filed in July 2007. L'Oréal's complaint alleged that we were jointly liable for trademark infringement for the actions of the sellers who allegedly sold counterfeit goods, parallel imports and testers (not for resale products). Additionally, L'Oréal claimed that eBay's use of L'Oréal brands on its website, in its search engine and in sponsored links, and purchase of L'Oréal trademarks as keywords, constitute trademark infringement. The suit sought an injunction preventing future infringement, full disclosure of the identity of all past and present sellers of infringing L'Oréal goods, and a declaration that our Verified Rights Owner (VeRO) program as then operated was insufficient to prevent such infringement. Other damages claimed are to be specified after the liability stage

19

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

of the proceedings.

20

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

In March 2007, a plaintiff filed a purported antitrust class action lawsuit against eBay in the Western District of Texas alleging that eBay and its wholly owned subsidiary PayPal “monopolized” markets through various anticompetitive acts and tying arrangements. The plaintiff alleged claims under sections 1 and 2 of the Sherman Act, as well as related state law claims. In April 2007, the plaintiff re-filed the complaint in the U.S. District Court for the Northern District of California (No. 07-CV-01882-RS), and dismissed the Texas action. The complaint seeks treble damages and an injunction. In 2007, the case was consolidated with other similar lawsuits (No. 07-CV-01882JF). In June 2007, we filed a motion to dismiss the complaint. In March 2008, the court granted the motion to dismiss the tying claims with leave to amend and denied the motion with respect to the monopolization claims. Plaintiffs subsequently decided not to refile the tying claims. The plaintiffs' motion on class certification and our motion for summary judgment were heard by the court in December 2009. In March 2010, the District Court granted our motion for summary judgment, denied plaintiffs' motion for class certification as moot, and entered judgment in our favor. Plaintiffs have appealed the District Court's decision, the matter is fully briefed and oral argument was presented in April 2011 before the Ninth Circuit Court of Appeals. In May 2011, the U.S. Ninth Circuit Court of Appeals upheld the District Court's ruling.

eBay's Korean subsidiary, IAC, has notified its approximately 20 million users of a January 2008 data breach involving personally identifiable information including name, address, resident registration number and some transaction and refund data (but not including credit card information or real time banking information). Approximately 147,000 users have sued IAC over this breach in several lawsuits in Korean courts and more may do so in the future. Trial for a group of four representative suits began in August 2009 in the Seoul District Court, and trial for a group of 23 other suits began in September 2009 in the Seoul District Court. There is some precedent in Korea for a court to grant “consolation money” for data breaches without a specific finding of harm from the breach. Such precedents have involved payments of up to approximately $200 per user. In January 2010, the Seoul District Court ruled that IAC had met its obligations with respect to defending the site from intrusion and, accordingly, had no liability for the breach. This ruling has been appealed by approximately 34,000 plaintiffs to the Seoul High Court, where it is currently being heard de novo. A decision is expected in September 2011.

General Matters
Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to additional patent disputes, and expect that we will increasingly be subject to patent infringement claims as our services expand in scope and complexity. In particular, we expect that we may face additional patent infringement claims involving various aspects of our Marketplaces and Payments businesses, and increased exposure to such claims as a result of our recent acquisitions, directly and through indemnification of intellectual property claims against their customers. We have in the past been forced to litigate such claims. We may also become more vulnerable to third-party claims as laws such as the Digital Millennium Copyright Act, the Lanham Act and the Communications Decency Act are interpreted by the courts, and as we become subject to laws in jurisdictions where the underlying laws with respect to the potential liability of online intermediaries like ourselves are either unclear or less favorable. We believe that additional lawsuits alleging that we have violated patent, copyright or trademark laws will be filed against us. Intellectual property claims, whether meritorious or not, are time consuming and costly to resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements.
From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business including suits by our users (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules or policies, that such prices, rules or policies violate applicable law, or that we have not acted in conformity with such prices, rules or policies. The number and significance of these disputes and inquiries are increasing. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, damage awards (including statutory damages for certain causes of action in certain jurisdictions), injunctive relief or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources or otherwise harm our business.

Indemnification Provisions

In the ordinary course of business, we have included limited indemnification provisions in certain of our agreements with parties with which we have commercial relations, including our standard marketing, promotions and application-programming-interface license agreements. Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by a third party with respect to our domain names, trademarks, logos and other branding elements to the extent that such marks are applicable to our performance under the subject agreement. GSI in many of its major online commerce agreements has provided an indemnity for other types of third-party claims, which are indemnities mainly related to various intellectual property rights, and we have

21

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

provided similar indemnities in a limited number of agreements for our other businesses. In our PayPal business, we have provided an indemnity to our payment processors in the event of certain third-party claims or card association fines against the processor arising out of conduct by PayPal or PayPal customers. In connection with the sale of Skype, we made certain customary warranties to the buyer in the purchase agreement. Our liability to the buyer for inaccuracies in these warranties is generally subject to certain limitations. With respect to certain specified litigation matters involving Skype that were pending as of the closing of the transaction, we also agreed, among other things, to bear 50% of the cost of any monetary judgment that is rendered in respect of those matters. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

Off-Balance Sheet Arrangements

Based on differences in regulatory requirements and commercial law in the jurisdictions where PayPal operates, PayPal holds customer balances either as direct claims against PayPal or as an agent or custodian on behalf of PayPal's customers. Customer funds held by PayPal as an agent or custodian on behalf of our customers are not reflected in our condensed consolidated balance sheet. These funds include funds held on behalf of U.S. customers that are deposited in bank accounts insured by the Federal Deposit Insurance Corporation (subject to applicable limits) and funds that U.S. customers choose to invest in The PayPal Money Market Fund, which totaled approximately $2.7 billion as of June 30, 2011 and December 31, 2010. The PayPal Money Market Fund is invested in a portfolio managed by BlackRock Fund Advisors. The Board of Trustees for the PayPal Money Market Fund has approved the closing and liquidation of the Fund, which is scheduled to occur at the close of business on July 29, 2011.


22



Note 10 — Stock Repurchase Programs

In September 2010, our Board authorized a stock repurchase program that provides for the repurchase of up to $2.0 billion of our common stock, with no expiration from the date of authorization, for the purpose of offsetting the impact of dilution from our equity compensation programs. The stock repurchase activity under this stock repurchase program during the first six months of 2011 is summarized as follows (in thousands, except per share amounts):

 
Shares Repurchased
 
Average Price per Share
 
Value of Shares Repurchased
 
Remaining Amount Authorized
Balance at January 1, 2011
1,880

 
$
29.94

 
$
56,293

 
$
1,943,707

Repurchase of common stock
24,600

 
31.74

 
780,759

 
(780,759
)
Balance at June 30, 2011
26,480

 
$
31.61

 
$
837,052

 
$
1,162,948


These repurchased shares were recorded as treasury stock and were accounted for under the cost method. No repurchased shares have been retired.


23

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Note 11 — Stock-Based Plans

Stock Option Activity

The following table summarizes stock option activity for the six-month period ended June 30, 2011:
 
 
Options
 
(In thousands)
Outstanding at January 1, 2011
43,907

Granted
6,702

Exercised
(5,683
)
Forfeited/expired/cancelled
(1,981
)
Outstanding at June 30, 2011
42,945


The weighted average exercise price of stock options granted during the period was $30.92 per share and the related weighted average grant date fair value was $9.83 per share.

Restricted Stock Unit Activity

The following table summarizes restricted stock unit ("RSU") activity for the six-month period ended June 30, 2011:
 
 
Units 
 
(In thousands)
Outstanding at January 1, 2011
38,348

Awarded and assumed
16,487

Vested
(11,231
)
Forfeited
(2,733
)
Outstanding at June 30, 2011
40,871


The weighted average grant date fair value for RSUs awarded during the period was $30.24 per share.


 Stock-based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for the three and six months ended June 30, 2011 and 2010 was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Cost of net revenues
$
14,333

 
$
11,249

 
$
28,427

 
$
24,283

Sales and marketing
33,489

 
25,189

 
68,111

 
53,680

Product development
33,628

 
23,991

 
65,113

 
51,155

General and administrative
37,403

 
31,554

 
76,059

 
64,934

Total stock-based compensation expense
$
118,853

 
$
91,983

 
$
237,710

 
$
194,052

Capitalized in product development
$
4,456

 
$
2,709

 
$
7,870

 
$
5,079




24

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Valuation Assumptions

We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the three and six months ended June 30, 2011 and 2010:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2011
 
2010
 
2011
 
2010
Risk-free interest rate
1.2
%
 
1.4
%
 
1.2
%
 
1.5
%
Expected life (in years)
3.7

 
3.4

 
3.8

 
3.4

Dividend yield
%
 
%
 
%
 
%
Expected volatility
38
%
 
37
%
 
38
%
 
36
%

Our computation of expected volatility is based on a combination of historical and market-based implied volatility from traded options on our common stock. Our computation of expected life is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

Note 12 — Restructuring

2009 Customer Service Consolidation

In 2009, we began the consolidation of certain customer service facilities in North America and Europe to streamline our operations and deliver better and more efficient customer support to our users. The consolidation impacted approximately 1,000 employees. We have completed this consolidation and have incurred aggregate costs of approximately $47.2 million, primarily related to employee severance and benefits.

The following table summarizes by segment the restructuring costs recognized during the three months ended June 30, 2011 and 2010:
 
 
Three Months Ended June 30, 2011
 
Three Months Ended June 30, 2010
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
(In thousands)
Marketplaces
$
(118
)
 
$
18

 
$
(100
)
 
$
5,719

 
$
3,135

 
$
8,854

Payments

 

 

 
9

 

 
9

 
$
(118
)
 
$
18

 
$
(100
)
 
$
5,728

 
$
3,135

 
$
8,863


The following table summarizes by segment the restructuring costs recognized during the six months ended June 30, 2011 and 2010:
 
 
Six Months Ended June 30, 2011
 
Six Months Ended June 30, 2010
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
(In thousands)
Marketplaces
$
205

 
$
(454
)
 
$
(249
)
 
$
14,250

 
$
3,173

 
$
17,423

Payments

 

 

 
9

 

 
9

 
$
205

 
$
(454
)
 
$
(249
)
 
$
14,259

 
$
3,173

 
$
17,432



25

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The following table summarizes the restructuring reserve activity during the six months ended June 30, 2011:
 
 
Employee Severance
and Benefits
 
Facilities
 
Total
 
(In thousands)
Accrued liability as of January 1, 2011
$
2,425

 
$
3,559

 
$
5,984

Charges (benefit)
205

 
(454
)
 
(249
)
Payments
(2,488
)
 
(775
)
 
(3,263
)
Adjustments
336

 
516

 
852

Accrued liability as of June 30, 2011
$
478

 
$
2,846

 
$
3,324


In the table above, adjustments primarily reflect the impact of foreign currency translation.

Note 13 — Income Taxes

The following table reflects changes in unrecognized tax benefits for the six-month period ended June 30, 2011:
 
 
(In thousands)
Gross amounts of unrecognized tax benefits as of January 1, 2011
$
428,344

Increases related to prior period tax positions
8,962

Decreases related to prior period tax positions
(129,765
)
Increases related to current period tax positions
10,657

Settlements
(76,425
)
Gross amounts of unrecognized tax benefits as of June 30, 2011
$
241,773


As of June 30, 2011 and December 31, 2010, our liabilities for unrecognized tax benefits were included in deferred and other tax liabilities, net. In the second quarter of 2011, we settled multiple uncertain tax positions resulting in an overall decrease in our unrecognized tax benefits. The total liabilities for unrecognized tax benefits and the increases in 2011 relate primarily to the allocation of costs among our global operations.
 
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of June 30, 2011 and December 31, 2010 was approximately $91.7 million and $92.3 million, respectively.
 
We are subject to both direct and indirect taxation in the U.S. and various states and foreign jurisdictions. We are under examination by certain tax authorities for the 2003 to 2008 tax years. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations. The material jurisdictions where we are subject to potential examination by tax authorities for tax years after 2002 include, among others, the U.S. (Federal and California), France, Germany, Italy, Korea, Israel, Switzerland, Singapore and Canada.
 
Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
 
During the three and six months ended June 30, 2011, we provided for U.S. income and foreign withholding taxes on approximately 15% of our non-U.S. subsidiaries' undistributed earnings. The remaining portion of our non-U.S. subsidiaries undistributed earnings is intended to be indefinitely reinvested in our international operations. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes (subject to adjustments for foreign tax credits). It is not practicable to determine the income tax liability that might be incurred if the indefinitely reinvested earnings were to be distributed. On a regular basis, we develop cash forecasts to estimate our cash needs internationally and domestically. We consider projected cash needs for, among other things, investments in our existing businesses, potential acquisitions and capital transactions, including repurchases of our common stock and debt repayments. We estimate the amount of cash available or needed in the jurisdictions where these investments are expected, as well as our ability to generate

26

eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

cash in those jurisdictions and our access to capital markets. Such an analysis enables us to conclude whether or not we will indefinitely reinvest the current period's foreign earnings.

Our effective tax rate was 3% and 12% for the second quarter and first six months of 2011, compared to 17% and 19% for the same periods in the prior year. The decrease in our effective tax rate during the second quarter and first six months of 2011 compared to the same periods of the prior year was due primarily to a tax benefit associated with the loss on the divestiture of certain GSI businesses being realized at a higher tax rate than our annualized effective tax rate. The tax benefit resulted in a 12 percentage point and 4 percentage point impact to the effective tax rate in the second quarter and first six months of 2011, compared to the same periods of the prior year, respectively.

Note 14 - Loans and Interest Receivable, Net
Loans and interest receivable represent purchased consumer receivables arising from loans made by a partner chartered financial institution to individual consumers in the U.S. to purchase goods and services through our Bill Me Later merchant network. Loans and interest receivable are reported at their outstanding principal balances, including unamortized deferred origination costs and net of allowance, and include the estimated collectible interest and fees. We use a consumer's FICO score, among other measures, in evaluating the credit quality of our consumer receivables. A FICO score is a type of credit score that lenders use to assess an applicant's credit risk and whether to extend credit. Individual FICO scores are obtained each quarter the consumer has a loan receivable owned by Bill Me Later outstanding. The weighted average consumer FICO score related to our loans and interest receivable balance outstanding at June 30, 2011 was 698. As of June 30, 2011 and December 31, 2010, approximately 60.9% and 63.6%, respectively, of our loans and interest receivable balance was due from consumers with FICO scores greater than 680, which is generally considered "prime" by the consumer credit industry.
The following table summarizes the activity in the allowance for loans and interest receivable for the six months ended June 30, 2011:
 
 
(In thousands)
Balance as of January 1, 2011
 
$
42,340

Charge-offs
 
(36,346
)
Recoveries
 
3,566

Provision
 
34,377

Balance as of June 30, 2011
 
$
43,937


The allowance for loans and interest receivable represents management's estimate of probable losses inherent in our Bill Me Later portfolio of receivables from loans. Management's evaluation of probable losses is subject to numerous estimates and judgment; primarily forecasted principal balance delinquency rates ("roll rates"). Roll rates are the percentage of balances that we estimate will migrate from one stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment. The roll rates are applied to principal balances for each stage of delinquency, from current to 180 days past due, in order to estimate the principal loans that are probable to be charged off by the end of 180 days.

We charge off loans and interest receivable in the month in which the customer balance becomes 180 days past due. Bankrupt accounts are charged off within 60 days of receiving notification of customer bankruptcy from the courts. Past due loans receivable continue to accrue interest until such time as they are charged-off, though portions of the interest are reserved. As of June 30, 2011, approximately 91% of our loans and interest receivable portfolio were current.



27




Item 2:    Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features or services, or management strategies). You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in “Part II Item 1A: Risk Factors” of this Quarterly Report on Form 10-Q as well as in our condensed consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report.


Overview

We have three business segments: Marketplaces, Payments and GSI. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the eBay.com platform and its localized counterparts and our other online platforms, such as our online classifieds businesses (including our apartment listing service platform, Rent.com), our secondary tickets marketplace (StubHub), our online shopping comparison website (Shopping.com), and our fixed price media marketplace (Half.com). Our Payments segment is comprised of our online payment solutions PayPal and Bill Me Later (BML). Our GSI segment, which consists of our recently acquired GSI Commerce (GSI) business, offers a comprehensive suite of ecommerce services that enables companies to operate ecommerce businesses, integrate their ecommerce businesses with their multi-channel offerings and exploit digital marketing channels. We added the GSI segment upon the completion of our acquisition of GSI on June 17, 2011, and the results of our new GSI segment have been included in our consolidated results of operations from the acquisition date.

Net revenues for the three months ended June 30, 2011 increased 25% to $2.8 billion, compared to the same period of the prior year, driven primarily by a 34% increase in PayPal net total payment volume (TPV) and a 17% increase in Marketplaces gross merchandise volume (GMV) excluding vehicles. For the three months ended June 30, 2011, our operating margin decreased to 19% from 22%, compared to the same period of the prior year, driven primarily by the impact of acquisitions. Our Payments segment operating margin for the three months ended June 30, 2011 increased 2 percentage points compared with the same period of the prior year, due to stable transaction margins, solid operating leverage and continued improvement in Bill Me Later performance. Our Marketplaces segment operating margin for the three months ended June 30, 2011 decreased 1.5 percentage points compared to the same period of the prior year driven primarily by the impact of recently completed acquisitions. For the three months ended June 30, 2011, our diluted earnings per share decreased to $0.22, a $0.09 decrease compared to the same period of the prior year, driven primarily by a loss from the divestiture of certain GSI businesses and other transaction-related expenses, partially offset by an increase in operating income. For the three months ended June 30, 2011, we generated cash flow from operations of approximately $782.7 million, compared to $726.4 million for the same period of the prior year.

Some key operating metrics that members of our senior management regularly review to evaluate our financial results include net promoter score (NPS), market share, GMV, GMV excluding vehicles, number of sold items, net TPV, net number of payments, GSI ecommerce services (GeC) merchandise sales (GMS), free cash flow (which we define as net cash provided by operating activities less purchases of property and equipment, net), and revenue excluding acquisitions and foreign currency impact.


28



Outlook

We expect operating results in the third quarter of 2011 to be led by continued strength in our Payments business, driven by growth in net TPV as we execute against our long-term growth strategies and priorities. We expect continued strength in our Marketplaces business, particularly in the U.S. We also expect the acquisition of GSI to significantly contribute to our revenue growth.  We will continue to invest in growth, focus on accelerating innovation, and make strategic acquisitions.

Results of Operations

Summary of Net Revenues

We generate two types of net revenues: net transaction revenues and marketing services and other revenues. Our net transaction revenues are derived principally from listing fees and final value fees (which are fees payable on transactions completed on our Marketplaces trading platforms), fees paid by merchants for payment processing services, and ecommerce service fees. Our marketing services revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, marketing service fees and lead referral fees. Other revenues are derived principally from interest earned on certain PayPal customer account balances, interest and fees earned on the Bill Me Later portfolio of receivables from loans and from contractual arrangements with third parties that provide services to our users.

Because we generated the majority of our net revenue internationally in recent periods, including the three and six months ended June 30, 2011 and 2010, we are subject to the risks of doing business in foreign countries as discussed under "Item 1A - Risk Factors." In that regard, fluctuations in foreign currency exchange rates impact our results of operations. We have a foreign exchange risk management program that is designed to reduce our exposure to fluctuations in foreign currencies; however, the effectiveness of this program in mitigating the impact of foreign currency fluctuations on our results of operations varies from period to period, and in any given period, our operating results are usually affected, sometimes significantly, by changes in currency exchange rates. Fluctuations in exchange rates also directly affect our cross-border revenue. We calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency rates applied to current year transactional currency amounts.

For the three months ended June 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted net revenues by approximately $116.7 million (net of a $10.5 million negative impact from hedging activities relating to PayPal's net revenue) compared to the same period of the prior year. On a business segment basis for the three months ended June 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces, Payments and GSI net revenues by approximately $93.5 million, $23.1 million and $0.1 million, respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).

For the six months ended June 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted net revenues by approximately $129.2 million (net of a $16.9 million negative impact from hedging activities relating to PayPal's net revenue) compared to the same period of the prior year. On a business segment basis for the six months ended June 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces, Payments and GSI net revenues by approximately $106.7 million, $22.4 million and $0.1 million, respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).


29



The following table sets forth the breakdown of net revenues by type, segment and geography for the periods presented. In addition, we have provided a table of certain key operating metrics that we believe are significant factors affecting our net revenues.
 
Three Months Ended June 30,
 
Percent
 
Six Months Ended June 30,
 
Percent
 
2011
 
2010
 
Change
 
2011
 
2010
 
Change
 
(In thousands, except percentage changes)
Net Revenues by Type:
 
 
 
 
 
 
 
 
 
 
 
Net transaction revenues
 
 
 
 
 
 
 
 
 
 
 
Marketplaces
$
1,349,640

 
$
1,182,513

 
14
%
 
$
2,634,395

 
$
2,355,452

 
12
%
Payments
991,118

 
770,755

 
29
%
 
1,933,827

 
1,537,327

 
26
%
GSI
16,060

 

 
N/A

 
16,060

 

 
N/A

Total net transaction revenues
2,356,818

 
1,953,268

 
21
%
 
4,584,282

 
3,892,779

 
18
%
Marketing services and other revenues
 
 
 
 
 

 
 
 
 
 
 
Marketplaces
313,799

 
215,821

 
45
%
 
582,306

 
429,677

 
36
%
Payments
81,878

 
46,290

 
77
%
 
131,516

 
88,980

 
48
%
GSI
7,779

 

 
N/A

 
7,779

 

 
N/A

Total marketing services and other revenues
403,456

 
262,111

 
54
%
 
721,601

 
518,657

 
39
%
Total net revenues
$
2,760,274

 
$
2,215,379

 
25
%
 
$
5,305,883

 
$
4,411,436

 
20
%
Net Revenues by Segment:
 
 
 
 
 

 
 
 
 
 
 
Marketplaces
$
1,663,439

 
$
1,398,334

 
19
%
 
$
3,216,701

 
$
2,785,129

 
15
%
Payments
1,072,996

 
817,045

 
31
%
 
2,065,343

 
1,626,307

 
27
%
GSI
$
23,839

 
$

 
N/A

 
$
23,839

 
$

 
N/A

Total net revenues
$
2,760,274

 
$
2,215,379

 
25
%
 
$
5,305,883

 
$
4,411,436

 
20
%
Net Revenues by Geography:
 
 
 
 
 

 
 
 
 
 
 
U.S.
$
1,249,303

 
$
1,032,104

 
21
%
 
$
2,390,354

 
$
2,036,315

 
17
%
International
1,510,971

 
1,183,275

 
28
%
 
2,915,529

 
2,375,121

 
23
%
Total net revenues
$
2,760,274

 
$
2,215,379

 
25
%
 
$
5,305,883

 
$
4,411,436

 
20
%
 
Revenues are attributed to U.S. and international geographies based primarily upon the country in which the seller, payment recipient, customer, website that displays advertising, or other service provider, as the case may be, is located.

 
Three Months Ended June 30,
 
Percent
 
Six Months Ended June 30,
 
Percent
 
2011
 
2010
 
Change
 
2011
 
2010
 
Change
 
(In millions, except percentage changes)
Supplemental Operating Data:
 
 
 
 
 
 
 
 
 
 
 
Marketplaces Segment:  (1)
 
 
 
 
 
 
 
 
 
 
 
GMV excluding vehicles