Walgreens 2014 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2014 Walgreens annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

The Company reports its warrants at fair value. See Note 11 for additional fair value measurement
disclosures. The fair value and balance sheet presentation of derivative instruments not designated as hedges at
August 31, 2014 and 2013, was as follows (In millions):
Location in Consolidated Balance Sheets 2014 2013
Asset derivatives not designated as hedges:
Warrants Other non-current assets $553 $188
(11) Fair Value Measurements
The Company measures certain assets and liabilities in accordance with ASC Topic 820, Fair Value
Measurements and Disclosures. ASC Topic 820 defines fair value as the price that would be received for an asset
or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In
addition, it establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure
fair value into three broad levels:
Level 1 – Quoted prices in active markets that are accessible at the measurement date for identical assets and
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 – Observable inputs other than quoted prices in active markets.
Level 3 – Unobservable inputs for which there is little or no market data available. The fair value hierarchy
gives the lowest priority to Level 3 inputs.
Assets and liabilities measured at fair value on a recurring basis were as follows (in millions):
August 31,
2014 Level 1 Level 2 Level 3
Assets:
Money market funds $1,879 $1,879 $— $—
Interest rate swaps (1) 16 — 16 —
Investment in AmerisourceBergen (2) 887 887 — —
Warrants (3) 553 — 553 —
Liabilities:
Forward interest rate swaps (4) 44 — 44 —
August 31,
2013 Level 1 Level 2 Level 3
Assets:
Money market funds $1,636 $1,636 $— $—
Interest rate swaps (1) 1 — 1 —
Investment in AmerisourceBergen (2) 225 225 — —
Warrants (3) 188 — 188 —
(1) Interest rate swaps are valued using the six-month and one-month LIBOR in arrears rates. See Note 10 for
additional disclosure regarding financial instruments.
(2) The investment in AmerisourceBergen Corporation is valued using the closing stock price of
AmerisourceBergen as of the balance sheet dates. See Note 6 for additional disclosures on available-for-sale
investments.
(3) Warrants were valued using a Monte Carlo simulation. Key assumptions used in the valuation include risk-
free interest rates using constant maturity treasury rates; the dividend yield for AmerisourceBergen’s
common stock; AmerisourceBergen’s common stock price at the valuation date; AmerisourceBergen’s
equity volatility; the number of shares of AmerisourceBergen’s common stock outstanding; the number of
AmerisourceBergen employee stock options and the exercise price; and the details specific to the warrants.
(4) Forward interest rate swaps are valued using three-month LIBOR in arrears rates. See Note 10 for additional
disclosure regarding financial instruments.
81