Yahoo 2011 Annual Report Download - page 113

As of December 31, restructuring accruals by segment consisted of the following (in thousands):
2010 2011
Americas .................................................................. $68,268 $41,199
EMEA .................................................................... 16,895 6,948
Asia Pacific ................................................................ 1,939 980
Total restructuring accruals ................................................ $87,102 $49,127
Note 16 S EARCH A GREEMENT W ITH M ICROSOFT C ORPORATION
On December 4, 2009, the Company entered into the Search Agreement with Microsoft, which provides for
Microsoft to be the exclusive algorithmic and paid search services provider on Yahoo! Properties and
non-exclusive provider of such services on Affiliate sites. The Company also entered into a License Agreement
with Microsoft. Under the License Agreement, Microsoft acquired an exclusive 10-year license to the
Company’s core search technology and will have the ability to integrate this technology into its existing Web
search platforms. The Company received regulatory clearance from both the U.S. Department of Justice and the
European Commission on February 18, 2010 and commenced implementation of the Search Agreement on
February 23, 2010. Under the Search Agreement, the Company will be the exclusive worldwide relationship
sales force for both companies’ premium search advertisers, which include advertisers meeting certain spending
or other criteria, advertising agencies that specialize in or offer search engine marketing services and their clients,
and resellers and their clients seeking assistance with their paid search accounts. The term of the Search
Agreement is 10 years from February 23, 2010, subject to earlier termination as provided in the Search
Agreement.
During the first five years of the term of the Search Agreement, in the transitioned markets the Company is
entitled to receive 88 percent of the revenue generated from Microsoft’s services on Yahoo! Properties (the
“Revenue Share Rate”) and the Company is also entitled to receive 88 percent of the revenue generated from
Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue. For new Affiliates during the term of
the Search Agreement, and for all Affiliates after the first five years of such term, the Company will receive 88
percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of revenue
and certain Microsoft costs are deducted. On the fifth anniversary of the date of implementation of the Search
Agreement, Microsoft will have the option to terminate the Company’s sales exclusivity for premium search
advertisers. If Microsoft exercises its option, the Revenue Share Rate will increase to 93 percent for the
remainder of the term of the Search Agreement, unless the Company exercises its option to retain the Company’s
sales exclusivity, in which case the Revenue Share Rate would be reduced to 83 percent for the remainder of the
term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90 percent for the remainder of
the term of the Search Agreement. In the transitioned markets, the Company reports as revenue the 88 percent
revenue share as the Company is not the primary obligor in the arrangement with the advertisers and
publishers. The underlying search advertising services are provided by Microsoft.
As of December 31, 2010 and December 31, 2011, the Company had collected a total amount of $93 million and
$66 million, respectively, on behalf of Microsoft and Affiliates, which was included in cash and cash equivalents
as of December 31, 2010 and December 31, 2011, respectively, with a corresponding liability in accrued
expenses and other current liabilities. The Company remitted the $93 million to Microsoft in the first quarter of
2011 and the $66 million in the first quarter of 2012. The Company’s uncollected 88 percent share in connection
with the Search Agreement was $172 million and $203 million, which is included in accounts receivable, net, as
of December 31, 2010 and December 31, 2011, respectively.
The Company completed the transition of its algorithmic and paid search platforms to the Microsoft platform in
the U.S. and Canada in the fourth quarter of 2010. In 2011, the Company completed the transition of algorithmic
search in all other markets and the transition of paid search in India. The market-by-market transition of the
Company’s paid search platform to Microsoft’s platform and the migration of paid search advertisers and
publishers to Microsoft’s platform are expected to continue through the first half of 2013.
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