Yahoo 2008 Annual Report Download - page 84

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Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
combined its search capabilities with Alibaba Group’s leading online marketplace and online payment system
and Alibaba Group’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 Group’s net tangible and
intangible assets acquired resulting in goodwill.
The investment in Alibaba Group 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 Group and any related amortization expense, one quarter in arrears, within earnings in equity interests in
the consolidated statements of income.
The Company’s initial purchase price was based on acquiring a 40 percent equity interest in Alibaba Group on a
fully diluted basis; however, the Company acquired a 46 percent interest based on outstanding shares. In
allocating the initial excess of the carrying value of the investment in Alibaba Group over its proportionate share
of the net assets of Alibaba Group, 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 of December 31, 2008, the Company’s ownership interest in Alibaba Group was approximately 44 percent
compared to 43 percent as of December 31, 2007. The 1 percent increase is due to an increase in ownership
interest resulting from the exchange of certain Alibaba Group shares previously held by employees for shares in
Alibaba.com Limited, the business-to-business e-commerce subsidiary of Alibaba Group, (“Alibaba.com”),
partly offset by a decrease in ownership interest resulting from the exercise of Alibaba Group’s employee stock
options.
In the initial public offering (“IPO”) of Alibaba.com on November 6, 2007, Alibaba Group sold an approximate
27 percent interest in Alibaba.com through the issuance of new Alibaba.com shares, the sale of previously held
shares in Alibaba.com, and the exchange of certain Alibaba Group shares previously held by Alibaba Group
employees for shares in Alibaba.com, resulting in a gain on disposal of interests in Alibaba.com. Accordingly, in
the first quarter of 2008, the Company recorded a non-cash gain of $401 million, net of tax, within earnings in
equity interests representing the Company’s share of Alibaba Group’s gain.
The Company also recognizes non-cash gains when dilution to its ownership interest in Alibaba Group occurs as
these reductions in ownership interest are treated as incremental sales of additional equity interests in Yahoo!
China. The Company recorded non-cash gains of approximately $15 million and $8 million, respectively, during
the years ended December 31, 2006 and 2007 as a result of the conversion of Alibaba Group’s outstanding
convertible debt in April 2006 and the exercise of Alibaba Group’s employee stock options described above.
These gains were recorded in other income, net, to account for an approximate 3 percent reduction in the
Company’s ownership interest in Alibaba Group from 46 percent to 44 percent in 2006, and from 44 percent to
43 percent in 2007. Non-cash gains were not recognized in 2008 as the Company’s ownership interest in Alibaba
Group increased by 1 percent as described above.
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