Yahoo 1997 Annual Report Download - page 25

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NOTE 3 Re late d Party Tran s action s
During 1997 and 1996, the Company recognized net revenue s of a p p roxim a t e ly $3,120,000 a n d $2,381,000,
respectively, on a d ve rtising con t ra ct s a n d p u b lica t ion , d e ve lop m e n t , a n d lice n s in g a rra n g e m e n t s w it h
SOFTBANK and its relate d com p a n ie s , a h old e r of a p p roxim a t e ly 31% of t h e Com p a n y’s Com m on St ock a t
December 31, 1997. Prices on these contracts w ere comparable to those g ive n t o ot h e r m a jor cu s t om e rs of
the Company. Ad d it ion a lly, t h re e SOFTBANK-related companies provided Interne t a cce s s a n d s a le s a n d
marketing-related services for fe e s of a p p roxim a t e ly $3,190,000, $2,300,000, a n d $177,000 d u rin g 1997, 1996,
and 1995, respectively. Se q u oia Ca p it a l, a h old e r of a p p roxim a t e ly 9% of t h e Com p a n y’s Com m on St ock a t
December 31, 1997, w as also an investor in one of these SOFTBANK-re la t e d com p a n ie s . Th e a m ou n t d u e for
these services totaled approxima t e ly $1,046,000 a n d $896,000 a t De ce m b e r 31, 1997 a n d 1996, re s p e ct ive ly.
NOTE 4 Acquis ition s an d In v estm e nts
Acquis ition of Ne tCon trols . On July 31, 1997, the Company entered into a s t ock p u rch a s e a g re e m e n t t o
acquire all of the outstanding capital stock of Ne t Controls, Inc. for 37,167 sha re s of t h e Com p a n y’s Com m on
Stock. The acquisition w as re corded as a purchase for accounting purposes a n d t h e m a jorit y of t h e p u rch a s e
price of approximately $1,400,000 w ill be amort ize d ove r the three year estimate d u s e fu l life of t h e t e ch n olog y
acquired. Upon acquisition, the historical financial re s u lt s of Ne t Con t rols , In c. w ere de minimis.
Acquis ition of Four11. On Oct ob e r 20, 1997, t h e Com p a n y com p le t e d t h e a cq u is it ion of Fou r11 Corp ora t ion ,
a privately-held online communications and Inte rn e t d ire ct ory com p a n y. Un d e r t h e t e rm s of t h e a cq u is it ion ,
w hich w a s a ccou n t e d for a s a p oolin g of in t e re s t s , t h e Com p a ny exchanged 1,505,720 shares of Yahoo!
Com m on St ock for a ll of Fou r11’s ou t s t a n d in g s h a re s a nd assumed 148,336 options and w arrants to purchase
Yahoo! Com m on St ock. All ou t s t a n d in g Fou r11 p re fe rre d shares w ere convert e d in t o Fou r11 com m on s t ock
immediately prior to the acquisition. During the quarter ended De ce m b e r 31, 1997, t h e Com p a n y re cord e d a
one-time charge of $3,850,000 for acquisition-relate d cos t s . Th e s e cos t s con s is t e d of in ve s t m e n t b a n kin g fe e s ,
legal and accounting fees, redunda n cy cos t s , a n d ce rtain ot h e r e xp e n s e s d ire ct ly re la t e d t o t h e a cq u is it ion .
Inves tm ent in AudioNe t. On De ce mber 30, 1997, the Company invested $1,350,000 in cash for a le s s t h a n
20% equity position in AudioNet, Inc., a provider of Internet broadca s t in g s e rvice s . Th e Com p a n y p u rch a s e d
79,618 shares of AudioNet common stock for a total of $750,000 and a w arrant to purchase 159,236 sha re s
of AudioNet common stock at an exercise price of $9.42 pe r s h a re for $600,000. Th e in ve s t m e n t is b e in g
accounted for under the cost method.
Inves tm ent in Ge oCitie s. On De ce mber 31, 1997, the Company issued 78,079 shares of Yahoo! Common
Stock for a less than 20% equity position in GeoCities, a provider of fre e p e rs on a l We b p a g e s. In return, the
Com p a ny received 336,684 shares of GeoCities Serie s E p re fe rre d s t ock. Th e in ve s t m e n t , a g g re g a t in g
$5,100,000, is being accounted for under the cost method.
NOTE 5 Join t Ve n ture s
Yahoo! Japan . Du rin g Ap ril 1996, t h e Com p a n y s ig n e d a join t ve n t u re a g re e m e n t w it h SOFTBANK, a holder
of approximately 31% of the Company’s Com m on St ock a t De ce m b e r 31, 1997, w h e re b y Ya h oo! J a p a n
Corp ora tion w as form e d t o e s t a blish and manage in Japan a Ja p a n e s e ve rs ion of t h e Ya h oo! In t e rn e t Gu id e ,
develop related Japane s e on lin e n a vig a t ion a l s e rvice s , a n d con d u ct ot h e r re la t e d b u s in e s s . Th e Com p a n y’s
ow ners h ip in t e re s t in t h e joint venture upon inception w as 40%. At December 31, 1996, the Company’s
investment in the joint venture w as $729,000. In September 1997, the Company investe d a n a d d it ion a l
$299,000 in the joint venture. During November 1997, Yahoo! Japan Corporation completed its initia l p u b lic
offering, issuing 975 previously unissued shares and raising tota l p roce e d s of a p p roxim a t e ly $5,500,000.
Accordingly, t h e Com p a n y in cre a s e d it s in ve s t m e n t b y $1,700,000, re cord e d a s a d d it ion a l p a id -in ca p it a l, t o
reflect the increase in the Company’s share of Yahoo! Japan Corporation’s net asse t s . Th e in ve s t m e n t is b e in g
accounted for using the equity method. At Decembe r 31, 1997, t h e fa ir va lu e of t h e Com p a n y’s 34% ow nership
in Yahoo! J a p a n, based on the quoted trading price, w as approximately $53,000,000.
Yahoo! Europe . On Nove m b e r 1, 1996, t h e Com p a n y s ig n e d a joint venture agreement w ith a subsidiary of
SOFTBANK, a holder of approxima t e ly 31% of t h e Com p a n y’s Common Stock at De ce m b e r 31, 1997, w here b y
separate companies w ere formed in Germany, t h e Un it e d Kin g d om , a n d Fra n ce (“Ya h oo! Eu rop e ”) t o e s t a b lis h
and manage versions of the Yahoo! Internet Guide for Ge rm a n y, t h e Un it e d Kin g d om , a nd Fra nce, develop
related online navigational se rvice s , a n d con d u ct ot h e r re la t e d b u s in e s s . Th e p a rties a g re e d t o in ve s t a t ot a l
of up to $4,000,000 in proport ion t o t h e ir re s p e ct ive equity interests, and had invested $2,000,000 a s of
December 31, 1996 and the entire $4,000,000 a s of De ce m b e r 31, 1997. Th e Com p a n y h a s a m a jorit y s h a re of
approximately 70% in each of the Yahoo! Europe entities, a n d t h e re fore h a s con s olid a t e d t h e ir fin a n cia l
results. During 1997 and 1996, Yahoo! Europe incurred losses from operations of $1,807,000 and $842,000,
respectively. SOFTBANK’s interest in the net a s s e t s of Yahoo! Europe a t De ce m b e r 31, 1997 a n d 1996, a s
represented by the minority interest on the b a la n ce s h e e t , w a s $405,000 a n d $347,000, re s p e ct ive ly.
Yahoo! Kore a. Du rin g Au g u s t 1997, t h e Com p a n y s ig n e d a join t ve n t u re a g re e m e n t w it h SOFTBANK a n d
other SOFTBANK affilia t e com p a n ie s w he re b y Yahoo! Kore a w a s form e d t o d e ve lop a n d op e ra t e a Kore a n
version of the Yahoo! Internet Guide, develop relate d Kore a n on lin e n a vig a t ion a l s e rvice s , a n d con d u ct ot h e r
related business. The parties have investe d a t ot a l of $999,000 in p rop ortion to the ir re s p e ct ive e q u it y
interests. The Company has a majority share of a p p roxim a t e ly 60% in t h e join t ve n t u re , a n d t h e re fore , h a s
consolidated the financial results, w hich w ere insignificant for the year ended Dece m b e r 31, 1997.
Yahoo! Marke tplace . On Au g u s t 26, 1996, t h e Com p a n y e n t e re d in t o a g re e m e n t s w it h Visa In t e rn a t ion a l
Service Association (“VISA”) and anothe r p a rty (togethe r, t h e “Visa Group”) to establish a limite d lia b ilit y
company, Ya h oo! Ma rke t p la ce L.L.C., t o d e ve lop a n d op e ra t e a n a vig a t ion a l s e rvice focu s e d on in form a t ion
and resources for the purchase of consumer products a n d s e rvice s ove r t h e In t e rn e t . As of De ce m b e r 31,
1996, the part ie s h a d invested a total of $1,000,000. At December 31, 1996, the Compa n y ow ned approximate -
ly 55% of the equity interest in Yahoo! Marketplace. Yahoo! Marketplace incurred sta rt-up losses of $246,000