Yahoo 2013 Annual Report Download - page 111

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The following table sets forth total interest expense recognized related to the Notes (in thousands):
Year Ended
December 31, 2013
Accretion of convertible note discount ............................................. $4,846
As of December 31, the fair value of the Notes, which was determined based on inputs that are observable in the
market (Level 2) and carrying value of debt instruments (carrying value excludes the equity component of the
Company’s Notes classified in equity) was as follows:
2013
Fair Value Carrying Value
Convertible senior notes ............................................... $1,111,473 $1,110,585
Note Hedge Transactions and Warrant Transactions
The Company entered into note hedge transactions with certain option counterparties (the “Option
Counterparties”) to reduce the potential dilution with respect to Yahoo’s common stock upon conversion of the
Notes or offset any cash payment the Company is required to make in excess of the principal amount of
converted Notes. For the year ended December 31, 2013, the Company paid $206 million for the note hedge
transactions. Separately, the Company also entered into privately negotiated warrant transactions with the Option
Counterparties giving them the right to purchase common stock from the Company. The warrant transactions will
have a dilutive effect with respect to Yahoo’s common stock to the extent that the market price per share of its
common stock exceeds the strike price of $71.24 per share of the warrants on or prior to the expiration date of the
warrants. The warrants begin to expire in March 2019. For the year ended December 31, 2013, the Company
received $125 million in proceeds from the issuance of warrants. The note hedges and warrants are not marked to
market. The value of the note hedges and warrants were initially recorded in stockholders’ equity and continue to
be classified as stockholders’ equity.
Note 12 C
OMMITMENTS
A
ND
C
ONTINGENCIES
Lease Commitments. The Company leases office space and data centers under operating and capital lease
agreements with original lease periods up to 12 years which expire between 2013 and 2025.
In May 2013, the Company entered into a 12-year operating lease agreement for four floors of the former New
York Times building in New York City with a total expected minimum lease commitment of $125 million. The
Company has the option to renew the lease for an additional five years. The lease requires monthly payments of
approximately $1 million starting in July 2015 through June 2025. However, rent expense will be recorded over
the lease term commensurate with the right to control the space which began in July 2013.
Rent expense for all operating leases was approximately $84 million, $76 million, and $77 million for 2011,
2012, and 2013, respectively.
Many of the Company’s leases contain one or more of the following options which the Company can exercise at
the end of the initial lease term: (i) renewal of the lease for a defined number of years at the then fair market
rental rate or at a slight discount to the fair market rental rate; (ii) purchase of the property at the then fair market
value; or (iii) right of first offer to lease additional space that becomes available.
109