Yahoo 2015 Annual Report Download - page 113

Activity between Levels of the Fair Value Hierarchy
During the years ended December 31, 2014 and 2015, 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 in Hortonworks 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. These shares were subject to a 6-months lock-up period which
expired during 2015. These shares are accounted for as an available-for-sale security and had a fair
value of $104 million and $84 million as of December 31, 2014 and 2015, respectively.
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. These warrants had a fair value of $98 million and $79 million as of December 31,
2014 and 2015, respectively. The Company determined the estimated fair value of the warrants using
the Black-Scholes model with the following assumptions:
Preferred warrants Common warrants
Years Ended December 31, Years Ended December 31,
2014 2015 2014 2015
Expected dividend yield 0% 0% 0% 0%
Risk-free interest rate 1.71% 1.78% 2.20% 2.25%
Expected volatility 46.0% 46.0% 46.0% 46.0%
Expected life (in years) 5.50 4.50 8.44 7.44
During the year ended December 31, 2014, the Company recorded a gain of $57 million upon the
initial public offering of Hortonworks through other comprehensive income on our consolidated
balance sheet and a $41 million gain related to the mark to market of the warrants as of December 31,
2014, which was included within other income (expense), net in the consolidated statements of
operations. During the year ended December 31, 2015, the Company recorded a loss of $19 million
related to the mark to market of the respective warrants as of December 31, 2015, which was included
within other income (expense), net in the Company’s consolidated statements of operations. Changes
in the estimated fair value of the Hortonworks warrants are recorded through other income
(expense), net in the Company’s consolidated statements of operations.
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 in 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, 2014 and December 31, 2015 were $1.2 billion and $1.3
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