Yahoo 2015 Annual Report Download - page 136

(*) 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 2015
Accretion of convertible note discount $ 4,846 $59,838 $63,061
The estimated 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) were as follows (in thousands):
December 31, 2014 December 31, 2015
Fair Value Carrying Value Fair Value Carrying Value
Convertible senior notes $1,175,240 $1,170,423 $1,250,124 $1,233,485
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 Commitments And Contingencies
Lease Commitments. The Company leases office space and data centers under operating and
capital lease agreements with original lease periods of up to 15 years which expire between 2016 and
2025.
In December 2014, the Company entered into a 10-year lease agreement for three buildings in Los
Angeles, California. As of December 31, 2015, the total expected minimum operating lease
commitment is $40 million for two buildings and $20 million in construction liabilities for one building
which is accounted for as a build-to-suit lease. The Company has the option to renew the lease for
two consecutive renewal terms of either five years or seven years each.
Rent expense for all operating leases was approximately $77 million, $86 million, and $77 million for
2013, 2014, and 2015, 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.
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