Yahoo 2014 Annual Report Download - page 109

Activity between Levels of the Fair Value Hierarchy
During the years ended December 31, 2013 and 2014, the Company did not make any transfers
between Level 1, Level 2 and Level 3 assets or liabilities.
Hortonworks
Prior to the December 12, 2014 initial public offering of Hortonworks, the Company held an
approximate 16 percent interest with an investment balance of $26 million, which was accounted for
as a cost method investment. Subsequent to the initial public offering, the Company owns 3.8 million
unregistered shares, which represent a 9 percent ownership interest. These shares are subject to a 6-
month lock-up agreement. As of December 31, 2014, the remaining lock-up is approximately five and
a half months. These shares are accounted for as an available-for-sale security and have a fair value
of $104 million as of December 31, 2014.
The Company also holds warrants that vested upon the initial public offering of Hortonworks, which
entitle the Company to purchase an aggregate of 3.7 million shares of Hortonworks common stock
upon exercise of the warrants. The Company holds 6.5 million preferred warrants that are exercisable
for 3.25 million shares of common stock at an exercise price of $0.01 per share, as well as 0.5 million
common warrants that are exercisable for 0.5 million shares of common stock at an exercise price of
$8.46 per share. The Company determined the estimated value of the warrants using the Black-
Scholes model. During the year ended December 31, 2014, the Company recorded a gain of $57
million upon the initial public offering of Hortonworks and a $41 million gain related to the mark to
market of the warrants as of December 31, 2014, which were included within other income, net in the
consolidated statements of income. Changes in the estimated fair value of the Hortonworks warrants
will be recorded through other income, net in the Company’s consolidated statements of income.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Convertible Senior Notes
In 2013, the Company issued $1.4375 billion aggregate principal amount of 0.00% Convertible Senior
Notes due 2018 (the “Notes”). The Notes are carried at their original issuance value, net of
unamortized debt discount, and are not marked to market each period. The approximate estimated
fair value of the Notes as of December 31, 2013 and December 31, 2014 was $1.1 billion and $1.2 billion,
respectively. The estimated fair value of the Notes was determined on the basis of quoted market
prices observable in the market and is considered Level 2 in the fair value hierarchy. See Note 11—
“Convertible Notes” for additional information related to the Notes.
Goodwill
The inputs used to measure the estimated fair value of goodwill are classified as a Level 3 fair value
measurement due to the significance of unobservable inputs using company-specific information. The
valuation methodology used to estimate the fair value of goodwill is discussed in Note 1—“Goodwill”.
Other Investments
As of December 31, 2013 and 2014, the Company held approximately $25 million and $82 million,
respectively, of investments in equity securities of privately-held companies that are accounted for
using the cost method. These investments are included within other long-term assets and
investments on the consolidated balance sheets. Such investments are reviewed periodically for
impairment using fair value measurements.
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