Stockholders' Equity

6 Months Ended

Jun. 30, 2013

Stockholders' Equity

Note 9—Stockholders’ Equity

On May 9, 2012, the Company issued warrants in connection with the issuance of its 2019 Notes and debt exchange transaction between the Company and certain holders of its 2018 Convertible Notes, described more fully in Note 7. Pursuant to the terms of the transactions, the Company issued warrants to purchase an aggregate of 4.0 million shares of the Company’s common stock at an exercise price equal to $1.863 per share. The Company may, at it’s or the warrant holder’s election, issue net shares in lieu of a cash payment of the exercise price by the warrant holder upon exercise.

Due to an exercise price adjustment clause within the warrant agreement, in accordance with ASC 815, Derivatives and Hedging, the Company is required to record the fair value of the warrants as a liability. The Company’s warrant liability is marked-to-market each reporting period with the change in fair value recorded as a gain or loss within other income or expense, net on the Company’s consolidated statement of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

The Company determines the fair value of its warrant liability based on the Black-Sholes pricing model. Historical information is the primary basis for the selection of the expected volatility. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the warrants. The expected term is derived from the remaining contractual term of the warrant. At the date of the transaction, the Company recorded the warrant liability at its fair value of $5.3 million with a corresponding decrease to additional-paid-in capital. At June 30, 2013, the fair value of the warrant liability was $1.4 million. In February 2011, the Company issued $230 million principal amount of the 2018 Convertible Notes at par that becomes due on February 1, 2018. As part of the accounting for the 2018 Convertible Notes, the Company bifurcated the conversion feature and recorded $35.6 million to additional paid-in-capital, net of a deferred tax liability of $22.7 million and equity issuance costs of $1.9 million. See Note 7 to the consolidated financial statements for further discussion of the 2018 Convertible Notes.