Yahoo 2012 Annual Report Download - page 52

Net cash proceeds after the payment of taxes and fees from the Initial Repurchase and the $550 million TIPLA
payment were approximately $4.3 billion. We intend to return $3.65 billion of the after-tax proceeds to
shareholders. This amount includes approximately $2.1 billion we returned to shareholders through share
repurchases from May 20, 2012, the date we announced the Repurchase Agreement, through December 31, 2012.
At the time of an initial public offering of Alibaba Group meeting certain specified criteria (“Qualified IPO”),
Yahoo! and YHK will sell, at Alibaba Group’s election (either directly to Alibaba Group or in the Qualified
IPO), up to an additional 261.5 million of our remaining Shares. If Shares are sold back to Alibaba Group in the
Qualified IPO, the purchase price per Share will be equal to the per share price in the Qualified IPO less specified
fees and underwriter discounts.
See Note 8—“Investments in Equity Interests” in the Notes to our consolidated financial statements for
additional information.
Search Agreement with Microsoft Corporation
On December 4, 2009, we entered into a Search and Advertising Services and Sales Agreement (the “Search
Agreement”) with Microsoft Corporation (“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. We also entered into a License Agreement with Microsoft pursuant to which Microsoft
acquired an exclusive 10-year license to our core search technology that it will be able to integrate into its
existing Web search platforms. The global transition of our algorithmic and paid search platforms to Microsoft’s
platform and the migration of paid search advertisers and publishers to Microsoft’s platform are being done on a
market by market basis.
During the first five years of the Search Agreement, in transitioned markets we are entitled to receive 88 percent
of the revenue generated from Microsoft’s services on Yahoo! Properties. We are also entitled to receive
88 percent of the revenue generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of
revenue. In the transitioned markets, for search revenue generated from Microsoft’s services on Yahoo!
Properties and Affiliate sites, we report as revenue the 88 percent revenue share, as we are not the primary
obligor in the arrangement with the advertisers and publishers. The underlying search advertising services are
provided by Microsoft. For new Affiliates during the term of the Search Agreement, and for all Affiliates after
the first five years of such term, we 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
our 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 we exercise our option
to retain our 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.
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 31, 2013. The RPS Guarantee is calculated based on the difference in
revenue per search between the pre-transition and post-transition periods and certain other factors. We record the
RPS Guarantee as search revenue in the quarter the amount becomes fixed, which is typically the quarter in
which the associated shortfall in revenue per search occurred. If the RPS Guarantee in the U.S. and Canada is not
renewed prior to its expiration on March 31, 2013, we currently anticipate that our revenue, cash flows and
income will be negatively impacted.
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