Yahoo 2014 Annual Report Download - page 132
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The Notes consist of the following (in thousands):
Years Ended
December 31,
2013 2014
Liability component:
Principal
$1,437,500 $1,437,500
Less: note discount
(326,915) (267,077)
Net carrying amount
$1,110,585 $1,170,423
Equity component(*)
$ 305,569 $ 305,569
(*) Recorded on the consolidated balance sheet within additional paid-in capital.
The following table sets forth total interest expense recognized related to the Notes (in thousands):
Years Ended
December 31,
2013 2014
Accretion of convertible note discount
$4,846 $59,838
The fair value of the Notes, which was determined based on inputs that are observable in the market
(Level 2), and the carrying value of debt instruments (the carrying value excludes the equity
component of the Notes classified in equity) was as follows (in thousands):
December 31, 2013 December 31, 2014
Fair Value Carrying Value Fair Value Carrying Value
Convertible senior notes
$1,111,473 $1,110,585 $1,175,240 $1,170,423
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.
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