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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: July 26, 1999
Date of earliest event reported: May 18, 1999
eBAY INC.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
000-24821 77-0430924
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(Commission (IRS Employer
File Number) Identification No.)
2125 Hamilton Ave., San Jose, California 95125
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(Address of principal executive offices) (Zip Code)
408-558-7400
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(Registrant's telephone number, including area code)
2005 Hamilton Ave., Suite 350, San Jose, CA 95125
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(Former name or former address, if changed since last report)
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Item 2: Acquisition or Disposition of Assets.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of the following Current Reports on Form
8-K, as set forth below and in the pages attached hereto:
. Form 8-K filed on May 28, 1999, related to the Registrant's acquisition of
Kruse, Inc. (d.b.a. Kruse International), Auburn Cordage, Inc., ACD Auto
Sales, Inc., Reppert School of Auctioneering, Inc. and Classic Advertising &
Promotions, Inc., (collectively, "Kruse" or the "Kruse International Group of
Companies") on May 18, 1999, by means of a merger among eBay Inc. ("eBay"),
each of the Kruse companies, five merger subsidiaries wholly-owned by eBay,
Dean V. Kruse and Mitchell Kruse.
. Form 8-K filed on June 7, 1999, related to the Registrant's acquisition of
Billpoint, Inc. ("Billpoint") on May 25, 1999, by means of a merger among
eBay, Billpoint and Brazil Acquisition Corp., a wholly-owned subsidiary of
eBay.
. Form 8-K filed on June 7, 1999, related to the Registrant's acquisition of
Butterfield & Butterfield Auctioneers on May 28, 1999 by means of a merger
among eBay, Butterfield & Butterfield Auctioneers, a merger subsidiary
wholly-owned by eBay, the stockholders of Butterfield & Butterfield
Auctioneers, 111 Potrero Partners, LLC, HBJ Partners, LLC and the members of
the 111 Potrero Partners, LLC and HBJ Partners, LLC (collectively, "B&B" or
the "Butterfield & Butterfield Group of Companies").
Item 5: Other Events.
Risk Factors that may Affect Results of Operations and Financial Condition of
the Acquired Companies.
The acquisition itself may adversely affect the Acquired Companies.
The process of integrating any acquisition may create unforeseen operating
difficulties and expenditures and is itself risky. The areas where we may face
difficulties include:
. diversion of management time (both ours and at the acquired companies) during
the period of negotiation through closing and further diversion of such time
after closing from focus on operating the businesses to issues of integration
and future products;
. decline in employee morale and retention issues resulting from changes in
compensation, reporting relationships, future prospects, or the direction of
the business;
. the need to integrate each company's accounting, management information,
human resource and other administrative systems to permit effective
management and the lack of control if such integration is delayed or not
implemented;
. the need to implement controls, procedures and policies appropriate for a
larger public company at companies that prior to acquisition had been
smaller, private companies; and
. we have almost no experience in managing this integration process.
Our new land-based auction businesses need to continue to acquire properties.
The businesses of B&B and Kruse are both dependent on the continued acquisition
of high quality auction properties from sellers. Their future success will
depend in part on their ability to maintain an adequate supply of high
quality auction property, particularly fine and decorative arts and collectibles
and collectible automobiles, respectively. There is intense competition for
these pieces with other auction companies and dealers. In addition, a small
number of key senior management and specialists maintain the relationships with
the primary sources of auction property and the loss of any of these individuals
could adversely affect the business of B&B and Kruse. See "The acquired
businesses are dependent on a small number of key employees."
Our new land-based auction businesses could suffer losses from price guarantees,
advances or rescissions of sales.
-2-
In order to secure high quality auction properties from sellers, B&B and Kruse
may give a guaranteed minimum price or a cash advance to a seller, based on the
estimated value of the property. If the auction proceeds are less than the
amount guaranteed, or less than the amount advanced and the seller does not
repay the difference, the company involved will suffer a loss. In addition,
under certain circumstances a buyer who believes that an item purchased at
auction does not have good title, provenance or authenticity may rescind the
purchase. Under such circumstances, the company involved will lose its
commissions and fees on the sale even if the seller, in accordance with the
terms and conditions of sale, in turn accepts back the item and returns the
funds he or she received from the sale.
Our new land-based auction businesses are dependent on discretionary consumer
spending.
A decline in consumer spending would harm our new land-based auction businesses.
Sales of fine and decorative art, collectable cars and other collectibles would
be adversely affected by a decline in discretionary consumer spending,
especially for luxury items. Changes in buyer's tastes, economic conditions or
consumer trends could cause declines in the number or dollar volume of items
auctioned and thereby harm the business of these companies.
Our new businesses are dependent on a small number of key employees.
Our new businesses are all dependent on attracting and retaining key employees.
The land-based auction businesses are particularly dependent on specialists and
senior management because of the relationships these individuals have
established with sellers who consign property for sale at auction. Dean Kruse
is particularly important to Kruse. The loss of any of these individuals could
result in the loss of significant future business and would harm us. Such
personnel are in great demand by other auction companies. In addition, employee
turnover frequently increases during the period following an acquisition as
employees evaluate possible changes in compensation, culture, reporting
relationships, and the direction of the business. Such increased turnover could
increase our costs and reduce our future revenues.
Our new land-based businesses are subject to regulation.
Both B&B and Kruse are subject to regulation in some jurisdictions governing the
manner in which auctions are conducted. Both are required to obtain licensure
in certain jurisdictions with respect to their business or to permit the sale of
certain properties (e.g. wine, automobiles, real estate). Such licenses must
generally be regularly renewed and are subject to revocation for violation of
law, violation of the regulations governing auctions in general or the sale of
the particular item and other events. If either company was unable to renew a
license or had a license revoked it would be harmed. In addition, changes to
the regulations or the licensure requirements could increase the complexity and
the cost of doing auctions, thereby harming us.
Our new payments business may be subject to regulation.
Businesses that handle consumers' funds are potentially subject to numerous
regulations, including those related to banking, credit cards, escrow, fair
credit reporting and others. Billpoint is a new business with a relatively
novel approach to facilitating payments. It is not yet known how regulatory
agencies will treat Billpoint. The cost and complexity of Billpoint's business
may increase if certain regulations are deemed to apply to its business.
We acquired real property with some of our new businesses.
In connection with the acquisition of Kruse and B&B we acquired real property
including land, buildings and interests in partnerships holding land and
buildings. We have no experience in managing real property. Ownership of this
property subjects us to new risks, including:
. the possibility of environmental contamination and the costs associated
with fixing any environmental problems;
. the possible need for structural improvements in order to comply with
zoning, seismic, disability act or other requirements;
. possible disputes with tenants, partners or others.
Our new land-based auction businesses are seasonal and are subject to
significant quarterly fluctuations.
-3-
Both B&B and Kruse have significant quarter to quarter variations in their
results depending on the timing of auctions and the availability of high quality
items from large collections and estates. B&B typically has its best operating
results in the traditional fall and spring auction seasons and has historically
incurred operating losses in the first and third quarters. This seasonal effect
may be partially offset by Kruse, which typically sees a seasonal peak in
operations with its Auburn, Indiana auction around Labor Day.
Our new businesses could be harmed by Year 2000 compliance problems.
Our new businesses are heavily dependent upon the functioning of their computer
systems. Any failure or malfunction of their information, business, finance,
accounting, or other systems could harm these businesses in a manner that is
impossible to currently quantify or anticipate. We are currently reviewing the
Y2K status of these businesses. If necessary upgrades or changes are not
properly identified, or if they cannot be successfully and timely implemented
even if properly identified, these businesses could be harmed.
Our new businesses are subject to intense competition.
The land-based auction business is intensely competitive. B&B competes with two
larger and better known auction companies, Sotheby's Holdings, Inc. and
Christie's International plc, as well as numerous regional auction companies. To
the extent that these companies increase their focus on the middle market
properties that form the core of B&B's business, its business may suffer. Kruse
is subject to competition from numerous regional competitors. In addition,
competition with Internet based auctions may harm the land-based auction
business. Although Billpoint's business is new, several companies are beginning
to enter this market and large competitors, including banks and credit card
companies, may become competitors.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired
See Exhibit 99.1 for the audited combined financial statements of the Kruse
Group of Companies, Exhibit 99.2 for the audited financial statements of
Billpoint and Exhibit 99.3 for the audited combined financial statements of the
Butterfield & Butterfield Group of Companies.
(b) Pro Forma Financial Information
Pro Forma Condensed Financial Information (Unaudited)
The following unaudited pro forma combined financial statements give effect
to the mergers of eBay with Kruse, Billpoint and B&B (the "Acquired Entities"),
which were accounted for as poolings of interests. The unaudited pro forma
condensed balance sheet presents the combined financial position of eBay and the
Acquired Entities as of March 31, 1999, assuming that each of the mergers had
occurred as of March 31, 1999. Such pro forma information is based upon the
historical balance sheet data of eBay and the Acquired Entities as of that date.
The unaudited pro forma condensed statement of income gives effect to the
mergers of eBay and the Acquired Entities by combining the results of operations
of eBay and the Acquired Entities for the three years ended December 31, 1998
and the three months ended March 31, 1998 and 1999, on a pooling of interests
basis, with the exception of Billpoint, which is included from its date of
inception of September 1, 1998. These unaudited pro forma financial statements
should be read in conjunction with the historical financial statements and notes
thereto of eBay included in its Annual Report on Form 10-K for the year ended
December 31, 1998 and the historical financial statements and notes thereto of
the Acquired Entities included as exhibits herein.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the mergers had been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position. In addition, the unaudited pro forma
condensed combined financial statements do not incorporate increases in property
taxes that the combined company will be subject to as a result of increases in
the tax basis of certain real estate holdings of B&B
-4-
which, because the acquisitions have been accounted for as poolings of
interests, remain at historical cost for book purposes.
eBay and the Acquired Entities incurred direct transaction costs of
approximately $4.3 million associated with the mergers which were charged to
operations during the three months ended June 30, 1999. There can be no
assurance that eBay will not incur additional charges in subsequent periods to
reflect costs associated with the mergers or that management will be successful
in its efforts to integrate the operations of the companies. This charge is
reflected in the unaudited pro forma condensed combined balance sheet, but is
not reflected in the unaudited pro forma condensed combined statements of
operations. This charge is based upon an estimate and is subject to change.
-5-
eBay Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
(in thousands)
March 31, 1999
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- ---
Acquired Pro Forma
eBay Entities Adjustments Combined
---------------- ---------------- ---------------- -----------------
Assets
Current assets:
Cash and cash equivalents......... $ 24,850 $ 4,300 $ -- $ 29,150
Short-term investments............ 32,121 -- -- 32,121
Accounts receivable, net.......... 12,104 6,028 -- 18,132
Deferred tax assets............... -- 38 -- 38
Other current assets.............. 23,588 1,439 (202) (A) 24,825
------------- ------------- ------------- -------------
Total current assets............. 92,663 11,805 (202) 104,266
Property and equipment, net........ 16,235 36,979 -- 53,214
Intangible assets, net............. 733 2,515 -- 3,248
Note receivable.................... -- 1,919 -- 1,919
Deferred tax assets................ -- -- 11,231 (B)(C) 11,231
Other assets....................... 81 2,080 -- 2,161
------------- ------------- ------------- -------------
$ 109,712 $ 55,298 $ 11,029 $ 176,039
============= ============= ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable..................... $ -- $ 3,644 $ -- $ 3,644
Accounts payable.................. 3,748 7,360 -- 11,108
Accrued expenses.................. 8,947 2,039 4,024 (A) 15,010
Customer advances and deferred
revenue.......................... 1,022 199 -- 1,221
Income taxes payable.............. 2,713 1,370 2,478 (C) 6,561
Deferred tax liabilities.......... 1,682 -- -- 1,682
------------- ------------- ------------- -------------
Total current liabilities........ 18,112 14,612 6,502 39,226
Notes payable...................... -- 18,060 -- 18,060
Environmental and seismic accruals. -- 5,900 -- 5,900
Deferred tax liability............. -- 261 -- 261
Minority interest.................. -- (102) -- (102)
------------- ------------- ------------- -------------
18,112 38,731 6,502 63,345
------------- ------------- ------------- -------------
Stockholders' equity:
Common stock...................... 121 3 -- 124
Additional paid-in capital........ 86,089 6,724 8,753 (B) 101,566
Notes receivable from stockholders (510) -- -- (510)
Unearned compensation............. (3,324) (1,396) -- (4,720)
Retained earnings................. 9,224 11,236 (4,226) (A) 16,234
------------- ------------- ------------- -------------
Total stockholders' equity....... 91,600 16,567 4,527 112,694
------------- ------------- ------------- -------------
$ 109,712 $ 55,298 $ 11,029 $ 176,039
============= ============= ============= =============
See accompanying notes to pro forma condensed combined financial information.
-6-
eBay Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
Three Months Ended March 31, 1999
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Acquired Pro Forma
eBay Entities Combined
----------------- ----------------- -----------------
Net revenues:
Fees and services........................................ $ 34,010 $ 7,734 $ 41,744
Real estate rentals...................................... -- 1,057 1,057
-------- ------- --------
Total net revenues...................................... 34,010 8,791 42,801
-------- ------- --------
Cost of net revenues:
Fees and services........................................ 5,121 2,345 7,466
Real estate rentals...................................... -- 478 478
-------- ------- --------
Total cost of revenues.................................. 5,121 2,823 7,944
-------- ------- --------
Gross profit........................................... 28,889 5,968 34,857
-------- ------- --------
Operating expenses:
Sales and marketing...................................... 12,067 4,819 16,886
Product development...................................... 1,924 239 2,163
General and administrative............................... 5,043 2,562 7,605
Amortization of acquired intangibles..................... 328 -- 328
-------- ------- --------
Total operating expenses................................ 19,362 7,620 26,982
-------- ------- --------
Income (loss) from operations............................. 9,527 (1,652) 7,875
Interest and other income, net............................ 639 173 812
Interest expense.......................................... -- (519) (519)
-------- ------- --------
Income (loss) before income taxes, minority interest and
equity in partnership income............................. 10,166 (1,998) 8,168
Provision for income taxes................................ (4,270) (1) (4,271)
Minority interest in combined company..................... -- (78) (78)
Equity interest in partnership income..................... -- 59 59
-------- ------- --------
Net income (loss)......................................... $ 5,896 $(2,018) $ 3,878
======== ======= ========
Net income (loss) per share:
Basic.................................................... $ 0.06 $ (0.81) $ 0.04
======== ======= ========
Diluted.................................................. $ 0.05 $ (0.81) $ 0.03
======== ======= ========
Weighted average shares:
Basic.................................................... 95,047 2,494 97,541
======== ======= ========
Diluted.................................................. 127,979 2,494 130,473
======== ======= ========
Supplemental Pro Forma Information:
Income before income taxes, minority interest and equity
in partnership income as reported........................ $ 8,168
Provision for income taxes as reported.................... (4,271)
Pro forma adjustment to provision for income taxes
(Note 3)............................................... 136
Minority interest in combined company as reported......... (78)
Equity interest in partnership income as reported......... 59
--------
Pro forma net income...................................... $ 4,014
========
Pro forma net income per share:
Basic.................................................... $ 0.04
========
Diluted.................................................. $ 0.03
========
See accompanying notes to pro forma condensed combined financial information.
-7-
eBay Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
Three Months Ended March 31, 1998
-----------------------------------------------------------
Acquired Pro Forma
eBay Entities Combined
---------- ------------ ------------
Net revenues:
Fees and services........................................ $ 5,981 $ 6,852 $ 12,833
Real estate rentals...................................... -- 1,155 1,155
-------- -------- --------
Total net revenues...................................... 5,981 8,007 13,988
-------- -------- --------
Cost of net revenues:
Fees and services........................................ 630 1,180 1,810
Real estate rentals...................................... -- 681 681
-------- -------- --------
Total cost of revenues.................................. 630 1,861 2,491
-------- -------- --------
Gross profit........................................... 5,351 6,146 11,497
-------- -------- --------
Operating expenses:
Sales and marketing...................................... 2,106 3,473 5,579
Product development...................................... 518 -- 518
General and administrative............................... 1,028 1,280 2,308
Amortization of acquired intangibles..................... -- -- --
-------- -------- --------
Total operating expenses................................ 3,652 4,753 8,405
-------- -------- --------
Income from operations.................................... 1,699 1,393 3,092
Interest and other income, net............................ 36 366 402
Interest expense.......................................... (14) (466) (480)
-------- -------- --------
Income before income taxes, minority interest and equity
in partnership income.................................... 1,721 1,293 3,014
Provision for income taxes................................ (1,573) (75) (1,648)
Minority interest in combined company..................... -- (95) (95)
Equity interest in partnership income..................... -- 173 173
-------- -------- --------
Net income................................................ $ 148 $ 1,296 $ 1,444
======== ======== ========
Net income per share:
Basic.................................................... $ 0.00 $ 0.61 $ 0.05
======== ======== ========
Diluted.................................................. $ 0.00 $ 0.61 $ 0.01
======== ======== ========
Weighted average shares:
Basic.................................................... 26,936 2,115 29,051
======== ======== ========
Diluted.................................................. 97,614 2,115 99,729
======== ======== ========
Supplemental Pro Forma Information:
Income before income taxes, minority interest and equity $ 3,014
in partnership income as reported........................
Provision for income taxes as reported.................... (1,648)
Pro forma adjustment to provision for income taxes
(Note 3)............................................... (470)
Minority interest in combined company as reported......... (95)
Equity interest in partnership income as reported......... 173
--------
Pro forma net income...................................... $ 974
Pro forma net income per share: ========
Basic.................................................... $ 0.03
========
Diluted.................................................. $ 0.01
========
See accompanying notes to pro forma condensed combined financial information.
-8-
eBay Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
Year Ended December 31, 1998
-----------------------------------------------------------------
Acquired Pro Forma
eBay Entities Combined
----------------- ----------------- -----------------
Net revenues:
Fees and services........................................ $ 47,352 $ 34,291 $ 81,643
Real estate rentals...................................... -- 4,486 4,486
--------- --------- ---------
Total net revenues...................................... 47,352 38,777 86,129
--------- --------- ---------
Cost of net revenues:
Fees and services........................................ 6,859 7,089 13,948
Real estate rentals...................................... -- 2,146 2,146
--------- --------- ---------
Total cost of revenues.................................. 6,859 9,235 16,094
--------- --------- ---------
Gross profit........................................... 40,493 29,542 70,035
--------- --------- ---------
Operating expenses:
Sales and marketing...................................... 19,841 16,135 35,976
Product development...................................... 4,606 34 4,640
General and administrative............................... 9,080 6,769 15,849
Amortization of acquired intangibles..................... 805 -- 805
--------- --------- ---------
Total operating expenses................................ 34,332 22,938 57,270
--------- --------- ---------
Income from operations.................................... 6,161 6,604 12,765
Interest and other income, net............................ 908 891 1,799
Interest expense.......................................... (39) (2,152) (2,191)
--------- --------- ---------
Income before income taxes, minority interest and equity
in partnership income.................................... 7,030 5,343 12,373
Provision for income taxes................................ (4,632) (157) (4,789)
Minority interest in combined company..................... -- (381) (381)
Equity interest in partnership income..................... -- 70 70
--------- --------- ---------
Net income................................................ $ 2,398 $ 4,875 $ 7,273
========= ========= =========
Net income per share:
Basic.................................................... $ 0.05 $ 2.25 $ 0.14
========= ========= =========
Diluted.................................................. $ 0.02 $ 2.25 $ 0.06
========= ========= =========
Weighted average shares:
Basic.................................................... 49,896 2,169 52,065
========= ========= =========
Diluted.................................................. 114,588 2,169 116,757
========= ========= =========
Supplemental Pro Forma Information:
Income before income taxes, minority interest and equity
in partnership income as reported........................ $ 12,373
Provision for income taxes as reported.................... (4,789)
Pro forma adjustment to provision for income taxes income
(Note 3)................................................. (2,071)
Minority interest in combined company as reported......... (381)
Equity interest in partnership income as reported......... 70
---------
Pro forma net income...................................... $ 5,202
=========
Pro forma net income per share:
Basic................................................... $ 0.10
=========
Diluted................................................. $ 0.04
=========
See accompanying notes to pro forma condensed combined financial information.
-9-
eBay Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
Year Ended December 31, 1997
------------------------------------------------------------
Acquired Pro Forma
eBay Entities Combined
--------- ------------ -------------
Net revenues:
Fees and services........................................ $ 5,744 $ 31,326 $ 37,070
Real estate rentals...................................... -- 4,300 4,300
-------- -------- --------
Total net revenues...................................... 5,744 35,626 41,370
-------- -------- --------
Cost of net revenues:
Fees and services........................................ 746 5,885 6,631
Real estate rentals...................................... -- 1,773 1,773
-------- -------- --------
Total cost of revenues.................................. 746 7,658 8,404
-------- -------- --------
Gross profit........................................... 4,998 27,968 32,966
-------- -------- --------
Operating expenses:
Sales and marketing...................................... 1,730 13,888 15,618
Product development...................................... 831 -- 831
General and administrative............................... 950 5,584 6,534
-------- -------- --------
Total operating expenses................................ 3,511 19,472 22,983
-------- -------- --------
Income from operations.................................... 1,487 8,496 9,983
Interest and other income, net............................ 59 995 1,054
Interest expense.......................................... (3) (2,368) (2,371)
-------- -------- --------
Income before income taxes, minority interest and equity 1,543 7,123 8,666
in partnership income....................................
Provision for income taxes................................ (669) (302) (971)
Minority interest in combined company..................... -- (320) (320)
Equity interest in partnership loss....................... -- (314) (314)
-------- -------- --------
Net income................................................ $ 874 $ 6,187 $ 7,061
======== ======== ========
Net income per share:
Basic.................................................... $ 0.04 $ 2.93 $ 0.29
======== ======== ========
Diluted.................................................. $ 0.01 $ 2.93 $ 0.08
======== ======== ========
Weighted average shares:
Basic.................................................... 22,313 2,115 24,428
======== ======== ========
Diluted.................................................. 82,660 2,115 84,775
======== ======== ========
Supplemental Pro Forma Information:
Income before income taxes, minority interest and equity
in partnership income as reported........................ $ 8,666
Provision for income taxes as reported.................... (971)
Pro forma adjustment to provision for income taxes
(Note 3)................................................. (2,576)
Minority interest in combined company as reported......... (320)
Equity interest in partnership loss as reported........... (314)
--------
Pro forma net income...................................... $ 4,485
========
Pro forma net income per share:
Basic.................................................... $ 0.18
========
Diluted.................................................. $ 0.05
========
See accompanying notes to pro forma condensed combined financial information.
-10-
eBay Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
Year Ended December 31, 1996
------------------------------------------------
Acquired Pro Forma
eBay Entities Combined
-------- ------------ --------------
Net revenues:
Fees and services........................................ $ 372 $27,787 $28,159
Real estate rentals...................................... -- 3,892 3,892
------- ------- -------
Total net revenues...................................... 372 31,679 32,051
------- ------- -------
Cost of net revenues:
Fees and services........................................ 14 5,167 5,181
Real estate rentals...................................... -- 1,622 1,622
------- ------- -------
Total cost of revenues.................................. 14 6,789 6,803
------- ------- -------
Gross profit........................................... 358 24,890 25,248
------- ------- -------
Operating expenses:
Sales and marketing...................................... 32 13,107 13,139
Product development...................................... 28 -- 28
General and administrative............................... 45 5,616 5,661
------- ------- -------
Total operating expenses................................ 105 18,723 18,828
------- ------- -------
Income from operations.................................... 253 6,167 6,420
Interest and other income, net............................ 1 376 377
Interest expense.......................................... -- (2,322) (2,322)
------- ------- -------
Income before income taxes, minority interest and
equity in partnership income.............................. 254 4,221 4,475
Provision for income taxes................................ (106) (369) (475)
Minority interest in combined company..................... -- (86) (86)
Equity interest in partnership loss....................... -- (576) (576)
------- ------- -------
Net income................................................ $ 148 $ 3,190 $ 3,338
======= ======= =======
Net income per share:
Basic.................................................... $ 0.02 $ 1.51 $ 0.39
======= ======= =======
Diluted.................................................. $ 0.00 $ 1.51 $ 0.07
======= ======= =======
Weighted average shares:
Basic.................................................... 6,375 2,115 8,490
======= ======= =======
Diluted.................................................. 42,945 2,115 45,060
======= ======= =======
Supplemental Pro Forma Information:
Income before income taxes, minority interest and
equity in partnership loss as reported................... $ 4,475
Provision for income taxes as reported.................... (475)
Pro forma adjustment to provision for income taxes
(Note 3)................................................. (1,362)
Minority interest in combined company as reported......... (86)
Equity interest in partnership loss as reported........... (576)
-------
Pro forma net income...................................... $ 1,976
=======
Pro forma net income per share:
Basic................................................... $ 0.23
=======
Diluted................................................. $ 0.04
=======
See accompanying notes to pro forma condensed combined financial information.
-11-
eBay Inc.
Notes to Pro Forma Condensed Combined Financial Statements
(unaudited)
1. Basis of Presentation
Pro Forma Basis of Presentation
The unaudited pro forma condensed combined financial statements of eBay,
Kruse, Billpoint and B&B give retroactive effect to the mergers, which are
being accounted for as poolings of interests and, as a result, the unaudited
pro forma condensed combined balance sheets and statements of operations are
presented as if eBay and the Acquired Entities had been combined for all
periods presented.
The pro forma condensed combined financial statements reflect the issuance of
a total of approximately 2,638,800 shares of eBay common stock for all of the
outstanding shares of Kruse, Billpoint and B&B outstanding as of the dates of
the respective mergers. This total consists of approximately 787,300 shares of
eBay common stock issued for all of the outstanding shares of Kruse, 524,100
shares of eBay common stock issued for all of the outstanding shares of
Billpoint, and 1,327,400 shares of eBay common stock issued for all of the
outstanding shares of B&B in connection with the mergers, which resulted in
exchange ratios of approximately 339.35862, 0.05912 and 0.27931 shares of eBay
common stock for each share of Kruse, Billpoint and B&B, respectively. In
addition, options and warrants representing 2,233,181 shares of Billpoint
common stock were assumed by eBay and converted into options and warrants
representing approximately 132,000 shares of eBay common stock.
Acquired Entities
The components of pro forma net revenues, operating expenses and net income
(loss) during the three months ended March 31, 1999 and 1998 and the years
ended December 31, 1998, 1997 and 1996 are as follows:
Operating Net Income
Net Revenues Expenses (Loss)
-------------- ------------- -------------
Three Months Ended March 31, 1999
Kruse............................................. $ 2,551 $ 2,398 $ (423)
Billpoint......................................... - 758 (746)
B&B............................................... 6,240 4,464 (849)
------- ------- -------
$ 8,791 $ 7,620 $(2,018)
======= ======= =======
Three Months Ended March 31, 1998
Kruse............................................. $ 2,455 $ 1,887 $ 112
B&B............................................... 5,552 2,866 1,184
------- ------- -------
$ 8,007 $ 4,753 $ 1,296
======= ======= =======
Year Ended December 31, 1998
Kruse............................................. $10,265 $ 8,119 $ (58)
Billpoint......................................... - 74 (74)
B&B............................................... 28,512 14,745 5,007
------- ------- -------
$38,777 $22,938 $ 4,875
======= ======= =======
Year Ended December 31, 1997
Kruse............................................. $ 7,520 $ 5,895 $ (237)
B&B............................................... 28,106 13,577 6,424
------- ------- -------
$35,626 $19,472 $ 6,187
======= ======= =======
Year Ended December 31, 1996
Kruse............................................. $ 7,760 $ 6,024 $ (69)
B&B............................................... 23,919 12,699 3,259
------- ------- -------
$31,679 $18,723 $ 3,190
======= ======= =======
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2. Merger Transaction Costs
eBay and the Acquired Entities incurred direct transaction costs of
approximately $4.3 million associated with the mergers, including $1.5
million for legal and other professional consulting fees and $2.8 million for
various fees including those associated with the termination of B&B's initial
public offering, which will be charged to operations during the quarter ended
June 30, 1999, the period in which the transactions were consummated. There
can be no assurance that eBay will not incur additional charges in subsequent
quarters to reflect costs associated with the mergers or that management will
be successful in their efforts to integrate the operations of the respective
companies. This charge is an estimate and is subject to change.
3. Income Taxes
The provision for income taxes does not reflect the benefit of Billpoint's
net operating losses due to certain limitations and uncertainty surrounding
the realization of the tax benefits associated with such losses. Because the
acquisition of the B&B entities has been accounted for as a pooling of
interests, there has been no adjustment to the historical carrying values of
real estate holdings. However, these properties are subject to increases in
tax basis, which will result in a higher depreciable basis for income and
property tax purposes.
In connection with the acquisition of B&B by eBay, B&B's status as an S
Corporation was terminated, and B&B became subject to federal and state
income taxes. The supplemental pro forma information includes an increase to
the provisions for income taxes based upon a combined federal and state tax
rate of 42%, which approximates the statutory tax rates that would have
applied if B&B had been taxed as a C corporation during the periods prior to
its acquisition by eBay.
4. Pro Forma Adjustments
The following pro forma adjustments have been made to the historical
financial statements of eBay and the Acquired Entities based upon preliminary
estimates and assumptions made by management for the purpose of preparing the
unaudited pro forma combined condensed financial statements. There have been
no significant intercompany transactions.
(A) To record the accrual of estimated costs resulting from the mergers. See
Note 2 above.
(B) A portion of the B&B acquisition was a taxable transaction, accordingly,
a deferred tax asset and a corresponding increase in stockholders equity
of approximately $8,753,000 was recorded for the difference between the
financial statement carrying amounts and tax basis of the related net
assets upon the closing of the transaction.
(C) To record the deferred tax asset relating to temporary differences
within the B&B Group Companies upon the change in status from an
S Corporation to a C Corporation for federal income tax purposes.
5. Pro Forma Net Income (Loss) Per Share
The pro forma combined basic and diluted net income (loss) per share is based
on the combined weighted average number of common shares of eBay Common Stock
and the Acquired Entities' Common Stock outstanding for each period using the
relevant exchange ratios based on the issuance of approximately 2,638,800
shares of eBay Common Stock for all of the outstanding shares of the Acquired
Entities as of their respective acquisition dates. All convertible preferred
stock, warrants and employee stock options have been included in the
computation of pro forma combined diluted net income per share using the
treasury stock method to the extent such instruments are dilutive for the
periods presented.
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(c) Exhibits.
The following exhibits are filed herewith:
2.1* Agreement and Plan of Merger and Reorganization, dated as of May 17, 1999,
among eBay Inc., Sesame Corporation No. 1, Sesame Corporation No. 2,
Sesame Corporation No. 3, Sesame Corporation No. 4, Sesame Corporation No.
5, Kruse, Inc. (d/b/a Kruse International), Auburn Cordage, Inc., ACD Auto
Sales, Inc., Reppert School of Auctioneering, Inc., Classic Advertising &
Promotions, Inc., Dean V. Kruse and Mitchell Kruse.
2.2* Agreement and Plan of Merger and Reorganization, dated as of April 23,
1999, among eBay Inc., Margarine Acquisition Sub Corp., Butterfield &
Butterfield Auctioneers Corporation, the stockholders of Butterfield &
Butterfield Auctioneers Corporation, 111 Potrero Partners, LLC, HBJ
Partners, LLC and the members of 111 Potrero Partners, LLC and HBJ
Partners, LLC.
2.3* Agreement and Plan of Merger and Reorganization, dated as of May 18, 1999,
among eBay Inc., Brazil Acquisition Corp. and Billpoint, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
99.1 Kruse International Group of Companies Audited Combined Financial
Statements.
99.2 Billpoint, Inc. Audited Financial Statements.
99.3 Butterfield & Butterfield Group of Companies Audited Combined Financial
Statements.
____________
* - Previously filed.
-14-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
eBAY INC.
Date: July 26, 1999 By: /s/ Gary F. Bengier
-------------------
Gary F. Bengier
Chief Financial Officer and
Vice President of Operations
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