Fair Value Measurements

6 Months Ended

Feb. 28, 2015

11. Fair Value Measurements

The Company measures certain assets and liabilities in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, which 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):

	February 28, 2015		Level 1		Level 2		Level 3
Assets:
Restricted cash ⁽¹⁾	$	206	$	206	$	-	$	-
Money market funds ⁽²⁾		1,881		1,881		-		-
Available-for-sale investments ⁽³⁾		1,255		1,255		-		-
Interest rate swaps ⁽⁴⁾		22		-		22		-
Basis swap		6		-		6		-
Foreign currency forwards ⁽⁵⁾		60		-		60		-
Warrants ⁽⁶⁾		2,231		-		2,231		-
Liabilities:
Foreign currency forwards ⁽⁵⁾		7		-		7		-

	August 31, 2014		Level 1		Level 2		Level 3
Assets:
Money market funds ⁽²⁾	$	1,879	$	1,879	$	-	$	-
Available-for-sale investments ⁽³⁾		887		887		-		-
Interest rate swaps ⁽⁴⁾		16		-		16		-
Warrants ⁽⁵⁾		553		-		553		-
Liabilities:
Forward interest rate swaps ⁽⁷⁾		44		-		44		-

⁽¹⁾	Restricted cash consists of deposits restricted under agency agreements and cash restricted by law and other obligations.

⁽²⁾	Money market funds are valued at the closing price reported by the fund sponsor.

⁽³⁾	Fair values of quoted investments are based on current bid prices as of the balance sheet dates. See Note 6, Available-for-Sale Investments for additional disclosures.

⁽⁴⁾	The fair value of interest rate swaps is calculated by discounting the estimated cash flows received and paid based on the applicable observable yield curves. See Note 10, Financial Instruments for additional disclosures.

⁽⁵⁾	The fair value of forward currency contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using observable market rates.

⁽⁶⁾

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.

⁽⁷⁾	Forward interest rate swaps were valued using three-month LIBOR rates. See Note 10, Financial Instruments for additional disclosures.

There were no transfers between levels for the three and six months ended February 28, 2015 and February 28, 2014.

The Company reports its debt instruments under the guidance of ASC Topic 825, Financial Instruments, which requires disclosure of the fair value of the Company's debt in the footnotes to the consolidated financial statements. Unless otherwise noted, the fair value for all notes was determined based upon quoted market prices and therefore categorized as Level 1. See Note 9, Short-Term Borrowings and Long-Term Debt for further details. The carrying values of accounts receivable and trade accounts payable approximated their respective fair values due to their short-term nature.

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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