Yahoo 2012 Annual Report Download - page 102

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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, 2011 and
2012, the Company’s ownership interest in Alibaba Group was approximately 42 percent and 24 percent,
respectively.
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’s accounting policy is to record 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. As of December 31, 2012, Alibaba Group’s common shareholders’ equity is a net deficit as a result of
the repurchase of its ordinary shares from the Company at fair value, which was significantly in excess of the
book value per share. The Company’s remaining investment balance represents excess cost largely attributable to
goodwill.
Framework Agreement with Alibaba Group regarding Alipay. Alibaba Group restructured the ownership of
Alipay.com Co., Ltd. (“Alipay”) and deconsolidated Alipay in the first quarter of 2011. The impact of the
deconsolidation of Alipay was not material to the Company’s financial statements. On July 29, 2011, the
Company entered into a Framework Agreement (the “Framework Agreement”) with Alibaba Group, Softbank,
Alipay, APN Ltd., a company organized under the laws of the Cayman Islands (“IPCo”), Zhejiang Alibaba E-
Commerce Co., Ltd., a limited liability company organized under the laws of the People’s Republic of China
(“HoldCo”), Jack Ma Yun, Joseph C. Tsai and certain security holders of Alipay or HoldCo as joinder parties.
The Framework Agreement establishes the ongoing financial and other arrangements between Alibaba Group
and Alipay. The transactions under the Framework Agreement closed on December 14, 2011.
Pursuant to the terms of the Framework Agreement: (1) Alibaba Group will receive certain payments (“Liquidity
Event Payment”) upon a liquidity event related to Alipay, such as an initial public offering or sale of Alipay;
(2) Alibaba Group received a non-interest bearing promissory note in the principal amount of $500 million with a
seven year maturity (the “IPCo Promissory Note”); (3) upon payment in full of the Liquidity Event Payment
certain assets used in the Alipay business that were retained by Alibaba Group will be transferred to Alipay;
(4) Alibaba Group and Alipay entered into a long-term agreement pursuant to which Alibaba Group will receive
payment processing services on preferential terms from Alipay and its subsidiaries; and (5) Alibaba Group
licensed to Alipay certain intellectual property and technology and performs certain software technology services
for Alipay and in return Alipay pays to Alibaba Group a royalty and software technology services fee.
The royalty and software technology services fee and the payment processing services fees discussed above
approximate the estimated fair values of such services and are recognized in Alibaba Group’s financial
statements as income or expense, as applicable, as the services are rendered. The Company will record its share,
if any, of the results of these transactions as they are recorded by Alibaba Group within Yahoo!’s earnings in
equity interests in the consolidated statements of income. Alibaba Group will recognize the Liquidity Event
Payment, the payment of the IPCo Promissory Note, and any impact from the transfer of assets, described above,
if and when such payments or transfers occur. The Company will record its share, if any, of the results of these
transactions as they are recorded by Alibaba Group within the Company’s earnings in equity interests in the
consolidated statements of income.
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