on november 19 2009 ebay sold all the capital shares of skype to springboard group e 594118

eBay Sells Skype

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:

eBay Inc. Consolidated Statement of Income

	Year Ended December 31,
	2007	2008		2009
	(In thousands, except per-share amounts)
Net revenues	$7.672.329		$8,541,261	$8,727,362
Cost of net revenues	1,762,972		2,228,069	2,479,762
Gross profit	5,909,357		6,313,192	6,247,600
Operating expenses:
Sales and marketing	1,882,810		1,881,551	1,885,677
Product development	619,727		725,600	803,070
General and administrative	904,681		998,871	1,418,389
Provision for transaction and loan losses	293,917		347,453	382,825
Amortization of acquired intangible assets	204,104		234,916	262,686
Restructuring	—		49,1 19	38,187
Impairment 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
Revenues	364,564	550,841	620,403
Direct expenses	337,338	434,588	462,701
Income	44,484	116,253	157,702

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.