Yahoo 2007 Annual Report Download - page 84

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Prior to and during 2001, Yahoo! Japan acquired the Company’s equity interests in certain entities in Japan for total
consideration of approximately $65 million, paid partially in shares of Yahoo! Japan common stock and partially in
cash. As a result of the acquisition, the Company increased its investment in Yahoo! Japan, which resulted in
approximately $41 million of goodwill to be amortized over seven years. The amortization ceased upon the
adoption of SFAS 142 on January 1, 2002. The carrying amount of the Company’s investment in Yahoo! Japan
differs from the amount of the underlying equity in net assets of Yahoo! Japan primarily as a result of this goodwill.
Relating to its investment in Yahoo! Japan, as of December 31, 2006 and 2007, the Company has recorded
$436 million and $589 million, respectively, as its share of gains since acquiring its equity interest, net of tax, in
retained earnings.
The following table presents Yahoo! Japan’s financial information, as derived from the Yahoo! Japan financial
statements for the 12 months ended September 30, 2005, 2006, and 2007 and as of September 30, 2006 and 2007 (in
thousands):
2005 2006 2007
Twelve Months Ended September 30,
Operating data:
(*)
Revenues ................................... $1,367,247 $1,671,154 $1,933,114
Gross profit ................................. $1,251,599 $1,584,433 $1,836,169
Income from operations ........................ $ 656,167 $ 806,718 $ 983,844
Net income ................................. $ 382,287 $ 451,377 $ 507,850
2006 2007
September 30,
Balance sheet data:
Current assets .......................................... $ 731,757 $1,131,234
Long-term assets ........................................ $1,691,508 $1,783,430
Current liabilities ........................................ $ 535,232 $ 692,337
Long-term liabilities . . . ................................... $ 509,187 $ 347,995
(*)
The Company records its share of the results of Yahoo! Japan one quarter in arrears within earnings in equity interests in the
consolidated statements of income.
The differences between generally accepted accounting principles in the United States and Japan did not materially
impact the amounts reflected in the Company’s financial statements.
During the year ended December 31, 2007, the Company completed the sale of Overture Japan to Yahoo! Japan for
cash consideration of approximately $19 million. The transaction was accounted for as a sale of assets. In
connection with the transaction, in the third quarter of 2007, the Company recorded a pre-tax gain of $6 million in
other income, net. The Company also entered into a commercial arrangement with Yahoo! Japan in which the
Company provides advertising and search marketing services to Yahoo! Japan for a service fee. This arrangement
commenced on September 1, 2007 and accordingly, the Company no longer recognizes marketing services revenue
and traffic acquisition costs for the delivery of sponsored search results and payments to Affiliates in Japan as
Yahoo! Japan is responsible for the fulfillment of all advertiser and Affiliate services. Under this arrangement, the
Company records marketing services revenue from Yahoo! Japan for the provision of search marketing services
based on a percentage of advertising revenues earned by Yahoo! Japan for the delivery of sponsored search results.
The Company recognized $51 million of revenue under this arrangement in the year ended December 31, 2007.
82
Yahoo! Inc.
Notes to Consolidated Financial Statements — (Continued)