Walgreens 2015 Annual Report Download - page 63

give rise to the termination, cross-termination or modification of any of our contractual obligations, the amount
of costs, fees, expenses and charges incurred in connection with strategic transactions, whether the actual costs
associated with restructuring activities will exceed estimates, our ability to realize expected savings and benefits
from cost-savings initiatives, restructuring activities and acquisitions in the amounts and at the times anticipated,
the timing and amount of any impairment or other charges, changes in management’s assumptions, the risks
associated with governance and control matters, the ability to retain key personnel, changes in economic and
business conditions generally or in the markets in which we participate, changes in financial markets, interest
rates and foreign currency exchange rates, the risks associated with international business operations, the risk of
unexpected costs, liabilities or delays, changes in vendor, customer and payer relationships and terms, including
changes in network participation and reimbursement terms, risks of inflation in the cost of goods, risks associated
with the operation and growth of our customer loyalty programs, competition, risks associated with new business
areas and activities, risks associated with acquisitions, divestitures, joint ventures and strategic investments,
including those relating to our ability to satisfy the closing conditions and consummate the pending acquisition of
Rite Aid and related financing matters on a timely basis or at all, the risks associated with the integration of
complex businesses, subsequent adjustments to preliminary purchase accounting determinations, outcomes of
legal and regulatory matters, including with respect to regulatory review and actions in connection with the
pending acquisition of Rite Aid, and changes in legislation, regulations or interpretations thereof. These and other
risks, assumptions and uncertainties are described in Item 1A (Risk Factors) above and in other documents that
we file or furnish with the SEC. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by
such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date they are made. Except to the extent required by law, we do
not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement
after the date the statement is made, whether as a result of new information, future events, changes in
assumptions or otherwise.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
We are exposed to interest rate volatility with regard to existing debt issuances. Primary exposures include U.S.
Treasury rates, LIBOR and commercial paper rates. From time to time, we use interest rate swaps and forward-
starting interest rate swaps to hedge our exposure to the impact of interest rate changes on existing debt and
future debt issuances respectively, to reduce the volatility of our financing costs and, based on current and
projected market conditions, achieve a desired proportion of fixed versus floating-rate debt. Generally under
these swaps, we agree with a counterparty to exchange the difference between fixed-rate and floating-rate interest
amounts based on an agreed upon notional principal amount.
We also use interest rate caps to protect from rising interest rates on existing floating-rate debt. Information
regarding our interest rate swaps, forward starting interest rate swaps, and interest rate caps transactions are set
forth in Note 11, Financial Instruments to our Consolidated Financial Statements. These financial instruments are
sensitive to changes in interest rates. On August 31, 2015, we had approximately $3 billion in debt obligations
that had floating interest rates. A one percentage point increase or decrease in interest rates for the various debt
held by the Company would increase or decrease the annual interest expense we recognize and the cash we pay
for interest expense by approximately $30 million. This amount excludes the impact of any associated interest
rate swaps, forward starting interest rate swaps and interest rate caps.
Foreign Currency Exchange Rate Risk
As a result of the Second Step Transaction, fluctuations in foreign currency exchange rates, primarily with
respect to the British Pound Sterling and Euro, and certain other foreign currencies, including the Mexican Peso,
Chilean Peso, Norwegian Krone and Turkish Lira will affect the Company’s net investment in foreign
subsidiaries and will cause fluctuations in cash flows related to foreign denominated transactions. We are also
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