Yahoo 2006 Annual Report Download - page 86

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As of December 31, 2006, 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 .................................... $1,411,651
Proportionate share of net assets of Alibaba
(*)
............................... 927,651
Excess of carrying value of investment over proportionate share of net assets ...... $ 484,000
The excess carrying value has been primarily assigned to:
Goodwill . ........................................................ $ 415,616
Amortizable intangible assets .......................................... 70,597
Deferred income taxes ............................................... (2,213)
Total . . ........................................................ $ 484,000
(*)
The majority of assets are comprised primarily of goodwill and intangible assets.
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. Goodwill is not
deductible for tax purposes.
Following the acquisition date, Yahoo! China has not been included in the Company’s consolidated results but is
included within earnings in equity interests to the extent of the Company’s continued ownership interest in Alibaba.
The results of operations of Yahoo! China were not material to the consolidated results of the Company for the year
ended December 31, 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, in the fourth quarter of 2005, the Company 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 a result of the conversion of Alibaba’s outstanding convertible debt described above, the Company recorded a
non-cash gain during the year ended December 31, 2006 of approximately $15 million in other income, net to
account for an approximate 2 percent reduction in the Company’s ownership interest in Alibaba from 46 percent to
44 percent, which was treated as an incremental sale of additional equity interests in Yahoo! China.
As of December 31, 2006, the Company had losses of $34 million, net of tax (including $24 million, net of tax,
related to amortization of intangible assets) included in retained earnings relating to its investment in Alibaba.
The Company also has commercial arrangements with Alibaba to provide technical, development, and advertising
services. For the year ended December 31, 2006, these transactions were not material.
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. During the years ended December 31, 2005 and 2006, the
Company received cash dividends from Yahoo! Japan in the amounts of $11 million and $13 million, respectively,
which were recorded as reductions in the Company’s investment in Yahoo! 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. The net cost of these
arrangements was approximately $67 million, $171 million and $246 million for the years ended December 31,
2004, 2005 and 2006, respectively. As of December 31, 2005 and 2006, the Company has a net payable balance to
Yahoo! Japan of approximately $7 million and $10 million, respectively.
The investment in Yahoo! Japan is being accounted for using the equity method and the total investment is classified
as part of the Investments in equity interests balance on the consolidated balance sheets. The Company records its
76
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)