Yahoo 2012 Annual Report Download - page 53

Under the Search Agreement, Microsoft agreed to reimburse us for certain transition costs up to an aggregate
total of $150 million during the first three years of the Search Agreement. During the third quarter of 2011, our
cumulative transition costs exceeded Microsoft’s $150 million reimbursement cap under the Search Agreement.
Transition costs we incur in excess of the $150 million reimbursement cap are not subject to reimbursement. Our
results for the year ended December 31, 2011 reflect transition cost reimbursements from Microsoft under the
Search Agreement of $26 million. During the year ended December 31, 2010, we recorded transition cost
reimbursements from Microsoft under the Search Agreement of $81 million. During the year ended
December 31, 2010, we also recorded reimbursements of $43 million for transition costs incurred in 2009. The
2009 transition cost reimbursements were recorded in the first quarter of 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.
From February 23, 2010 until the applicable services are fully transitioned to Microsoft in all markets, Microsoft
will also reimburse us for the costs of operating algorithmic and paid search services subject to specified
exclusions and limitations. Our results reflect search operating cost reimbursements from Microsoft under the
Search Agreement of $67 million, $212 million, and $268 million for the years ended December 31, 2012, 2011,
and 2010, respectively. Search operating cost reimbursements are expected to decline as we fully transition all
markets and, in the long term, the underlying expenses are not expected to be incurred under our cost structure.
We completed the transition of our algorithmic and paid search platforms to the Microsoft platform in the U.S.
and Canada in the fourth quarter of 2010. In 2011, we completed the transition of algorithmic search in all other
markets and the transition of paid search in India. In 2012, we completed the transition of paid search in most of
the EMEA markets as well as six markets in Latin America. We are continuing to work with Microsoft on
transitioning paid search in the remaining markets. The market-by-market transition of our 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 2013, and possibly into 2014.
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.
We record receivables for the reimbursements as costs are incurred and apply them against the operating expense
categories in which the costs were incurred. Of the total amounts incurred during the year ended December 31,
2011, total reimbursements of $16 million not yet received from Microsoft were classified as part of prepaid
expenses and other current assets on our consolidated balance sheets as of December 31, 2011. Of the total
amounts incurred during the year ended December 31, 2012, the total reimbursements not yet received from
Microsoft of $5 million were classified as part of prepaid expenses and other current assets on our consolidated
balance sheets as of December 31, 2012.
See Note 18—“Search Agreement with Microsoft Corporation” in the Notes to our consolidated financial
statements for additional information.
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