Yahoo 2008 Annual Report Download - page 86

Yahoo! Inc.
Notes to Consolidated Financial Statements—(Continued)
Since acquiring its interest in Alibaba Group, the Company has recorded, in retained earnings, cumulative losses
in equity interests of $60 million as of December 31, 2007, and cumulative earnings in equity interests of $333
million as of December 31, 2008.
The Company also has commercial arrangements with Alibaba Group to provide technical, development, and
advertising services. For the years ended December 31, 2007 and 2008, respectively, these transactions were not
material.
Equity Investment in Alibaba.com Limited. As part of the IPO of Alibaba.com, the Company purchased an
approximate 1 percent interest in the common stock of Alibaba.com. This investment is accounted for using the
equity method, consistent with the Company’s investment in Alibaba Group, which holds the controlling interest
in Alibaba.com. In 2008, the Company recorded an impairment charge of $30 million, net of tax, within earnings
in equity interests to reduce the carrying value of the investment to fair value. As of December 31, 2008, the fair
value of the Company’s investment based on the quoted stock price of Alibaba.com was approximately $41
million. The deficiency between the fair value of the investment and the carrying value of $52 million as of
December 31, 2008 is not indicative of a loss in value that is considered other-than-temporary.
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 fair
value of the Company’s approximate 34 percent ownership in the common stock of Yahoo! Japan, based on the
quoted stock price, was approximately $8 billion as of December 31, 2008.
The investment in Yahoo! Japan 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 the investments in
equity interests balance on the Company’s consolidated balance sheets. The Company records its share of the
results of Yahoo! Japan and any related amortization expense, one quarter in arrears, within earnings in equity
interests in the consolidated statements of income.
The Company’s ownership interest in Yahoo! Japan fluctuated in 2008 primarily due to share repurchases that
were undertaken by Yahoo! Japan on the open market. The Company’s proportionate share of Yahoo! Japan’s
share repurchase amount in excess of its book value was approximately $151 million and has been primarily
allocated to goodwill. 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 value 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. Goodwill is not deductible for tax purposes.
During the years ended December 31, 2006, 2007 and 2008, the Company received cash dividends from Yahoo!
Japan in the amounts of $13 million, $15 million, and $19 million, net of tax, respectively, which were recorded
as reductions in the Company’s investment in Yahoo! Japan.
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