Note 7 – Notes Payable, Net


(In thousands)	February 28, 2017		August 31, 2016
Convertible senior notes, due 2018, net	$	118,431	$	118,140
Convertible senior notes, due 2024, net		233,997		—
Term loans, net		180,168		183,713

	$	532,596	$	301,853

In February 2017, the Company issued $275 million of convertible senior notes, due 2024 (2024 Convertible Notes). The notes are senior unsecured obligations and rank equally with other senior unsecured debt. The notes bear interest at an annual rate of 2.875% payable semiannually in arrears on February 1 and August 1 of each year, commencing August 1, 2017. The notes will mature on February 1, 2024, unless earlier repurchased or converted in accordance with their terms prior to such date. The notes are convertible into shares of the Company’s common stock, at an initial conversion rate of 16.6234 per $1,000 principal amount of the notes which is equivalent to an initial conversion price of approximately $60.16 per share. The conversion rate and the resulting conversion price are subject to adjustment in certain events. Prior to November 1, 2023, the notes are convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods and thereafter, at any time until the close of business on the business day immediately preceding the maturity date. Upon conversion, the notes may be settled, at the Company’s election, in cash, shares of the Company’s common stock, or a combination of cash and shares.

2024 Convertible Notes:


(In thousands)	February 28, 2017
Debt principal	$	275,000
Debt discount, net		(32,773	)
Debt issuance costs, net		(8,230	)

	$	233,997

As of February 28, 2017, the 2024 Convertible Notes had a balance of $234.0 million, reflecting the $275 million debt principal net of $32.8 million of net debt discount and $8.2 million of net debt issuance costs, which was included in Notes payable, net on the Company’s Consolidated Balance Sheet. The debt discount represents the difference between the debt principal and the fair value of a similar debt instrument that does not have a conversion feature at issuance. The debt discount is being amortized using the effective interest rate method through February 2024 and the amortization expense is included in Interest and foreign exchange on the Company’s Consolidated Statement of Income.

In accordance with ASC 470-20, the Company separately accounts for the liability component (debt principal net of debt discount) and equity component. The liability component is recognized as the fair value of a similar instrument that does not have a conversion feature at issuance. To determine the fair value of the liability component, the Company assumed an interest rate of approximately 5% which resulted in a fair value of $241.9 million. The equity component, which is the conversion feature at issuance, is recognized as the difference between the proceeds from the issuance of the notes ($275 million) and the fair value of the liability component ($241.9 million). As of February 28, 2017, the equity component was $33.1 million which was recorded on the Company’s Consolidated Balance Sheet in Additional paid-in capital, net of tax of $12.3 million.