Walgreens 2015 Annual Report Download - page 102

in fiscal 2024 and the $1.5 billion notes maturing in fiscal 2044, the Company terminated these forward starting
interest rate swaps, locking in the effective yields on the related debt. A cash payment of $45 million was made
to settle the 10-year swap and a cash payment of $18 million was made to settle the 30-year swap in November
2014. The changes in fair value of the swaps until their termination were included in other comprehensive
income, and any ineffectiveness was recorded directly to interest expense in the Consolidated Statements of
Earnings. The cumulative changes included in other comprehensive income will be amortized into earnings in the
same periods during which interest expense on the identified debt is recognized.
As a result of the Second Step Transaction, the Company assumed $9.0 billion of Alliance Boots existing debt, a
portion of which was hedged using interest rate swaps and interest rate caps. In January 2015, the Company
repaid substantially all of the assumed debt and simultaneously terminated swaps converting £1.0 billion of
outstanding debt from floating to fixed rates with no material gain or loss recognized. In July 2015, £1.0 billion
of floating to fixed rate swaps which were not designated as hedging instruments matured. Interest rate caps with
notional principal amounts of £1.5 billion and €2.0 billion to protect the Company from rising interest rates on
the corresponding amounts of assumed Alliance Boots existing debt were in place on completion of the Second
Step Transaction. In January 2015, interest rate caps with an aggregate notional principal of €600 million were
terminated with no material gain or loss recognized. The remaining caps matured in July 2015.
There were no material gains and losses due to the change in fair value of derivatives designated as cash flow
hedges recognized in other comprehensive income in fiscal 2014 or 2013.
No portion of the derivatives designated as cash flow hedges was excluded from hedge assessment. No material
gains or losses were recorded in earnings from ineffectiveness in fiscal 2015, 2014 or 2013.
Derivatives not Designated as Hedges
The Company enters into derivative transactions that are not designated as accounting hedges. These derivative
instruments are economic hedges of interest rate and foreign currency risks. Income or expense due to changes in
fair value of these derivative instruments were recognized in earnings as follows (in millions):
Location in Consolidated
Statements of Earnings 2015 2014 2013
Interest rate swaps Interest expense, net $ 1 $— $—
Foreign currency forwards Selling, general and administrative
expense 78 — —
Second Step Transaction foreign currency forwards Other income (expense) (166) — —
Foreign currency forwards Other income (expense) 72 — —
Warrants
As discussed in Note 2, Summary of Major Accounting Policies, the Company holds (a) a warrant to purchase up
to 22,696,912 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 22,696,912 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 warrants issued to Alliance Boots were acquired by the Company as part of the
Second Step Transaction.
The Company reports its warrants at fair value. The fair value and balance sheet presentation of warrants was as
follows (in millions):
Location in Consolidated
Balance Sheets
August 31,
2015
August 31,
2014
Asset derivatives not designated as hedges:
Warrants Other non-current assets $2,140 $553
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