Walgreens 2014 Annual Report Download - page 88

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The notional amounts of derivative instruments outstanding at August 31, 2014 and 2013, were as follows (in
millions):
2014 2013
Derivatives designated as fair value hedges:
Interest rate swaps $1,000 $1,000
Derivatives designated as cash flow hedges:
Forward interest rate swaps 1,500 —
The changes in fair value of the Company’s debt that was swapped from fixed to variable rate and designated as
fair value hedges are included in long-term debt on the Consolidated Balance Sheets (see Note 9). At August 31,
2014, the cumulative fair value adjustments resulted in an increase in long-term debt of $12 million compared to
a decrease in fair value of $3 million at August 31, 2013.
Changes in fair value of the cash flow hedges are included in other comprehensive income, with any
ineffectiveness recorded directly to interest expense. The fair value change in fiscal 2014 reported in other
comprehensive income was $44 million, $27 million net of tax, at August 31, 2014. Upon termination of the cash
flow hedges, cumulative changes included in other comprehensive income will be amortized with the debt’s cash
flow. No material fair value changes or ineffectiveness was recorded through other comprehensive income in
fiscal 2014.
The fair value and balance sheet presentation of derivative instruments at August 31, 2014 and 2013, were as
follows (in millions):
Location in Consolidated
Balance Sheets 2014 2013
Asset derivatives designated as hedges:
Interest rate swaps Other non-current assets $16 $ 1
Liability derivatives designated as cash flow hedges:
Forward interest rate swaps Other non-current liabilities 44 —
Warrants
The Company, Alliance Boots and AmerisourceBergen Corporation entered into a Framework Agreement dated
as of March 18, 2013, pursuant to which (1) Walgreens and Alliance Boots together were granted the right to
purchase a minority equity position in AmerisourceBergen, beginning with the right, but not the obligation, to
purchase up to 19,859,795 shares of AmerisourceBergen common stock (approximately 7 percent of the then
fully diluted equity of AmerisourceBergen, assuming the exercise in full of the warrants described below) in
open market transactions; (2) the Company and Alliance Boots were each issued (a) a warrant to purchase up to
11,348,456 shares of AmerisourceBergen common stock at an exercise price of $51.50 per share exercisable
during a six-month period beginning in March 2016, and (b) a warrant to purchase up to 11,348,456 shares of
AmerisourceBergen common stock at an exercise price of $52.50 per share exercisable during a six-month period
beginning in March 2017. The parties and affiliated entities also entered into certain related agreements
governing relations between and among the parties thereto, including the Shareholders Agreement, the
Transaction Rights Agreement and the Limited Liability Company Agreement of WAB Holdings LLC, a newly
formed limited liability company jointly owned by the Company and Alliance Boots for the purpose of acquiring
and holding AmerisourceBergen common stock, described in the Company’s Current Report on Form 8-K filed
on March 20, 2013.
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