Yahoo 2014 Annual Report Download - page 37

their Notes, we could be required under applicable accounting rules to reclassify all or a portion of
the outstanding principal of the Notes as a current rather than long-term liability, which would result
in a material reduction of our net working capital.
We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash
or to repurchase the Notes upon a fundamental change, and our future debt may contain limitations
on our ability to pay cash upon conversion or repurchase of the Notes.
Holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon
the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount
of the Notes to be repurchased, plus accrued and unpaid special interest, if any. We may not have
enough available cash or be able to obtain financing at the time we are required to make repurchases
of Notes surrendered therefore, or pay cash with respect to Notes being converted if we elect not to
issue shares, which could harm our reputation and affect the trading price of our common stock.
The note hedge and warrant transactions may affect the value of the Notes and our common stock.
In connection with the pricing of the Notes, we entered into note hedge transactions with the option
counterparties. The note hedge transactions are generally expected to reduce the potential dilution
upon conversion of the Notes and/or offset any cash payments we are required to make in excess of
the principal amount of converted Notes, as the case may be. We also entered into warrant
transactions with the option counterparties. However, the warrant transactions could separately have
a dilutive effect to the extent that the market price per share of our common stock exceeds the
applicable strike price of the warrants.
In connection with establishing their initial hedge of the note hedge and warrant transactions, the
option counterparties or their respective affiliates have purchased shares of our common stock and/
or entered into various derivative transactions with respect to our common stock concurrently with
or shortly after the pricing of the Notes. In addition, the option counterparties or their respective
affiliates may modify their hedge positions by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock or other securities of
ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so
during any observation period related to a conversion of Notes or following any repurchase of Notes
by us on any fundamental repurchase date or otherwise). This activity could cause or avoid an
increase or a decrease in the market price of our common stock or the Notes.
Any adverse change in the rating of the Notes or the Company may cause their trading price to
decline.
While we did not solicit a credit rating on the Company or on the Notes, one rating service has rated
both the Notes and the Company. If that rating service announces its intention to put the Company
or the Notes on credit watch or lowers its rating on the Company or the Notes below any rating
initially assigned to the Company or the Notes, the trading price of the Notes could decline.
The accounting method for convertible debt securities that may be settled in cash, such as the
Notes, could have a material effect on our reported financial results.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards
Codification (“ASC”) 470-20, Debt with Conversion and Other Options, which we refer to as
ASC 470-20. Under ASC 470-20, an entity must separately account for the liability and equity
components of the convertible debt instruments (such as the Notes) that may be settled entirely or
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