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Note 4 INVESTMENTS IN EQUITY INTERESTS
As of December 31, Investments in equity interests consisted of the following (dollars in thousands):
2005 2006
Percent
Ownership
Alibaba ....................................... $1,408,716 $1,411,651 44%
Yahoo! Japan ................................... 349,685 476,870 34%
Other ......................................... — 3,313
Total........................................ $1,758,401 $1,891,834
Equity Investment in Alibaba. On October 23, 2005, the Company acquired approximately 46 percent of the
outstanding common stock of Alibaba, which represented approximately 40 percent on a fully diluted basis, in
exchange for $1.0 billion in cash, the contribution of the Company’s China based businesses, including 3721
(“Yahoo! China”) and direct transaction costs of $8 million. Pursuant to the terms of a shareholder agreement, the
Company has an approximate 35 percent voting interest in Alibaba, with the remainder of its voting rights subject to
a voting agreement with Alibaba management. Other investors in Alibaba include SOFTBANK. 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, is classified as part of investments in equity interests on the Company’s
consolidated balance sheets. The Company records its share of the results of Alibaba and any related amortization
expense, one quarter in arrears, within earnings in equity interests on the consolidated statements of income.
Through this transaction, the Company has combined its leading search capabilities with Alibaba’s leading online
marketplace and online payment system and Alibaba’s strong local presence, expertise and vision in the China
market. These factors contributed to a purchase price in excess of the Company’s share of the fair value of Alibaba’s
net tangible and intangible assets acquired resulting in goodwill.
The purchase price was based on acquiring a 40 percent equity interest in Alibaba on a fully diluted basis. As of
December 31, 2006, the Company’s ownership interest in Alibaba was 44 percent, an approximate 2 percent
decrease from the initial investment, primarily as a result of the conversion of Alibaba’s outstanding convertible
debt in April 2006. The Company’s ownership interest in Alibaba may be further diluted to 40 percent upon exercise
of Alibaba’s employee stock options. The Company will recognize non-cash gains if and when such further dilution
to its ownership interest in Alibaba occurs, as such reduction in interest results in an incremental sale of Yahoo!
China. 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 to 40 percent. As a result, the reduction in ownership interest of 2 percent upon the conversion of Alibaba’s
outstanding convertible debt did not result in any impact on the consolidated statements of income other than for the
non-cash gain related to such reduction being treated as an incremental sale of Yahoo! China as discussed below.
75
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)