Yahoo 2005 Annual Report Download - page 83

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upon the conversion of Alibaba’s outstanding convertible debt and exercises of Alibaba’s employee stock
options. In allocating the excess of the carrying value of its investment in Alibaba over its proportionate
share of the net assets of Alibaba, the Company allocated a portion of the excess to goodwill to account for
the estimated reductions in the carrying value of the investment in Alibaba that may occur as the
Company’s equity interest is diluted from approximately 46 percent to 40 percent.
The difference between the Company’s carrying value of its investment in Alibaba and its proportionate
share of the net assets of Alibaba is summarized as follows (in thousands):
Carrying value of investment in Alibaba $ 1,408,716
Proportionate share of net assets of Alibaba 894,596
Excess of carrying value of investment over proportionate share of net assets $ 514,120
The excess carrying value has been primarily assigned to:
Goodwill $ 430,590
Amortizable intangible assets 86,737
Deferred income taxes (3,207)
Total $ 514,120
The amortizable intangible assets have useful lives not exceeding seven years and a weighted average
useful life of approximately 5 years. No amount has been allocated to in-process research and
development. The preliminary allocation is subject to revision as more detailed analysis is completed and
additional information on the assets and liabilities of Alibaba as of the closing date becomes available.
Any change in the net assets of Alibaba will change the amount of the purchase price allocable to goodwill.
Goodwill is not deductible for tax purposes.
The investment in Alibaba is being accounted for using the equity method and the total investment,
including net tangible assets, identifiable intangible assets and goodwill are classified as part of the
Investment in equity interests balance on the consolidated balance sheets. The Company will record its
share of the results of Alibaba and any related amortization expense, one quarter in arrears within
earnings in equity interests. Following the acquisition date, Yahoo! China has not been included in the
Company’s consolidated results but will be included within earnings in equity interests to the extent of the
Company’s continued ownership interest in Alibaba, commencing in the first quarter of 2006. The
revenues and operating income of Yahoo! China were not material to the consolidated results of the
Company for the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to
October 23, 2005, the date of the divestiture of Yahoo! China. In connection with the transaction, the
Company also recorded a non-cash gain of $338 million in other income, net based on the difference
between the fair value of Yahoo! China and its carrying value adjusted for the Company’s continued
ownership in the newly combined entity. As described above, the Company’s interest in Alibaba may be
diluted from approximately 46 percent to 40 percent. The Company will recognize further non-cash gains
as such dilution occurs.
Equity Investment in Yahoo! Japan. During April 1996, the Company signed a joint venture agreement
with SOFTBANK, which was amended in September 1997, whereby Yahoo! Japan Corporation (“Yahoo!
Japan”) was formed. Yahoo! Japan was formed to establish and manage a local version of Yahoo! in
Japan. The Company also has commercial arrangements with Yahoo! Japan, consisting of services,
including algorithmic search services and sponsored search services and the related traffic acquisition costs
and license fees. Due to the acquisition of Overture, traffic acquisition costs have increased resulting in
the net cost of these arrangements of approximately $67 million and $171 million for the years ended
December 31, 2004 and 2005, respectively, compared to net revenues of $9 million for the year ended
December 31, 2003. In the second quarter of 2005, the Company received a cash dividend in the amount