Question: On November 19, 2009, eBay sold all
On November 19, 2009, eBay sold all the capital shares of Skype to Springboard Group. eBay received cash proceeds of approximately $1.9 billion, a subordinated note issued by a subsidiary of the Buyer in the principal amount of $125.0 million and an equity stake of approximately 30 percent in the outstanding capital stock of the Buyer (valued at $620.0 million). The sale resulted in the removal of all Skype-related assets and liabilities, which offset the proceeds noted above, resulting in a net gain of $1.4 billion recorded in interest and other income. In conjunction with the sale of Skype, eBay reached a legal settlement of a lawsuit between Skype, Joltid, and entities controlled by Joltid’s founders, resulting in a $343.2 million charge to general and administrative expense. In addition, eBay recorded a charge for impairment of goodwill for $1.39 billion from the Skype acquisition. From eBay’s 2009 annual report:
Required:
Examine eBay’s income statement from 2007 to 2009. Reconstruct eBay’s income statement excluding the effects of Skype. Use the following categories in your analysis: Net revenue, Total operating expenses, Operating income, Interest and other income, and Income before taxes.
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еВay Inc. Consolidated Statement of Income Year Ended December 31, 2007 2008 2009 (In thousands, except per-share amounts) Net revenuCs S7.672.329 S8,541,261 $8,727,362 Cost of net revenuEN 1,762,972 2,228,069 2,479,762 Gross profit 5,909,357 6,313,192 6,247,600 Operating penses: Sales and marketing Product development 1,882,810 1,881,551 1,885,677 619,727 725,600 803,070 General and administrative 904,681 998,871 1,418,389 Provision for transaction and loan loses 293,917 347,453 382,825 Amortization of acquired intangible assets 204,104 234,916 262,686 Restructuring 49,1 19 38,187 Impuirment of goodwill 1,390,938 Total operating expenses 5,296,177 4,237,510 4,790,834 Income from operations 613,180 2,075,682 1,456,766 Interest and other income, net 137,671 107,882 1,422,385 Income before income taxes 750,851 2,183,564 2,879,151 Provision for income taxes (402,600) (404,090) (490,054) Net income $348,251 $1,779,474 $2,389,097 Skype's operating performance (2007 through 2009), dollars in thousands: 2007 2008 2009 364,564 337 338 Revenues 620, Direct expenses 434,588 462,701 Income 44,484 116,253 157,702
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