Adobe 2015 Annual Report Download - page 99

Table of Contents
ADOBE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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NOTE 16. DEBT
Our debt as of November 27, 2015 and November 28, 2014 consisted of the following (in thousands):
2015 2014
Notes $ 1,887,410 $ 1,496,778
Fair value of interest rate swap 19,821 14,268
Adjusted carrying value of Notes 1,907,231 1,511,046
Capital lease obligations — 3,269
Total debt and capital lease obligations 1,907,231 1,514,315
Less: current portion — 603,229
Debt and capital lease obligations $ 1,907,231 $ 911,086
Notes
In February 2010, we issued $600 million of 3.25% senior notes due February 1, 2015 (the “2015 Notes”) and $900 million
of 4.75% senior notes due February 1, 2020 (the “2020 Notes”). Our proceeds were $1.5 billion and were net of an issuance
discount of $6.6 million. In addition, we incurred issuance costs of $10.7 million. Both the discount and issuance costs were or
are being amortized to interest expense over the respective terms of the 2015 and 2020 Notes using the effective interest method.
The 2015 and 2020 Notes rank equally with our other unsecured and unsubordinated indebtedness. The effective interest rate
including the discount and issuance costs was 3.45% for the 2015 Notes and is 4.92% for the 2020 Notes. Interest is payable semi-
annually, in arrears, on February 1 and August 1, and commenced on August 1, 2010. The 2015 Notes were settled on February 1,
2015, as discussed below.
In June 2014, we entered into interest rate swaps with a total notional amount of $900 million designated as a fair value
hedge related to our 2020 Notes. The interest rate swaps effectively convert the fixed interest rate on our 2020 Notes to a floating
interest rate based on LIBOR plus a fixed number of basis points. Under the terms of the swaps, we will pay monthly interest at
the one-month LIBOR floating interest rate plus a spread of a fixed number of basis points on the $900 million notional amount.
In exchange, we will receive 4.75% fixed rate interest from the swap counterparties. See Note 5 for further details regarding our
interest rate swap derivatives.
In December 2014, prior to issuing new long-term fixed rate debt, we entered into an interest rate lock agreement on a
notional amount of $600 million to hedge against the variability of future interest payments due to changes in the benchmark
interest rate. This instrument was designated as a cash flow hedge. See Note 5 for further details regarding our interest rate lock
agreement.
In January 2015, we issued $1 billion of 3.25% senior notes due February 1, 2025 (the “2025 Notes”). Our proceeds were
approximately $989.3 million which is net of an issuance discount of $10.7 million. In addition, we incurred issuance costs of
$7.9 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2025 Notes using
the effective interest method. The 2025 Notes rank equally with our other unsecured and unsubordinated indebtedness. The effective
interest rate including the discount, issuance costs and interest rate agreement is 3.67% for the 2025 Notes. Interest is payable
semi-annually, in arrears on February 1 and August 1, commencing on August 1, 2015. A portion of the proceeds from this offering
was used to repay $600 million in aggregate principal amount of the 2015 Notes plus accrued and unpaid interest due February 1,
2015. The remaining proceeds were used for general corporate purposes.
As of November 27, 2015, our outstanding notes payable consists of the 2020 Notes and 2025 Notes (the “Notes”) with a
total carrying value of $1.91 billion. Based on quoted prices in inactive markets, the fair value of the Notes was $1.97 billion as
of November 27, 2015. The total fair value of $1.97 billion excludes the effect of fair value hedge of the 2020 Notes for which
we entered into interest rate swaps as described above.