Note 5. Equity Method Investments

Equity method investments as of November 30, 2014, August 31, 2014 and November 30, 2013 were as follows (In millions, except percentages):

	November 30, 2014				August 31, 2014				November 30, 2013
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Alliance Boots	$	7,335		45%	$	7,248		45%	$	6,439		45%
Other		71		30% - 50%		74		30% - 50%		7		30% - 50%
Total	$	7,406			$	7,322			$	6,446

Alliance Boots

On August 2, 2012, pursuant to a Purchase and Option Agreement dated June 18, 2012, by and among the Company, Alliance Boots GmbH and AB Acquisitions Holdings Limited (as amended, the Purchase and Option Agreement), the Company acquired 45% of the issued and outstanding share capital of Alliance Boots in exchange for $4.025 billion in cash and approximately 83.4 million shares of common stock. The Purchase and Option Agreement provided, subject to the satisfaction or waiver of specified conditions, a call option that gave the Company the right, but not the obligation, to acquire the remaining 55% of Alliance Boots (the second step transaction) in exchange for an additional £3.1 billion in cash (approximately $4.9 billion using November 30, 2014 exchange rates) as well as an additional 144.3 million shares, subject to certain adjustments (the call option). On August 5, 2014, the Purchase and Option Agreement was amended to permit the exercise of the call option beginning on that date, and Walgreens, through an indirectly wholly-owned subsidiary to which Walgreens previously assigned its right to the call option, exercised the call option on August 5, 2014. In certain circumstances, if the second step transaction does not close, the Company’s ownership of Alliance Boots would be reduced from 45% to 42% in exchange for nominal consideration. Because the acquisition of Alliance Boots excluded Alliance Boots’ minority interest in Galenica Ltd. (Galenica), the Company’s equity earnings, initial investment and the call option exclude Galenica. As contemplated by the Purchase and Option Agreement, Alliance Boots’ investment in Galenica was distributed to the Alliance Boots shareholders other than the Company in May 2013, which had no impact on the Company’s financial results.

The call option, prior to its amendment and subsequent exercise, was valued using a Monte Carlo simulation using assumptions surrounding Walgreens equity value as well as the potential impacts of certain provisions of the Purchase and Option Agreement. The call option was accounted for at cost and subsequently adjusted for foreign currency translation gains or losses. Upon its exercise in August 2014, the call option was valued as an out-of-the-money option and a loss was recorded on the Consolidated Statements of Earnings.

The Company accounts for its 45% investment in Alliance Boots using the equity method of accounting. Investments accounted for under the equity method are recorded initially at cost and subsequently adjusted for the Company’s share of the net income or loss and cash contributions and distributions to or from these entities. Because the underlying net assets in Alliance Boots are denominated in a foreign currency, translation gains or losses impact the recorded value of the Company’s investment. The Company utilizes a three-month lag in reporting equity income in Alliance Boots, reported as equity earnings in Alliance Boots in the Consolidated Condensed Statements of Earnings. The Company’s investment is recorded as “Equity investment in Alliance Boots” in the Consolidated Condensed Balance Sheets.

In August 2014, Alliance Boots acquired the remaining 50% of the UniDrug Distribution Group joint venture. As part of the acquisition, the previously held equity interest was compared to its fair value resulting in a gain of £32 million. The noncash impact of $23 million was recorded during the first quarter of fiscal 2015 due to the three-month lag. In July 2013, the United Kingdom (UK) Government enacted a law to reduce the UK corporate tax rate effective April 2014 with a further reduction scheduled to take effect in April 2015. The non-cash impact of $71 million was recorded in fiscal 2014 due to the three-month lag.

The underlying net assets of the Company’s equity method investment in Alliance Boots include goodwill. As of November 30, 2014, the Company continues to evaluate whether the fair value of one of the Alliance Boots wholesale reporting units is below its carrying value based on the Company’s updated projections for that reporting unit. The Company utilizes a three-month lag in reporting its share of equity income in Alliance Boots, including for this reporting unit. Goodwill allocated to this reporting unit by Alliance Boots as of August 31, 2014 was £248 million, £112 million based on the Company’s 45% ownership percentage (approximately $185 million using August 31, 2014 exchange rates). The Company will continue to monitor this reporting unit in accordance with Accounting Standards Codification 350, Intangibles - Goodwill and Other.

Other Equity Method Investments

Other equity method investments relate to joint ventures associated with the Company’s equity method investment received through the sale of the Take Care Employer business in fiscal 2014 and its infusion and respiratory businesses. These investments are included within other non-current assets on the Consolidated Condensed Balance Sheets. The Company’s share of equity income is reported within selling, general and administrative expenses in the Consolidated Condensed Statements of Earnings.

Summarized U.S. GAAP Financial Information

Summarized financial information for the Company’s equity method investees is as follows:

Balance Sheet (In millions)

	November 30, 2014⁽¹⁾		August 31, 2014⁽¹⁾		November 30, 2013⁽¹⁾
Current assets	$	9,123	$	8,768	$	8,571
Noncurrent assets		22,320		21,525		19,758
Current liabilities		9,379		7,791		7,199
Noncurrent liabilities		10,618		11,285		11,751
Shareholders’ equity ⁽²⁾		11,446		11,217		9,379

Income Statement (In millions)

	Three Months Ended November 30,
	2014⁽³⁾		2013⁽³⁾
Net sales	$	9,654	$	8,859
Gross Profit		2,053		1,842
Net Income		357		348
Share of income from equity method investments⁽³⁾		152		151

⁽¹⁾ Net assets in Alliance Boots at November 30, 2014 are translated at the August 31, 2014 spot rate of $1.66 to one British Pound Sterling, corresponding to the three-month lag. Net assets at August 31, 2014 and November 30, 2013 are translated at the spot rates of $1.68 and $1.55 to one British Pound Sterling, respectively.

⁽²⁾Shareholders’ equity at November 30, 2014, August 31, 2014 and November 30, 2013, includes $283 million, $257 million and $378 million, respectively, related to noncontrolling interests.

⁽³⁾The Company utilizes a three-month lag in reporting its share of equity income in Alliance Boots. Earnings in Alliance Boots are translated at the average exchange rates of $1.68 and $1.53 to one British Pound Sterling for the quarters ended November 30, 2014 and 2013, respectively. Walgreens Boots Alliance Development GmbH operations are excluded from these results as the Company consolidates the joint venture.