Fair Value Measurements

3 Months Ended

Nov. 30, 2015

Note 12. 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):

	November 30, 2015		Level 1		Level 2		Level 3
Assets:
Restricted cash⁽¹⁾	$	171	$	171	$	—	$	—
Money market funds⁽²⁾		1,190		1,190		—		—
Available-for-sale investments⁽³⁾		1,164		1,164		—		—
Interest rate swaps⁽⁴⁾		3		—		3		—
Foreign currency forwards⁽⁵⁾		15		—		15		—
Warrants⁽⁶⁾		2,078		—		2,078		—
Liabilities:
Basis swaps⁽⁵⁾		1		—		1		—
Foreign currency forwards⁽⁵⁾		9		—		9		—

	August 31, 2015		Level 1		Level 2		Level 3
Assets:
Restricted cash⁽¹⁾	$	184	$	184	$	—	$	—
Money market funds⁽²⁾		2,043		2,043		—		—
Available-for-sale investments⁽³⁾		1,183		1,183		—		—
Interest rate swaps⁽⁴⁾		2		—		2		—
Foreign currency forwards⁽⁵⁾		34		—		34		—
Warrants⁽⁶⁾		2,140		—		2,140		—
Liabilities:
Foreign currency forwards⁽⁵⁾		9		—		9		—

⁽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 7, Available-for-Sale Investments for additional information.

⁽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 11, Financial Instruments for additional information.

⁽⁵⁾

The fair value of basis swaps and 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.

There were no transfers between levels for the three-month periods ended November 30, 2015 and 2014, respectively.

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 10, Short-Term Borrowings and Long-Term Debt for further information. The carrying values of accounts receivable and trade accounts payable approximated their respective fair values due to their short-term nature.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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