Note 8. Short-Term Borrowings and Long-Term Debt

Short-term borrowings and long-term debt consist of the following (all amounts are presented in millions of U.S. Dollars. Debt issuances are denominated in U.S. Dollars, unless otherwise noted):

	November 30, 2014		August 31, 2014		November 30, 2013
Short-Term Borrowings⁽¹⁾
Current maturities of loans assumed through the purchase of land and buildings; various interest rates from 5.000% to 8.750%; various maturities from 2015 to 2035	$	7	$	8	$	2
Unsecured variable rate notes due 2014		-		-		550
1.000% unsecured notes due 2015		750		750		-
Other		17		16		19
Total short-term borrowings	$	774	$	774	$	571


Long-Term Debt⁽¹⁾
1.000% unsecured notes due 2015		-			-			750
Unsecured variable rate notes due 2016		750			-			-
1.800% unsecured notes due 2017		999			999			998
1.750% unsecured notes due 2017		749			-			-
5.250% unsecured notes due 2019⁽²⁾		1,019			1,010			1,018
2.700% unsecured notes due 2019		1,248			-			-
2.875% unsecured Pound Sterling notes due 2020⁽³⁾		624			-			-
3.300% unsecured notes due 2021		1,247			-			-
3.100% unsecured notes due 2022		1,199			1,199			1,199
3.800% unsecured notes due 2024		1,995			-			-
3.600% unsecured Pound Sterling notes due 2025⁽³⁾		469			-			-
2.125% unsecured Euro notes due 2026⁽⁴⁾		931			-			-
4.500% unsecured notes due 2034		497			-			-
4.400% unsecured notes due 2042		496			496			496
4.800% unsecured notes due 2044		1,500			-			-
Loans assumed through the purchase of land and buildings; various interest rates from 5.000% to 8.750%; various maturities from 2015 to 2035		40			40			42
		13,763			3,744			4,503
Less current maturities		(7	)		(8	)		(2	)
Total long-term debt	$	13,756		$	3,736		$	4,501

(1)

All notes are presented net of unamortized discount, where applicable.

(2)

Also includes interest rate swap fair market value adjustments, see Note 10 for additional fair value disclosures.

(3)

Pound Sterling denominated notes are translated at the November 30, 2014 spot rate of $1.56 to one British Pound Sterling.

(4)

Euro denominated notes are translated at the November 30, 2014 spot rate of $1.24 to one Euro.

$8.0 Billion Note Issuance

On November 18, 2014, WBA received net proceeds from a public offering of $7.9 billion of U.S. denominated notes with varying maturities and interest rates, the majority of which are fixed rate. The notes are unsecured, unsubordinated debt obligations of WBA and rank equally in right of payment with all other unsecured and unsubordinated indebtedness of WBA from time to time outstanding. The notes are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Walgreen Co. and its successors. This guarantee (for so long as it is in place) will be an unsecured, unsubordinated debt obligation of the Company and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding. Total issuance costs relating to the notes, including underwriting discounts and fees, were $44 million. The fair value of the notes as of November 30, 2014 was $8.2 billion. Fair value for these notes was determined based upon quoted market prices. See the Company’s Current Report on Form 8-K dated November 18, 2014 for further details.

The following table details each tranche of notes issued:

Notes Issued (In millions)		Maturity Date	Interest Rate	Interest Payment Dates
$	750	May 18, 2016	Variable; three-month U.S. Dollar LIBOR, reset quarterly, plus 45 basis points	February 18, May 18, August 18, and November 18; commencing on February 18, 2015.
	750	November 17, 2017	Fixed 1.750%	May 17 and November 17; commencing on May 17, 2015
	1,250	November 18, 2019	Fixed 2.700%	May 18 and November 18; commencing on May 18, 2015
	1,250	November 18, 2021	Fixed 3.300%	May 18 and November 18; commencing on May 18, 2015
	2,000	November 18, 2024	Fixed 3.800%	May 18 and November 18; commencing on May 18, 2015
	500	November 18, 2034	Fixed 4.500%	May 18 and November 18; commencing on May 18, 2015
	1,500	November 18, 2044	Fixed 4.800%	May 18 and November 18; commencing on May 18, 2015
$	8,000

Redemption Option

WBA may redeem (i) the notes due 2017, at any time in whole or from time to time in part, (ii) the notes due 2019, at any time prior to October 18, 2019 in whole or from time to time prior to October 18, 2019 in part, (iii) the notes due 2021, at any time prior to September 18, 2021 in whole or from time to time prior to September 18, 2021 in part, (iv) the notes due 2024, at any time prior to August 18, 2024 in whole or from time to time prior to August 18, 2024 in part, (v) the notes due 2034, at any time prior to May 18, 2034 in whole or from time to time prior to May 18, 2034 in part, and (vi) the notes due 2044, at any time prior to May 18, 2044 in whole or from time to time prior to May 18, 2044 in part, in each case, at WBA’s option, for an amount equal to the sum of accrued and unpaid interest plus a redemption price equal to the greater of :

(1) 100% of the principal amount of the fixed rate notes being redeemed; and

(2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the redemption date), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the applicable series of notes), plus 15 basis points for the notes due 2017, 15 basis points for the notes due 2019, 20 basis points for the notes due 2021, 20 basis points for the notes due 2024, 20 basis points for the notes due 2034 and 25 basis points for the notes due 2044.

In addition, at any time on or after October 18, 2019 with respect to the notes due 2019, September 18, 2021 with respect to the notes due 2021, August 18, 2024 with respect to the notes due 2024, May 18, 2034 with respect to the notes due 2034, or May 18, 2044 with respect to the notes due 2044, WBA may redeem some or all of the applicable series of fixed rate notes at its option, at a redemption price equal to 100% of the principal amount of the applicable fixed rate notes being redeemed, plus accrued and unpaid interest on the fixed rate notes being redeemed to, but excluding, the redemption date.

Special Mandatory Redemption and Change in Control

The terms of the notes will require WBA to retain the proceeds of the notes until the date on which the second step transaction is comsumated. In the event that the Second Step Closing Date does not occur on or prior to August 19, 2015 or if the Purchase and Option Agreement is terminated at any time on or prior to August 19, 2015 (each of such events being a Special Mandatory Redemption Trigger), then WBA will redeem in whole and not in part the aggregate principal amount of the notes outstanding at a redemption price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest from and including the date of the initial issuance, or the most recent date to which interest has been paid, whichever is later. Upon the occurrence of the Second Step Closing Date, the provisions described in this paragraph will cease to apply.

If WBA experiences a change of control triggering event, unless WBA has exercised its option to redeem the fixed rate notes or has defeased the notes as described in the indenture, WBA will be required to offer payment of cash equal to 101% of the aggregate principal amount of the notes plus accrued and unpaid interest.

£700 Million and €750 Million Notes Issuance

On November 20, 2014, WBA issued three series of debt securities denominated in Euros and Pounds Sterling, each with varying maturities and interest rates. Interest on all notes is payable annually on November 20, commencing on November 20, 2015. The notes are unsecured, unsubordinated debt obligations of WBA and rank equally in right of payment with all other unsecured and unsubordinated indebtedness of WBA from time to time outstanding. The notes are fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Walgreen Co. and its successors. This guarantee (for so long as it is in place) will be an unsecured, unsubordinated debt obligation of the Company and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding. Total issuance costs relating to the notes, including underwriting discounts and fees, were $11 million. The fair value of the notes as of November 30, 2014 was $2.0 billion. Fair value for these notes was determined based upon quoted market prices. See the Company’s Current Report on Form 8-K dated November 20, 2014 for further details.

The following table details each tranche of Euro and Pound Sterling notes issued:

Notes Issued (In millions)			Maturity Date	Interest Rate
Euro Notes:

	€	750	November 20, 2026	Fixed 2.125%

Pound Sterling Notes:

	£	400	November 20, 2020	Fixed 2.875%
		300	November 20, 2025	Fixed 3.600%
	£	700

Redemption Option

WBA may redeem (i) the Euro notes, at any time prior to August 20, 2026 in whole or from time to time prior to August 20, 2026 in part, (ii) the Pound Sterling notes due 2020, at any time prior to October 20, 2020 in whole or from time to time prior to October 20, 2020 in part, and (iii) the Pound Sterling notes due 2025, at any time prior to August 20, 2025 in whole or from time to time prior to August 20, 2025 in part, in each case, at WBA’s option, for an amount equal to the sum of accrued and unpaid interest plus at a redemption price equal to the greater of:

(1) 100% of the principal amount of the notes to be redeemed; and

(2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the redemption date), discounted to the redemption date on an annual basis at the applicable Comparable Government Bond Rate (as defined in the applicable series of notes), plus 20 basis points for the Euro notes, 20 basis points for the Pound Sterling notes due 2020 and 20 basis points for Pound Sterling the notes due 2025.

In addition, at any time on or after August 20, 2026 with respect to the Euro notes, October 20, 2020 with respect to the Pound Sterling notes due 2020, or August 20, 2025 with respect to the Pound Sterling notes due 2025, WBA may redeem some or all of the applicable series of notes at its option, at a redemption price equal to 100% of the principal amount of the applicable notes to be redeemed, plus, in every case, accrued and unpaid interest on the notes to be redeemed to, but excluding, the redemption date.

Special Mandatory Redemption and Change in Control

The terms of the notes will require WBA to retain the proceeds of the notes until the Second Step Closing Date. In the event that the Second Step Closing Date does not occur on or prior to August 19, 2015 or if the Purchase and Option Agreement is terminated at any time on or prior to August 19, 2015 (each of such events being a Special Mandatory Redemption Trigger), then WBA will redeem in whole and not in part the aggregate principal amount of the notes outstanding at a redemption price equal to 101% of the aggregate principal amount of the notes, plus accrued and unpaid interest from and including the date of the initial issuance, or the most recent date to which interest has been paid , whichever is later. Upon the occurrence of the Second Step Closing Date, the provisions described in this paragraph will cease to apply.

$4.0 Billion Note Issuance

On September 13, 2012, the Company obtained net proceeds from a public offering of $4.0 billion of U.S. denominated notes with varying maturities and interest rates, the majority of which, at issuance, were fixed rate. The notes are unsecured senior debt obligations and rank equally with all other unsecured and unsubordinated indebtedness of the Company. The following table details each tranche of outstanding notes issued:

Notes Issued (In millions)		Maturity Date	Interest Rate	Interest Payment Dates
$	750	March 13, 2015	Fixed 1.000%	March 13 and September 13; commencing on March 13, 2013
	1,000	September 15, 2017	Fixed 1.800%	March 15 and September 15; commencing on March 15, 2013
	1,200	September 15, 2022	Fixed 3.100%	March 15 and September 15; commencing on March 15, 2013
	500	September 15, 2042	Fixed 4.400%	March 15 and September 15; commencing on March 15, 2013
$	3,450

Redemption Option

The Company may redeem the fixed rate notes at its option, at any time in whole, or from time to time in part, at a redemption price equal to the greater of: (1) 100% of the principal amount of the notes being redeemed; and (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payments of interest accrued as of the date of redemption), discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in the applicable series of notes), plus 12 basis points for the notes due 2015, 20 basis points for the notes due 2017, 22 basis points for the notes due 2022 and 25 basis points for the notes due 2042. If a change of control triggering event occurs, the Company will be required, unless it has exercised its right to redeem the notes, to offer to purchase the notes at a purchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, on the notes repurchased to the date of repurchase. Total issuance costs relating to the notes, including underwriting discounts and fees, were $26 million. The fair value of the notes as of November 30, 2014, August 31, 2014 and November 30, 2013, was $3.5 billion, $3.4 billion and $3.9 billion, respectively. Fair value for these notes was determined based upon quoted market prices.

$1.0 Billion Note Issuance

On January 13, 2009, the Company issued U.S. denominated notes totaling $1.0 billion bearing an interest rate of 5.250% paid semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2009. The notes will mature on January 15, 2019. The Company may redeem the notes, at any time in whole or from time to time in part, at its option at a redemption price equal to the greater of: (1) 100% of the principal amount of the notes to be redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal and interest, discounted to the date of redemption on a semiannual basis at the Treasury Rate (as defined in the applicable series of notes), plus 45 basis points, plus accrued interest on the notes to be redeemed to, but excluding, the date of redemption. If a change of control triggering event occurs, unless the Company has exercised its option to redeem the notes, it will be required to offer to repurchase the notes at a purchase price equal to 101% of the principal amount of the notes plus accrued and unpaid interest to the date of redemption. The notes are unsecured senior debt obligations and rank equally with all other unsecured senior indebtedness of the Company. The notes are not convertible or exchangeable. Total issuance costs relating to this offering were $8 million, which included $7 million in underwriting fees. The fair value of the notes as of November 30, 2014, August 31, 2014 and November 30, 2013 was $1.1 billion, $1.1 billion and $1.1 billion, respectively. Fair value for these notes was determined based upon quoted market prices.

Other Borrowings

The Company periodically borrows under its commercial paper program and intends to borrow under it in future periods. The Company had no activity under its commercial paper program during the first quarter of fiscal 2015.

On November 10, 2014, the Company and WBA entered into a Term Loan Credit Agreement (the Term Loan Agreement) providing the Company or, to the extent the Holdco Reorganization (as defined in the Term Loan Agreement) is consummated on or prior to the Alliance Boots Acquisition Closing Date (as defined in the Term Loan Agreement), WBA (the Company or WBA, as applicable, the Borrower), with the ability to borrow up to £1.45 billion on an unsecured basis to finance a portion of the Alliance Boots second step transaction, repay or refinance certain indebtedness of Walgreens, Alliance Boots GmbH and their respective subsidiaries and to pay related transaction costs. Borrowings under the Term Loan Agreement will bear interest at a fluctuating rate per annum equal to the reserve adjusted Eurocurrency rate plus an applicable margin based on the Borrower’s credit ratings.

On November 10, 2014, the Company and WBA entered into a five-year unsecured, multicurrency revolving credit agreement (the Revolving Credit Agreement), replacing the prior agreements dated July 20, 2011 and July 23, 2012. The Company will be the initial borrower under the Revolving Credit Agreement. To the extent the Holdco Reorganization (as defined in the Revolving Credit Agreement) is consummated on or prior to the Alliance Boots Acquisition Closing Date (as defined in the Revolving Credit Agreement) (and subject to the satisfaction (or waiver) of certain other conditions set forth therein), WBA will also be a borrower under the Revolving Credit Agreement. The new unsecured revolving credit agreement totals $2.25 billion, of which $375 million will be available for the issuance of letters of credit. The total availability under the facility will increase to $3.0 billion, of which $500 million will be available for the issuance of letters of credit, upon the affirmative vote of the majority of common shares of the Company represented and entitled to vote at the Company’s shareholder meeting to approve the issuance of the necessary shares to complete the second step acquisition of Alliance Boots. The issuance of letters of credit reduces the aggregate amount otherwise available under the revolving credit agreement for the making of revolving loans Borrowings under the Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the applicable borrower’s option, the alternate base rate or the reserve adjusted Eurocurrency rate, in each case, plus an applicable margin calculated based on the Company’s or, to the extent the Holdco Reorganization is consummated on or prior to the Alliance Boots Acquisition Closing Date, WBA’s credit ratings. The Company’s ability to access these facilities is subject to compliance with the terms and conditions of the credit facilities, including financial covenants. The covenants require the Company to maintain certain financial ratios related to the proportion of consolidated debt to total capitalization and priority debt, along with limitations on the sale of assets and purchases of investments. At November 30, 2014, the Company was in compliance with all such covenants. Total upfront fees related to the term loan and revolving credit agreement were $14 million. The Company pays a facility fee to the financing banks to keep these lines of credit active. At November 30, 2014, there were no letters of credit issued against these credit facilities.