Yahoo 2011 Annual Report Download - page 114

Under the Search Agreement, for each market, Microsoft generally guarantees Yahoo!’s revenue per search
(“RPS Guarantee”) on Yahoo! Properties only for 18 months after the transition of paid search services to
Microsoft’s platform in that market. In the fourth quarter of 2011, Microsoft agreed to extend the RPS Guarantee
in the U.S. and Canada through March 2013. The RPS Guarantee is calculated based on the difference in revenue
per search between the pre-transition and post-transition periods. The Company records the RPS Guarantee as
search revenue in the quarter the amount becomes fixed, which would typically be the quarter in which the
associated shortfall in revenue per search occurred.
From February 23, 2010 until the applicable services are fully transitioned to Microsoft in all markets, Microsoft
will also reimburse the Company for the costs of operating algorithmic and paid search services subject to
specified exclusions and limitations. The Company’s results for the years ended December 31, 2010 and
December 31, 2011 reflect $268 million and $212 million, respectively, in search operating cost reimbursements
from Microsoft under the Search Agreement. Search operating cost reimbursements began during the quarter
ended March 31, 2010 and will, subject to specified exclusions and limitations, continue until the Company has
fully transitioned to Microsoft’s platform.
The Company’s results for the year ended December 31, 2010 also reflect transition cost reimbursements from
Microsoft under the Search Agreement, which were equal to the transition costs of $81 million incurred by Yahoo!
related to the Search Agreement in the year ended December 31, 2010. In addition, in the year ended December 31,
2010, $43 million was recorded for reimbursement of transition costs incurred in 2009. The 2009 transition cost
reimbursements were recorded in 2010 after regulatory clearance in the U.S. and Europe was received, implementation
of the Search Agreement commenced, and Microsoft became obligated to make such payments. The Company’s
results for the year ended December 31, 2011 reflect transition cost reimbursements from Microsoft under the Search
Agreement, which were equal to the transition costs of $26 million incurred by Yahoo! related to the Search
Agreement in the year ended December 31, 2011. During the third quarter of 2011, the Company’s cumulative
transition costs exceeded Microsoft’s $150 million reimbursement cap under the Search Agreement. Transition costs
the Company incurs in excess of the $150 million reimbursement cap are not subject to reimbursement.
In the year ended December 31, 2010, $17 million was recorded for reimbursements for employee retention costs
incurred in 2010, and $5 million for employee retention costs incurred in 2009. These employee retention cost
reimbursements are separate from and in addition to the $150 million of transition cost reimbursement payments
and the search operating cost reimbursements.
Reimbursement receivables are recorded as the reimbursable costs are incurred and are applied against the
operating expense categories in which the costs were incurred. As of December 31, 2010, a total of $414 million
of reimbursable expenses related to 2009 and 2010 had been incurred by the Company related to the Search
Agreement. Of that amount, $350 million had been received from Microsoft and $64 million was classified as
part of prepaid expenses and other current assets on the Company’s consolidated balance sheets as of
December 31, 2010. As of December 31, 2011, a total of $238 million of reimbursable expenses related to 2011
had been incurred by the Company related to the Search Agreement. Of that amount, $16 million had not been
received from Microsoft and was classified as part of prepaid expenses and other current assets on the
Company’s consolidated balance sheets as of December 31, 2011.
Note 17 S UBSEQUENT E VENTS
Management Changes. On January 3, 2012, the Board took the following actions, effective January 9, 2012:
(1) appointed Mr. Scott Thompson, 54, to serve as Chief Executive Officer and President of the Company, and
(2) increased the size of the Board from nine to ten members and appointed Mr. Thompson as a director.
On January 3, 2012, the Company entered into an employment letter agreement (the “Agreement”) with
Mr. Thompson. The Agreement does not have a specified term, and Mr. Thompson’s employment with the
Company will be on an at-will basis.
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