10. 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):

	August 31, 2015		August 31, 2014
Short-Term Borrowings⁽¹⁾
Current portion 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	$	2	$	8
Unsecured variable rate notes due 2016		747		-
1.000% unsecured notes due 2015		-		750
Other⁽²⁾		319		16
Total short-term borrowings	$	1,068	$	774

Long-Term Debt⁽¹⁾
Unsecured Pound Sterling variable rate term loan due 2019⁽⁴⁾	$	2,229	$	-
1.800% unsecured notes due 2017		-		994
1.750% unsecured notes due 2017		746		-
5.250% unsecured notes due 2019⁽³⁾		250		1,007
2.700% unsecured notes due 2019		1,243		-
2.875% unsecured Pound Sterling notes due 2020⁽⁴⁾		612		-
3.300% unsecured notes due 2021		1,241		-
3.100% unsecured notes due 2022		1,193		1,192
3.800% unsecured notes due 2024		1,985		-
3.600% unsecured Pound Sterling notes due 2025⁽⁴⁾		459		-
2.125% unsecured Euro notes due 2026⁽⁵⁾		836		-
4.500% unsecured notes due 2034		494		-
4.400% unsecured notes due 2042		492		491
4.800% unsecured notes due 2044		1,491		-
Loans assumed through the purchase of land and buildings; various interest rates from 5.000% to 8.750%; various maturities from 2015 to 2035		20		32
Other⁽⁶⁾		24		-
Total long-term debt	$	13,315	$	3,716

⁽¹⁾	All notes are presented net of unamortized discount and debt issuance costs, where applicable.

⁽²⁾	Other short-term borrowings represent a mix of fixed and variable rate borrowings with various maturities and working capital facilities denominated in various foreign currencies including $45 million of U.S. dollar equivalent bank overdrafts.

⁽³⁾	Also includes interest rate swap fair market value adjustments, see Note 12, Fair Value Measurements for additional fair value disclosures.

⁽⁴⁾	Pound Sterling denominated notes are translated at the August 31, 2015 spot rate of $1.54 to one British Pound Sterling.

⁽⁵⁾	Euro denominated notes are translated at the August 31, 2015 spot rate of $1.12 to one Euro.

⁽⁶⁾	Other long-term debt represents a mix of fixed and variable rate borrowings in various foreign currencies with various maturities.

Extinguishment of Debt Assumed in Second Step Transaction

As a result of the Second Step Transaction (see Note 8, Acquisitions), the Company assumed $9.0 billion of Alliance Boots existing debt. In January 2015, the Company repaid substantially all of the assumed debt with proceeds from the November 2014 debt issuances described below.

$8.0 Billion Note Issuance

On November 18, 2014, Walgreens Boots Alliance received net proceeds (after deducting underwriting discounts and estimated offering expenses) of $7.9 billion from a public offering of notes with varying maturities and interest rates, the majority of which are fixed rate. The notes are unsecured, unsubordinated debt obligations of Walgreens Boots Alliance and rank equally in right of payment with all other unsecured and unsubordinated indebtedness of Walgreens Boots Alliance from time to time outstanding. The notes were fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Walgreens until August 10, 2015, when such guarantees were unconditionally released and discharged (as described below). Total issuance costs relating to the notes, including underwriting discounts and estimated offering expenses, were $44 million. The fair value of the notes as of August 31, 2015 was $7.8 billion. Fair value for these notes was determined based upon quoted market prices.

The following table summarizes 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

Former Walgreens Guarantee

Upon issuance, the notes were guaranteed on an unsecured and unsubordinated basis by Walgreens pursuant to a guarantee agreement dated as of November 18, 2014. Pursuant to the terms of the Guarantee Agreement, such Guarantee Agreement would automatically terminate, and Walgreens’ obligations thereunder would be unconditionally released and discharged, if and when (i) the aggregate outstanding principal amount of Capital Markets Indebtedness, including the Existing Notes, and Commercial Bank Indebtedness (as each such capitalized term is defined in the Guarantee Agreement), in each case, of Walgreens is less than $2.0 billion and (ii) Walgreens does not guarantee any Capital Markets Indebtedness (other than the notes or the Euro/Sterling notes issued on November 20, 2014 described below) or Commercial Bank Indebtedness, in each case, of the Walgreens Boots Alliance. Once released in accordance with its terms, the guarantees will not subsequently be required to be reinstated. On August 10, 2015, as a result of the redemption of certain notes of Walgreens described below, the Guarantee Agreement was automatically terminated in accordance with its terms, without penalty to Walgreens or Walgreens Boots Alliance, and the obligations of Walgreens thereunder were unconditionally released and discharged.

Redemption Option

Walgreens Boots Alliance may redeem (a) the notes due 2017, at any time in whole or from time to time in part, (b) 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, (c) 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, (d) 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, (e) 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 (f) 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 Walgreens Boots Alliance’s option for 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, Walgreens Boots Alliance 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.

Change in Control

If Walgreens Boots Alliance experiences a change of control triggering event, unless Walgreens Boots Alliance has exercised its option to redeem the fixed rate notes or has defeased the notes as described in the indenture, Walgreens Boots Alliance 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, Walgreens Boots Alliance issued three series of debt securities denominated in Euros and Pound Sterling in a public offering, 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 Walgreens Boots Alliance and rank equally in right of payment with all other unsecured and unsubordinated indebtedness of Walgreens Boots Alliance from time to time outstanding. The notes were fully and unconditionally guaranteed on an unsecured and unsubordinated basis by Walgreens until August 10, 2015, when such guarantees were unconditionally released and discharged (as described below). Total issuance costs relating to the notes, including underwriting discounts and estimated offering expenses, were $11 million. The fair value of the notes as of August 31, 2015 was $1.9 billion. Fair value for these notes was determined based upon quoted market prices.

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

Former Walgreens Guarantee

Upon issuance, the notes were guaranteed on an unsecured and unsubordinated basis by Walgreens pursuant to a guarantee agreement dated as of November 20, 2014. Pursuant to the terms of the Guarantee Agreement, such Guarantee Agreement would automatically terminate, and Walgreens’ obligations thereunder would be unconditionally released and discharged, if and when (i) the aggregate outstanding principal amount of Capital Markets Indebtedness, including the Existing Notes, and Commercial Bank Indebtedness (as each such capitalized term is defined in the Guarantee Agreement), in each case, of Walgreens is less than $2.0 billion and (ii) Walgreens does not guarantee any Capital Markets Indebtedness (other than the notes or the U.S. Dollar notes issued on November 18, 2014 described above) or Commercial Bank Indebtedness, in each case, of Walgreens Boots Alliance. Once released in accordance with its terms, the guarantees will not subsequently be required to be reinstated. On August 10, 2015, as a result of the redemption of certain notes of Walgreens described below, the Guarantee Agreement was automatically terminated in accordance with its terms, without penalty to Walgreens or Walgreens Boots Alliance, and the obligations of Walgreens thereunder were unconditionally released and discharged.

Redemption Option

Walgreens Boots Alliance may redeem (a) 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, (b) 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 (c) 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 Walgreens Boots Alliance’s option for 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, Walgreens Boots Alliance 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.

Change in Control

$4.0 Billion Note Issuance

On September 13, 2012, Walgreens obtained net proceeds from a public offering of $4.0 billion of 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 Walgreens. On December 31, 2014, Walgreens Boots Alliance fully and unconditionally guaranteed the outstanding notes on an unsecured and unsubordinated basis. The guarantee, for so long as it is in place, is an unsecured, unsubordinated debt obligation of Walgreens Boots Alliance and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of Walgreens Boots Alliance. Total issuance costs relating to the notes, including underwriting discounts and fees, were $26 million. On August 10, 2015, the 1.8000% fixed rate notes due September 15, 2017 in the aggregate principal amount of $1.0 billion were redeemed in full. The redemption price was equal to 101.677% of the aggregate principal amount of the notes redeemed, plus accrued interest thereon to, but excluding, the redemption date, and included a $17 million make whole premium, which was recorded as interest expense on the Company’s Consolidated Statements of Earnings. Additionally, the Company repaid the $750 million 1.000% fixed rate notes on their March 13, 2015 maturity date and the $550 million variable rate notes on their March 13, 2014 maturity date.

The following table details each tranche of outstanding notes as of August 31, 2015:

Notes Issued (in millions)		Maturity Date	Interest Rate	Interest Payment Dates
$	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
$	1,700

The fair value of the notes outstanding as of August 31, 2015 and August 31, 2014 was $1.6 billion and $3.4 billion (at August 31, 2014 there was $3.5 billion of issued notes outstanding), respectively. Fair value for these notes was determined based upon quoted market prices.

Redemption Option and Change in Control

Walgreens 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: (a) 100% of the principal amount of the notes being redeemed; and (b) 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, 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, Walgreens 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.

$1.0 Billion Note Issuance

On January 13, 2009, Walgreens issued 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 notes are unsecured senior debt obligations and rank equally with all other unsecured senior indebtedness of Walgreens. On December 31, 2014, Walgreens Boots Alliance fully and unconditionally guaranteed the outstanding notes on an unsecured and unsubordinated basis. The guarantee, for so long as it is in place, is an unsecured, unsubordinated debt obligation of Walgreens Boots Alliance and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of Walgreens Boots Alliance. The notes are not convertible or exchangeable. Total issuance costs relating to this offering including underwriting discounts and fees, were $8 million. On August 10, 2015, $750 million aggregate principal amount of the notes were redeemed. The redemption price was equal to 111.734% of the aggregate principal amount of the notes redeemed, plus accrued interest thereon to, but excluding, the redemption date, and included a $88 million make whole premium, which was recorded as interest expense on the Company’s Consolidated Statements of Earnings. The partial redemption of the notes resulted in $250 million aggregate principal amount of the notes remaining outstanding. The fair value of the notes as of August 31, 2015 and August 31, 2014 was $0.3 billion and $1.1 billion, respectively. Fair value for these notes was determined based upon quoted market prices.

Redemption Option and Change in Control

Walgreens 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: (a) 100% of the principal amount of the notes to be redeemed; or (b) 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 Walgreens 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.

Other Borrowings

The Company periodically borrows under its commercial paper program and may continue to borrow under it in future periods. There were no commercial paper borrowings outstanding at August 31, 2015 or 2014. The Company had average daily short-term borrowings of $82 million of commercial paper outstanding at a weighted average interest rate of 0.52% in fiscal 2015. In fiscal 2014, the Company had average daily short-term borrowings of $4 million of commercial paper outstanding at a weighted average interest rate of 0.23%.

On November 10, 2014, Walgreens Boots Alliance and Walgreens entered into a term loan credit agreement (the “Term Loan Agreement”) which provides the ability to borrow up to £1.45 billion on an unsecured basis. As of August 31, 2015, Walgreens Boots Alliance has borrowed £1.45 billion ($2.2 billion at the August 31, 2015 spot rate of $1.54 to £1) under the Term Loan Agreement. Borrowings under the Term Loan Agreement bear interest at a fluctuating rate per annum equal to the reserve adjusted LIBOR plus an applicable margin based on the Company’s credit ratings. The fair value of the Term Loan Agreement as of August 31, 2015 was $2.2 billion. Fair value of the Term Loan Agreement was determined based upon quoted market prices.

On November 10, 2014, Walgreens Boots Alliance and Walgreens entered into a five-year unsecured, multicurrency revolving credit agreement (the “Revolving Credit Agreement”), replacing prior Walgreens agreements dated July 20, 2011 and July 23, 2012. The new unsecured revolving credit agreement initially totaled $2.25 billion, of which $375 million was available for the issuance of letters of credit. On December 29, 2014, upon the affirmative vote of the majority of common shares of Walgreens represented and entitled to vote at the Walgreens special meeting of shareholders to approve the issuance of the shares necessary to complete the Second Step Transaction, the available credit increased to $3.0 billion, of which $500 million is available for the issuance of letters of credit. 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 Walgreens Boots Alliance’s option, the alternate base rate or the reserve adjusted LIBOR, in each case, plus an applicable margin calculated based on the Company’s credit ratings.

Total upfront fees related to the Term Loan Agreement 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 August 31, 2015, there were no borrowings or letters of credit issued against the revolving credit facility.

In accordance with the terms of each of the Term Loan Agreement and the Revolving Credit Agreement, Walgreens guaranteed the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all of Walgreens Boots Alliance’s obligations under the Term Loan Agreement and Revolving Credit Agreement, as applicable. Pursuant to the terms of the Term Loan Agreement and Revolving Credit Agreement, as applicable, each such guarantee would automatically terminate, and Walgreens’ obligations thereunder would be unconditionally released and discharged, if (i) the aggregate outstanding principal amount of Capital Markets Indebtedness, including the Existing Notes, and Commercial Bank Indebtedness (as each such capitalized term is defined in the Term Loan Agreement or Revolving Credit Agreement, as applicable), in each case, of Walgreens is less than $2.0 billion and (ii) Walgreens does not guarantee any Capital Markets Indebtedness or Commercial Bank Indebtedness, in each case, of Walgreens Boots Alliance. On August 10, 2015, as a result of completing the redemption of certain of the Walgreens notes described above and the release of the guarantees of the Walgreens Boots Alliance notes described above, such guarantees of the Term Loan Agreement and Revolving Credit Agreement automatically terminated, without penalty to Walgreens or Walgreens Boots Alliance and the obligations of Walgreens thereunder were unconditionally released and discharged.

On December 19, 2014, Walgreens Boots Alliance and Walgreens entered into a Revolving Credit Agreement (the “364-Day Credit Agreement”) with the lenders party thereto. The 364-Day Credit Agreement is a 364-day unsecured, multicurrency revolving facility. The aggregate commitment of all lenders under the 364-Day Credit Agreement is $750 million. The Company pays a facility fee to the financing banks to keep this line of credit active. On July 9, 2015, Walgreens Boots Alliance amended the 364-Day Credit Agreement to remove Walgreens as a borrower thereunder, eliminate Walgreens’ guarantee of all obligations of Walgreens Boots Alliance thereunder and make certain conforming changes to effectuate those modifications, including modifications and deletions of certain definitions and cross-references. At August 31, 2015, there were no borrowings against the 364-Day Credit Agreement.

The Term Loan Agreement, Revolving Credit Agreement and the 364-Day Revolving Credit Agreement each contain a covenant to maintain, as of the last day of each fiscal quarter, a ratio of consolidated debt to total capitalization not to exceed 0.60 to 1.00, as well as other customary restrictive covenants. At August 31, 2015, we were in compliance with all such covenants.