eBay 2011 Q3_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 September 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 October 17, 2011, there were 1,290,934,293 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
 
 
September 30,
2011
 
December 31,
2010
 
(In thousands, except par value amounts)
 
(Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
2,998,950

 
$
5,577,411

Short-term investments
1,013,924

 
1,045,403

Accounts receivable, net
595,716

 
454,366

Loans and interest receivable, net
1,186,870

 
956,189

Funds receivable and customer accounts
3,295,115

 
2,550,731

Other current assets
671,770

 
481,238

Total current assets
9,762,345

 
11,065,338

Long-term investments
3,018,596

 
2,492,012

Property and equipment, net
1,859,190

 
1,523,333

Goodwill
8,341,910

 
6,193,163

Intangible assets, net
1,452,723

 
540,711

Other assets
465,773

 
189,205

Total assets
$
24,900,537

 
$
22,003,762

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 

 
 

Short-term debt
$
1,015,830

 
$
300,000

Accounts payable
269,031

 
184,963

Funds payable and amounts due to customers
3,295,115

 
2,550,731

Accrued expenses and other current liabilities
1,427,706

 
1,343,888

Deferred revenue
108,274

 
96,464

Income taxes payable
29,196

 
40,468

Total current liabilities
6,145,152

 
4,516,514

Deferred and other tax liabilities, net
1,005,732

 
645,457

Long-term debt
1,528,158

 
1,494,227

Other liabilities
56,169

 
45,385

Total liabilities
8,735,211

 
6,701,583

Commitments and contingencies (Note 9)

 

Stockholders' equity:
 
 
 
Common stock, $0.001 par value; 3,580,000 shares authorized; 1,290,645 and 1,297,710 shares outstanding
1,531

 
1,513

Additional paid-in capital
10,986,119

 
10,480,709

Treasury stock at cost, 240,687 and 215,082 shares
(6,905,567
)
 
(6,091,435
)
Retained earnings
11,409,853

 
10,160,078

Accumulated other comprehensive income
673,390

 
751,314

Total stockholders' equity
16,165,326

 
15,302,179

Total liabilities and stockholders' equity
$
24,900,537

 
$
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 September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands, except per share amounts)
 
(Unaudited)
Net revenues
$
2,965,761

 
$
2,249,488

 
$
8,271,644

 
$
6,660,924

Cost of net revenues
919,697

 
640,268

 
2,425,752

 
1,862,194

Gross profit
2,046,064

 
1,609,220

 
5,845,892

 
4,798,730

Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
623,309

 
483,653

 
1,763,226

 
1,408,050

Product development
318,902

 
226,803

 
890,921

 
662,259

General and administrative
336,606

 
261,662

 
1,018,234

 
800,505

Provision for transaction and loan losses
146,054

 
97,964

 
371,641

 
296,025

Amortization of acquired intangible assets
84,605

 
45,957

 
181,978

 
148,104

Restructuring
(233
)
 
3,005

 
(482
)
 
20,437

Total operating expenses
1,509,243

 
1,119,044

 
4,225,518

 
3,335,380

Income from operations
536,821

 
490,176

 
1,620,374

 
1,463,350

Loss on divested business

 

 
(256,501
)
 

Interest and other income (expense), net
78,704

 
26,825

 
110,972

 
47,692

Income before income taxes
615,525

 
517,001

 
1,474,845

 
1,511,042

Provision for income taxes
(125,022
)
 
(85,072
)
 
(225,070
)
 
(269,268
)
Net income
$
490,503

 
$
431,929

 
$
1,249,775

 
$
1,241,774

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.38

 
$
0.33

 
$
0.97

 
$
0.95

Diluted
$
0.37

 
$
0.33

 
$
0.95

 
$
0.94

Weighted average shares:
 
 
 
 
 
 
 
Basic
1,289,631

 
1,308,888

 
1,290,921

 
1,303,217

Diluted
1,309,334

 
1,328,415

 
1,311,173

 
1,324,509


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 September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
 
(Unaudited)
Net income
$
490,503

 
$
431,929

 
$
1,249,775

 
$
1,241,774

Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation
(512,355
)
 
624,370

 
5,056

 
(67,041
)
Unrealized gains (losses) on investments, net
(253,000
)
 
167,473

 
(149,934
)
 
169,605

Unrealized gains (losses) on hedging activities
64,943

 
(31,912
)
 
22,689

 
3,957

Tax benefit (provision) on above items
82,701

 
(62,990
)
 
44,265

 
(66,551
)
Net change in accumulated other comprehensive income (loss)
(617,711
)
 
696,941

 
(77,924
)
 
39,970

Comprehensive income (loss)
$
(127,208
)
 
$
1,128,870

 
$
1,171,851

 
$
1,281,744


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


4



eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
Nine Months Ended September 30,
 
2011
 
2010
 
(In thousands)
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
1,249,775

 
$
1,241,774

Adjustments:
 
 
 
Provision for transaction and loan losses
371,641

 
296,025

Depreciation and amortization
667,400

 
570,177

Stock-based compensation
345,932

 
287,832

Loss on divested business
256,501

 

Gain on acquisition of a business
(73,400
)
 

Changes in assets and liabilities, net of acquisition effects
(526,435
)
 
(504,053
)
Net cash provided by operating activities
2,291,414

 
1,891,755

Cash flows from investing activities:
 

 
 

Purchases of property and equipment, net
(671,851
)
 
(526,445
)
Changes in principal loans receivable, net
(254,097
)
 
(138,244
)
Purchases of investments
(1,883,599
)
 
(2,022,642
)
Maturities and sales of investments
1,297,592

 
1,183,523

Acquisitions, net of cash acquired
(3,155,122
)
 
(7,000
)
Repayment of Skype note receivable

 
125,000

Other
(101,818
)
 
(4,924
)
Net cash used in investing activities
(4,768,895
)
 
(1,390,732
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
187,720

 
118,852

Repurchases of common stock
(814,132
)
 
(297,662
)
Excess tax benefits from stock-based compensation
65,457

 
26,649

Tax withholdings related to net share settlements of restricted stock awards and units
(130,259
)
 
(106,925
)
Net borrowings under commercial paper program
700,000

 

Repayment of acquired debt
(199,271
)
 

Funds receivable and customer accounts
(696,060
)
 
(334,911
)
Funds payable and amounts due to customers
696,060

 
334,911

Net cash (used in) provided by financing activities
(190,485
)
 
(259,086
)
Effect of exchange rate changes on cash and cash equivalents
89,505

 
(60,848
)
Net (decrease) increase in cash and cash equivalents
(2,578,461
)
 
181,089

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

 
3,999,818

Cash and cash equivalents at end of period
$
2,998,950

 
$
4,180,907

Supplemental cash flow disclosures:
 

 
 

Cash paid for interest
$
14,288

 
$

Cash paid for income taxes
$
282,107

 
$
475,026

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 is about enabling commerce. We do so through eBay, the world's largest online marketplace, which allows users to buy and sell in nearly every country on earth; through PayPal, which enables individuals and businesses to securely, easily and quickly send and receive online payments; and through GSI, which facilitates ecommerce, multichannel retailing and digital marketing for global enterprises. X.commerce brings together the technology assets and developer communities of eBay, PayPal and Magento, an ecommerce platform, to support eBay Inc.'s mission of enabling commerce. We also reach millions through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world.

We have three reportable business segments: Marketplaces, Payments and GSI. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online platforms, such as our online classifieds businesses and StubHub. Our Payments segment is comprised of PayPal and Bill Me Later (BML). Our GSI segment consists of GSI, which was added upon the completion of our acquisition of GSI on June 17, 2011. 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 beginning 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 and requires presentation of reclassification adjustments on the face of the income statement. We will adopt this accounting standard upon its effective date for periods beginning on or after December 15, 2011, and this adoption will not have any impact on our financial position or results of operations but will impact our financial statement presentation.

In 2011, the FASB issued new accounting guidance that simplifies goodwill impairment tests. The new guidance states that a "qualitative" assessment may be performed to determine whether further impairment testing is necessary. We will adopt this accounting standard upon its effective date for periods beginning 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.

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 net income 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 September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands, except per share amounts)
Numerator:
 
 
 
 
 
 
 
Net income
$
490,503

 
$
431,929

 
$
1,249,775

 
$
1,241,774

Denominator:
 
 
 
 
 
 
 
Weighted average common shares - basic
1,289,631

 
1,308,888

 
1,290,921

 
1,303,217

Dilutive effect of equity incentive plans
19,703

 
19,527

 
20,252

 
21,292

Weighted average common shares - diluted
1,309,334

 
1,328,415

 
1,311,173

 
1,324,509

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.38

 
$
0.33

 
$
0.97

 
$
0.95

Diluted
$
0.37

 
$
0.33

 
$
0.95

 
$
0.94

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
17,811

 
33,486

 
16,548

 
33,092



7



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

Zong
231,663

(35,650
)
76,500

190,813

Other
312,631

(25,483
)
113,720

224,394

Total
$
3,350,065

$
(28,568
)
$
1,138,163

$
2,240,470

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
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 expenses. 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 Kynetic LLC (formerly known as NRG Commerce, LLC), which we refer to as Kynetic, 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 in our condensed consolidated balance sheet. 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 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 Kynetic and equity investments in RueLaLa and ShopRunner is

8



limited to the carrying value of the note receivable and equity investments, respectively. We have also entered into a transitional services agreement, pursuant to which GSI will provide to the divested businesses certain transitional services for a limited period, as well as certain other commercial agreements with Kynetic 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 year 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):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
Total revenues
$
2,965,761

 
$
2,436,261

 
$
8,657,867

 
$
7,200,733

Net income
490,503

 
391,731

 
1,190,043

 
1,120,859

Basic earnings per share
0.38

 
0.30

 
0.92

 
0.86

Diluted earnings per share
$
0.37

 
$
0.29

 
$
0.91

 
$
0.85

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.

9



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

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.
Zong
Zong is a provider of payment services through mobile carrier billing. We completed the acquisition of Zong on August 11, 2011 for total cash consideration of approximately $231.7 million. The business is included in our Payments 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 Zong 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
Magento
We completed our acquisition of Magento, which operates an open source ecommerce platform, on August 16, 2011. We previously held a noncontrolling interest in Magento of 49.9% of the outstanding shares, and following the completion of the acquisition, we own 100% of the outstanding shares of Magento. As a result of obtaining control over Magento, our previously held interest was remeasured to fair value, which resulted in a gain of $56.3 million. The gain has been recognized in interest and other income (expense), net in our condensed consolidated statement of income. Our consolidated financial statements include the operating results of Magento from the date of acquisition. Magento is included in our X.commerce initiative. 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
Our other acquisition activity during the nine months ended September 30, 2011 consisted of five acquisitions. Two acquisitions are included in our Marketplaces segment and three acquisitions are included in our Payments segment. These acquisitions were not significant individually or in the aggregate. The purchase consideration for these acquisitions consisted of cash. The allocations of the purchase price for these acquisitions 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.



10

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


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 nine months ended September 30, 2011:
 
 
December 31,
2010
 
Goodwill
Acquired
 
Adjustments
 
September 30,
2011
 
(In thousands)
Reportable segments:
 
 
 
 
 
 
 
Marketplaces
$
4,071,772

 
$
499,516

 
$
(80,275
)
 
$
4,491,013

Payments
2,148,752

 
319,557

 
(1,505
)
 
2,466,804

GSI

 
1,307,158

 
(9,944
)
 
1,297,214

Unallocated

 
114,239

 

 
114,239

 
$
6,220,524

 
$
2,240,470

 
$
(91,724
)
 
$
8,369,270


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 September 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 unallocated goodwill represents goodwill acquired as part of the Magento acquisition. The adjustments to goodwill during the nine months ended September 30, 2011 were due primarily to foreign currency translation.

Intangible Assets

The components of identifiable intangible assets are as follows: 
 
September 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
$
1,636,506

 
$
(729,742
)
 
$
906,764

 
5
 
$
831,806

 
$
(625,126
)
 
$
206,680

 
6
Trademarks and trade names
732,265

 
(446,634
)
 
285,631

 
5
 
632,899

 
(381,456
)
 
251,443

 
5
Developed technologies
449,735

 
(230,668
)
 
219,067

 
3
 
231,312

 
(192,421
)
 
38,891

 
3
All other
168,306

 
(127,045
)
 
41,261

 
4
 
156,306

 
(112,609
)
 
43,697

 
4
 
$
2,986,812

 
$
(1,534,089
)
 
$
1,452,723

 
 
 
$
1,852,323

 
$
(1,311,612
)
 
$
540,711

 
 

Amortization expense for intangible assets was $104.9 million and $61.4 million for the three months ended September 30, 2011 and 2010, respectively. Amortization expense for intangible assets was $228.1 million and $197.6 million for the nine months ended September 30, 2011 and 2010, respectively.

11

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



Expected future intangible asset amortization as of September 30, 2011 is as follows (in thousands):
Fiscal Years:
 
2011 (remaining three months)
$
104,468

 
2012
391,759

 
2013
360,448

 
2014
254,474

 
2015
207,083

 
Thereafter
134,491

 
 
$
1,452,723


Note 5 — Segments

We have three reporting segments: Marketplaces, Payments and GSI. We allocate resources to and asses the performance of each reporting segment using information about its revenue and operating income (loss). We do not evaluate operating segments using discrete asset information. We do not allocate gains and losses from equity investments, interest and other income, or taxes to operating segments.

The corporate and other category includes income, expenses, and charges such as:

results of operations of our X.commerce initiative, which supports our businesses. Our X.commerce initiative was launched in conjunction with our acquisition of Magento in the third quarter of 2011;
corporate management costs, such as human resources, finance and legal, not allocated to our segments;
amortization of intangible assets;
restructuring charges; and
stock based compensation expense.
 

12

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

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 September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Net Revenue
 
 
 
 
 
 
 
Marketplaces
 
 
 
 
 
 
 
Net transaction revenues
$
1,353,660

 
$
1,185,563

 
$
3,988,055

 
$
3,541,014

Marketing services and other revenues
299,246

 
225,760

 
881,552

 
655,438

 
1,652,906

 
1,411,323

 
4,869,607

 
4,196,452

Payments
 
 
 
 
 
 
 
Net transaction revenues
1,032,816

 
797,826

 
2,966,643

 
2,335,153

Marketing services and other revenues
74,386

 
40,339

 
205,902

 
129,319

 
1,107,202

 
838,165

 
3,172,545

 
2,464,472

GSI
 
 
 
 
 
 
 
Net transaction revenues
148,444

 

 
164,504

 

Marketing services and other revenues
54,174

 

 
61,953

 

 
202,618

 

 
226,457

 

 
 
 
 
 
 
 
 
Corporate and other
 
 
 
 
 
 
 
Marketing services and other revenues
3,035

 

 
3,035

 

 
 
 
 
 
 
 
 
Total net revenue
$
2,965,761

 
$
2,249,488

 
$
8,271,644

 
$
6,660,924

 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
Marketplaces
$
636,683

 
$
560,692

 
$
1,910,918

 
$
1,707,077

Payments
216,227

 
161,668

 
672,370

 
506,771

GSI
5,669

 

 
5,466

 

Corporate and other
(321,758
)
 
(232,184
)
 
(968,380
)
 
(750,498
)
 
 
 
 
 
 
 
 
Total operating income (loss)
$
536,821

 
$
490,176

 
$
1,620,374

 
$
1,463,350


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 September 30, 2011 and December 31, 2010:

 Description
 
Balance as of
September 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
 
$
2,998,950

 
$
2,998,950

 
$

Short-term investments:
 
 
 
 
 
 
Restricted cash
 
21,619

 
21,619

 

Corporate debt securities
 
428,895

 

 
428,895

Government and agency securities
 
44,342

 

 
44,342

Time deposits
 
82,292

 

 
82,292

Equity instruments
 
436,776

 
436,776

 

Total short-term investments
 
1,013,924

 
458,395

 
555,529

Derivatives
 
70,780

 

 
70,780

Long-term investments:
 
 
 
 
 
 
Restricted cash
 
2,423

 
2,423

 

Corporate debt securities
 
2,126,273

 

 
2,126,273

Government and agency securities
 
82,465

 

 
82,465

Time deposits and other
 
5,112

 

 
5,112

Total long-term investments
 
2,216,273

 
2,423

 
2,213,850

Total financial assets
 
$
6,299,927

 
$
3,459,768

 
$
2,840,159

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives
 
$
32,906

 
$

 
$
32,906




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 $802.3 million and $729.4 million of cost and equity method investments included in long-term investments on our condensed consolidated balance sheet at September 30, 2011 and December 31, 2010, respectively. Our long-term equity investments primarily pertain to our retained 30% interest in Skype. On October 13, 2011, Microsoft Corp. completed its acquisition of Skype and we received approximately $2.3 billion in cash for our 30% interest in Skype, resulting in a pre-tax gain of approximately $1.7 billion, which will be recognized in the fourth quarter of 2011. In conjunction with the sale of Skype, in the third quarter of 2011, we recognized our portion of Skype's second and third quarter financial results in our consolidated results of operations.

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 September 30, 2011, we had a total of $3.5 billion in cash withdrawals offsetting our $3.5 billion in Aggregate Cash Deposits held within the same financial institution under these cash pooling arrangements.


15

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

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 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 ($192.0 million as of September 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
 
September 30,
2011
 
December 31,
2010
 
September 30,
2011
 
December 31,
2010
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges
$
41,644

 
$
35,853

 
$
1,214

 
$
4,162

Foreign exchange contracts not designated as hedging instruments
20,881

 
1,343

 
31,692

 
801

Other contracts not designated as hedging instruments
8,255

 

 

 

Total fair value of derivative instruments
$
70,780

 
$
37,196

 
$
32,906

 
$
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 September 30, 2011 and December 31, 2010, and the impact of designated derivative contracts on accumulated other comprehensive income for the nine months ended September 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)
 
September 30, 2011
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges
$
13,560

 
$
29,647

 
$
6,958

 
$
36,249


The following table summarizes the activity of derivative contracts that qualify for hedge accounting as of September 30, 2010 and December 31, 2009, and the impact of designated derivative contracts on accumulated other comprehensive income for the nine months ended September 30, 2010:

 
December 31, 2009
 
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)
 
September 30, 2010
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges
$
(4,821
)
 
$
(10,268
)
 
$
14,225

 
$
(864
)


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 September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
(6,420
)
 
$
6,362

 
$
(23,363
)
 
$
14,225

Foreign exchange contracts designated as cash flow hedges recognized in operating expenses
(2,774
)
 

 
(7,565
)
 

Foreign exchange contracts not designated as hedging instruments recognized in interest and other income (expense), net
14,999

 
(19,795
)
 
8,058

 
(9,056
)
Other contracts not designated as hedging instruments recognized in interest and other income (expense), net
(285
)
 

 
(285
)
 

Total gain (loss) recognized from derivative contracts in the condensed consolidated statement of income
$
5,520

 
$
(13,433
)
 
$
(23,155
)
 
$
5,169


Note 8 - Debt:
The following table summarizes the carrying value of our outstanding debt (in thousands, except percentages):
 
Coupon Rate
 
September 30, 2011
Effective Interest Rate
 
December 31, 2010
Effective Interest Rate
Long-Term Debt
 
 
 
 
 
 
 
Senior notes due 2013
0.875
%
 
$
399,430

0.946
%
 
$
399,220

0.946
%
Senior notes due 2015
1.625
%
 
598,192

1.703
%
 
597,857

1.703
%
Senior notes due 2020
3.250
%
 
497,368

3.319
%
 
497,150

3.319
%
Total senior notes
 
 
1,494,990

 
 
1,494,227

 
Note payable
 
 
15,354

 
 

 
Capital lease obligations
 
 
17,814

 
 

 
Total long-term debt
 
 
$
1,528,158

 
 
$
1,494,227

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

 
 
$
300,000

 
Note payable
 
 
1,903

 
 

 
Capital lease obligations
 
 
13,927

 
 

 
Total short-term debt
 
 
1,015,830

 
 
300,000

 
Total Debt
 
 
$
2,543,988

 
 
$
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 nine months ended September 30, 2011 was approximately $8.0 million and $23.9 million, respectively. At September 30, 2011, the estimated fair value of all notes included in long-term debt was approximately $1.5 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.

17



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 March 2012 to February 2016 and bear interest at rates ranging from 3% to 9% per annum. The present value of future minimum lease payments as of September 30, 2011 was as follows (in thousands):
 
September 30, 2011
Gross capital lease obligations
$
33,755

Imputed interest
(2,014
)
Total present value of future minimum lease payments
$
31,741

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 September 30, 2011, $1.0 billion aggregate principal amount of commercial paper was outstanding, the weighted average interest rate on our outstanding commercial paper notes was 0.17%, and the weighted average remaining term of our commercial paper notes was 61 days.
Credit Agreement
As of September 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 September 30, 2011, $0.8 billion of borrowing capacity was available for other purposes permitted by the credit agreement.  
As of September 30, 2011, we were in compliance with all covenants related to our debt.


Note 9 — Commitments and Contingencies


Commitments

 As of September 30, 2011, approximately $8.8 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, 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 nine months ended September 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

18

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

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.

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

19

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

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 of the proceedings.

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 the fourth quarter of 2011 or early 2012.

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 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, Payments and GSI businesses. We also are subject to increased exposure to such claims as a result of our recent acquisitions, particularly in cases where we are entering into new businesses in connection with such acquisitions. Such claims may be brought directly against our companies and/or through indemnification of intellectual property claims against their customers, and may either be inherited by us in connection with, or asserted against us following the completion of, such acquisitions. 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 provided similar indemnities in a limited number of

20

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

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).

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 nine 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
25,600

 
31.78

 
813,491

 
(813,491
)
Balance at September 30, 2011
27,480

 
$
31.65

 
$
869,784

 
$
1,130,216


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

Note 11 — Stock-Based Plans

Stock Option Activity

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

Granted and assumed
7,599

Exercised
(7,673
)
Forfeited/expired/canceled
(2,630
)
Outstanding at September 30, 2011
41,203


The weighted average exercise price of stock options granted during the period was $29.64 per share and the related weighted average grant date fair value was $9.80 per share.


21

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

Restricted Stock Unit Activity

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

Awarded and assumed
18,961

Vested
(13,017
)
Forfeited
(4,230
)
Outstanding at September 30, 2011
40,062


The weighted average grant date fair value for RSUs awarded during the period was $30.30 per share.


 Stock-based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for the three and nine months ended September 30, 2011 and 2010 was as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Cost of net revenues
$
14,210

 
$
11,833

 
$
42,637

 
$
36,116

Sales and marketing
32,259

 
26,350

 
100,370

 
80,030

Product development
25,665

 
24,389

 
90,778

 
75,544

General and administrative
36,088

 
31,208

 
112,147

 
96,142

Total stock-based compensation expense
$
108,222

 
$
93,780

 
$
345,932

 
$
287,832

Capitalized in product development
$
6,081

 
$
2,948

 
$
13,951

 
$
8,027



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 nine months ended September 30, 2011 and 2010:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
Risk-free interest rate
1.0
%
 
0.98
%
 
1.2
%
 
1.4
%
Expected life (in years)
3.7

 
3.1

 
3.8

 
3.4

Dividend yield
%
 
%
 
%
 
%
Expected volatility
39
%
 
40
%
 
38
%
 
37
%

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.



22

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

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 September 30, 2011 and 2010:
 
 
Three Months Ended September 30, 2011
 
Three Months September 30, 2010
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
(In thousands)
Marketplaces
$
(168
)
 
$
(65
)
 
$
(233
)
 
$
2,977

 
$
28

 
$
3,005

Payments

 

 

 

 

 

 
$
(168
)
 
$
(65
)
 
$
(233
)
 
$
2,977

 
$
28

 
$
3,005


The following table summarizes by segment the restructuring costs recognized during the nine months ended September 30, 2011 and 2010:
 
 
Nine Months Ended September 30, 2011
 
Nine Months Ended September 30, 2010
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
Employee
Severance and
Benefits
 
Facilities
 
Total
 
(In thousands)
Marketplaces
$
37

 
$
(519
)
 
$
(482
)
 
$
17,228

 
$
3,200

 
$
20,428

Payments

 

 

 
9

 

 
9

 
$
37

 
$
(519
)
 
$
(482
)
 
$
17,237

 
$
3,200

 
$
20,437


The following table summarizes the restructuring reserve activity during the nine months ended September 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)
37

 
(519
)
 
(482
)
Payments
(2,655
)
 
(1,142
)
 
(3,797
)
Adjustments
567

 
369

 
936

Accrued liability as of September 30, 2011
$
374

 
$
2,267

 
$
2,641


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



23

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

Note 13 — Income Taxes

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

Increases related to prior period tax positions
23,286

Decreases related to prior period tax positions
(137,257
)
Increases related to current period tax positions
12,632

Settlements
(76,994
)
Gross amounts of unrecognized tax benefits as of September 30, 2011
$
250,011


As of September 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 increase in liabilities for unrecognized tax benefits for the first nine months of 2011 relate primarily to the amount of costs which qualify for the research and development credit.
 
We recognize interest and/or penalties related to uncertain tax positions in income tax expense. The amount of interest and penalties accrued as of September 30, 2011 and December 31, 2010 was approximately $81.5 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 2009 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 nine months ended September 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 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 20% and 15% for the third quarter and first nine months of 2011, respectively, compared to 16% and 18% for the same periods in the prior year. The increase in our effective tax rate during the third quarter of 2011 compared to the same period of the prior year was due primarily to an increase in the proportion of earnings generated in higher tax jurisdictions. The decrease in our effective tax rate during the first nine months of 2011 compared to the same period of the prior year was due primarily to a tax benefit realized in the second quarter of 2011 associated with the loss on the divestiture of certain GSI businesses.



24



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 an outstanding loan receivable owned by Bill Me Later. The weighted average consumer FICO score related to our loans and interest receivable balance outstanding at September 30, 2011 was 697. As of September 30, 2011 and December 31, 2010, approximately 60.2% 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 nine months ended September 30, 2011:
 
 
(In thousands)
Balance as of January 1, 2011
 
$
42,340

Charge-offs
 
(55,211
)
Recoveries
 
5,084

Provision
 
58,745

Balance as of September 30, 2011
 
$
50,958


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 and classified as a reduction of revenue. As of September 30, 2011, approximately 90% of our loans and interest receivable portfolio were current.




25



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

eBay is about enabling commerce. We do so through eBay, the world's largest online marketplace, which allows users to buy and sell in nearly every country on earth; through PayPal, which enables individuals and businesses to securely, easily and quickly send and receive online payments; and through GSI, which facilitates ecommerce, multichannel retailing and digital marketing for global enterprises. X.commerce brings together the technology assets and developer communities of eBay, PayPal and Magento, an ecommerce platform, to support eBay Inc.'s mission of enabling commerce. We also reach millions through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world.

We have three reportable business segments: Marketplaces, Payments and GSI. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online platforms, such as our online classifieds businesses and StubHub. Our Payments segment is comprised of PayPal and Bill Me Later (BML). Our GSI segment consists of GSI, which was added upon the completion of our acquisition of GSI on June 17, 2011. 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 September 30, 2011 increased 32% to $3.0 billion, compared to the same period of the prior year, driven primarily by a 31% increase in PayPal net total payment volume (TPV), a 16% increase in Marketplaces gross merchandise volume (GMV) excluding vehicles and the impact from GSI, which we acquired in June 2011. For the three months ended September 30, 2011, our operating margin decreased to 18% from 22%, compared to the same period of the prior year, driven primarily by the impact of acquisitions and business mix, partially offset by productivity gains. Our Payments segment operating margin for the three months ended September 30, 2011 increased slightly compared to the same period of the prior year as productivity gains and a positive impact from Bill Me Later were partially offset by higher transaction losses, acquisitions and investments in our platform. Our Marketplaces segment operating margin for the three months ended September 30, 2011 decreased 1.2 percentage points compared to the same period of the prior year, driven primarily by the impact of recently completed acquisitions. Our GSI segment operating margin for the three months ended September 30, 2011 was approximately 3%. For the three months ended September 30, 2011, our diluted earnings per share increased to $0.37, a $0.04 increase compared to the same period of the prior year, driven primarily by solid top-line growth, partially offset by continued investment in key strategic initiatives and the impact of acquisitions. For the three months ended September 30, 2011, we generated cash flow from operations of approximately $809.1 million, compared to $747.1 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, global ecommerce services (GeC) merchandise sales (GMS), penetration rates, funding mix (representing the mix of payments vehicles such as credit cards and bank accounts), 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.

26




Outlook

We expect operating results in the fourth quarter of 2011 to be led by continued strength in our Payments business, as we execute against our long-term growth strategies and priorities. We expect continued strength in our Marketplaces business. We also expect the acquisition of GSI to contribute to our revenue growth. In connection with the sale of our remaining equity interest in Skype, we expect to recognize a pre-tax gain of approximately $1.7 billion in the fourth quarter. We plan to continue to invest in growth, focus on accelerating innovation, and pursue 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 nine months ended September 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 September 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted net revenues by approximately $84.7 million (net of a $6.4 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 September 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces and Payments net revenues by approximately $67.7 million and $17.0 million, respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).

For the nine months ended September 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted net revenues by approximately $213.8 million (net of a $23.3 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 nine months ended September 30, 2011, foreign currency movements relative to the U.S. dollar positively impacted Marketplaces and Payments net revenues by approximately $174.4 million and $39.4 million, respectively, compared to the same period of the prior year (net of the impact of hedging activities, noted above).

27



The following table sets forth the breakdown of net revenues by type 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 September 30,
 
Percent
 
Nine Months Ended September 30,
 
Percent
 
2011
 
2010(1)
 
Change
 
2011
 
2010(1)
 
Change
 
(In thousands, except percentage changes)
Net Revenues by Type:
 
 
 
 
 
 
 
 
 
 
 
Net transaction revenues
 
 
 
 
 
 
 
 
 
 
 
Marketplaces
$
1,353,660

 
$
1,185,562

 
14
%
 
$
3,988,055

 
$
3,541,014

 
13
%
Payments
1,032,816

 
797,826

 
29
%
 
2,966,643

 
2,335,153

 
27
%
GSI
148,444

 

 
N/A

 
164,504

 

 
N/A

Total net transaction revenues
2,534,920

 
1,983,388

 
28
%
 
7,119,202

 
5,876,167

 
21
%
Marketing services and other revenues
 
 
 
 
 

 
 
 
 
 
 
Marketplaces
299,246

 
225,761

 
33
%
 
881,552

 
655,438

 
34
%
Payments
74,386

 
40,339

 
84
%
 
205,902

 
129,319

 
59
%
GSI
54,174

 

 
N/A

 
61,953

 

 
N/A

Corporate and other (2)
3,035

 

 
N/A

 
3,035

 

 
N/A

Total marketing services and other revenues
430,841

 
266,100

 
62
%
 
1,152,442

 
784,757

 
47
%
 
 
 
 
 
 
 
 
 
 
 
 
Total net revenues
$
2,965,761

 
$
2,249,488

 
32
%
 
$
8,271,644

 
$
6,660,924

 
24
%
Net Revenues by Geography:
 
 
 
 
 

 
 
 
 
 
 
U.S.
$
1,427,811

 
$
1,058,258

 
35
%
 
$
3,818,165

 
$
3,094,573

 
23
%
International
1,537,950

 
1,191,230

 
29
%
 
4,453,479

 
3,566,351

 
25
%
Total net revenues
$
2,965,761

 
$
2,249,488

 
32
%
 
$
8,271,644

 
$
6,660,924

 
24
%
 
(1) 2010 periods excludes data for GSI, which was acquired in June 2011.
(2) Represents revenues associated with our X.commerce initiative, which was launched in conjunction with our acquisition of Magento in the third quarter of 2011.

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 September 30,
 
Percent
 
Nine Months Ended September 30,
 
Percent
 
2011
 
2010
 
Change
 
2011
 
2010
 
Change
 
(In millions, except percentage changes)
Supplemental Operating Data:
 
 
 
 
 
 
 
 
 
 
 
Marketplaces Segment:  (1)
 
 
 
 
 
 
 
 
 
 
 
GMV excluding vehicles  (2)
$
14,666

 
$
12,591

 
16
%
 
$
43,842

 
$
38,493

 
14
%
GMV vehicles only  (3)
2,149

 
2,157

 
%
 
6,437

 
6,367

 
1
%
Total GMV  (4)
$
16,815

 
$
14,748

 
14
%
 
$
50,279

 
$
44,860

 
12
%
Payments Segment:
 
 
 
 
 
 
 
 
 
 
 
Net TPV  (5)
$
29,282

 
$
22,365

 
31
%
 
$
85,386

 
$
65,089