Walgreens 2009 Annual Report Download - page 34

Notes to Consolidated Financial Statements (continued)
In fiscal 2009 and 2008, the Company issued commercial paper to support working
capital needs. The short-term borrowings under the commercial paper program
had the following characteristics (In millions):
2009 2008
Balance outstanding at fiscal year-end $ — $ 70
Maximum outstanding at any month-end 1,068 1,170
Average daily short-term borrowings 272 680
Weighted-average interest rate 1.51% 2.10%
The carrying value of the commercial paper approximates the fair value in both
fiscal years.
In connection with our commercial paper program, we maintain two unsecured
backup syndicated lines of credit that total $1,200 million. The first $600 million
facility expires on August 9, 2010, and allows for the issuance of up to $400 million
in letters of credit, which reduce the amount available for borrowing. The second
$600 million facility expires on August 12, 2012. Our ability to access these facilities
is subject to our compliance with the terms and conditions of the credit facilities,
including financial covenants. The covenants require us to maintain certain financial
ratios related to minimum net worth and priority debt, along with limitations on the
sale of assets and purchases of investments. The Company pays a facility fee to the
financing bank to keep these lines of credit active. While we are still able to access
these lines of credit, as of August 31, 2009, there were no borrowings outstanding
against these credit facilities.
On July 17, 2008, we issued notes totaling $1,300 million bearing an interest rate
of 4.875% paid semiannually in arrears on February 1 and August 1 of each year.
The notes will mature on August 1, 2013. We may redeem the notes, at any time in
whole or from time to time in part, at our option at a redemption price equal to the
greater of: (1) 100% of the principal amount of the notes to be redeemed; or (2) the
sum of the present values of the remaining scheduled payments of principal and
interest thereon (not including any portion of such payments of interest accrued as
of the date of redemption), discounted to the date of redemption on a semiannual
basis (assuming a 360-dayyear consisting of twelve 30-daymonths) at the
TreasuryRate, plus 30 basis points, plus accrued interest on the notes to be
redeemed to, but excluding, the date of redemption. If a change of control triggering
event occurs, unless we have exercised our option to redeem the notes, we will
be required to offer to repurchase the notes at a purchase price equal to 101%
of the principal amount of the notes plus accrued and unpaid interest to the date
of purchase. The notes are unsecured senior debt obligations and rank equally
with all other unsecured senior indebtedness. The notes are not convertible or
exchangeable. Total issuance costs relating to this offering were $9 million, which
included $8 million in underwriting fees. The fair value of the notes as of August 31,
2009, was $1,395 million. Fair value was determined based upon discounted future
cash flows for these notes.
On January 13, 2009, we issued notes totaling $1,000 million bearing an interest
rate of 5.25% paid semiannually in arrears on January 15 and July 15 of each year,
beginning on July15, 2009. The notes will mature on January15, 2019. We may
redeem the notes, at any time in whole or from time to time in part, at our option at
aredemption price equal to the greater of: (1) 100% of the principal amount of the
notes to be redeemed; or (2) the sum of the present values of the remaining sched-
uled payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the date of redemption), discounted to the date
of redemption on a semiannual basis (assuming a 360-dayyear consisting of twelve
30-daymonths) atthe TreasuryRate, plus 45 basis points, plus accrued interest on
the notes to be redeemed to, but excluding, the date of redemption. If a change of
control triggering event occurs, unless we have exercised our option to redeem the
notes, we will be required to offer to repurchase the notes at a purchase price equal
taken on a tax return, including the decision whether to file or not to file in a
particular jurisdiction. All unrecognized benefits at August 31, 2009, and August 31,
2008, were classified as long-term liabilities on our consolidated balance sheet.
The following table provides a reconciliation of the total amounts of unrecognized
tax benefits for fiscal 2009 (In millions):
2009 2008
Balance at beginning of year $64 $55
Gross increases related to tax positions in a prior period 38 7
Gross decreases related to tax positions in a prior period (5) (21)
Gross increases related to tax positions in the current period 38 28
Settlements with taxing authorities (1) (3)
Lapse of statute of limitations (6) (2)
Balance at end of year $128 $64
At August 31, 2009, and August 31, 2008, $43 million and $27 million, respectively,
of unrecognized tax benefits would favorably impact the effective tax rate if recognized.
We recognize interest and penalties in income tax provision in our consolidated
statements of earnings. At August 31, 2009, and August 31, 2008, we had accrued
interest and penalties of $18 million and $12 million, respectively.
We file a consolidated U.S. federal income tax return, as well as income tax returns
in various states. We are no longer subject to U.S. federal income tax examinations
for years before fiscal 2006. With few exceptions, we are no longer subject to state
and local income tax examinations bytax authorities for years before fiscal 2004.
We anticipate that the Internal Revenue Service (IRS) will complete its audit of fiscal
years 2006 and 2007 in fiscal 2010.
It is reasonably possible that the amount of the unrecognized tax benefit with
respect to certain unrecognized tax positions will increase or decrease during
the next 12 months; however,we do not expect the change to have a material
effect on our results of operations or our financial position.
8. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consists of the following at August 31
(In millions):
2009 2008
Short-Term Borrowings –
Commercial paper $ — $ 70
Current maturities of loans assumed through
the purchase of land and buildings; various
interest rates from 5.00% to 8.75%;
various maturities from 2010 to 2035 10 8
Other 55
Total short-term borrowings $15 $83
Long-Term Debt –
4.875% unsecured notes due 2013 net of
unamortized discount and interest rate swap
fair market value adjustment (see Note 9) $1,294 $1,295
5.250% unsecured notes due 2019 net of
unamortized discount 995 —
Loans assumed through the purchase of land and buildings;
various interest rates from 5.00% to 8.75%; various
maturities from 2010 to 2035 57 50
2,346 1,345
Less current maturities (10) (8)
Total long-term debt $2,336 $1,337
Page 32 2009 Walgreens Annual Report