Yahoo 2011 Annual Report Download - page 83

The Company’s business combinations completed in 2011 did not have a material impact on the Company’s
consolidated financial statements, and therefore pro forma disclosures have not been presented.
Note 4 I NVESTMENTS I N E QUITY I NTERESTS
As of December 31, investments in equity interests consisted of the following (dollars in thousands):
2010 2011
Percent
Ownership
Alibaba Group ............................................... $2,280,602 $2,521,825 42%
Yahoo Japan ................................................ 1,731,287 2,219,946 35%
Other ...................................................... — 7,273 35%
Total ................................................... $4,011,889 $4,749,044
Equity Investment in Alibaba Group. On October 23, 2005, the Company acquired approximately 46 percent of
the outstanding common stock of Alibaba Group Holding Limited (“Alibaba Group”), 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 Network Software Company Limited (“Yahoo! China”), and
direct transaction costs of $8 million. Another investor in Alibaba Group is Softbank Corp., a Japanese
corporation (“Softbank”). Alibaba Group is a privately-held company. Through its investment in Alibaba Group,
the Company 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. As discussed below, following a restructuring in the
ownership of Alibaba Group’s online payment system business, Alipay.com Co., Ltd. (“Alipay”), and the
termination of certain control agreements, Alipay was deconsolidated from Alibaba Group in the first quarter of
2011. Alibaba Group continues to receive payment processing services on preferential terms from Alipay and its
subsidiaries in accordance with a long-term agreement. See “Framework Agreement with Alibaba Group
regarding Alipay” below.
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 recorded a dilution gain of $25 million, net of tax of $15
million, in earnings in equity interests related to the dilution of the Company’s ownership interest in Alibaba
Group primarily as a result of option exercises and the sale of stock to Alibaba Group employees during its
quarter ended June 30, 2011 at an average price higher than the Company’s invested cost per share.
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 based on specific events anticipated at the time. As of December 31, 2010 and
2011, the Company’s ownership interest in Alibaba Group was approximately 43 percent and 42 percent,
respectively.
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