WALGREENS BOOTS ALLIANCE, INC. The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein and the Consolidated Financial Statements, accompanying notes and management's discussion and analysis of financial condition and results of operations and other disclosures contained in theWalgreens Boots Alliance, Inc. Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 . This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under "Cautionary note regarding forward-looking statements", in item 1A, risk factors, in our Form 10-K for the fiscal year endedAugust 31, 2019 and in item 1A, risk factors, in this report. References herein to the "Company", "we", "us", or "our" refer toWalgreens Boots Alliance, Inc. and its subsidiaries, except as otherwise indicated or the context otherwise requires. Certain amounts in the management's discussion and analysis of financial condition and results of operations may not add due to rounding. All percentages have been calculated using unrounded amounts for the three and six months endedFebruary 29, 2020 andFebruary 28, 2019 . INTRODUCTION AND SEGMENTSWalgreens Boots Alliance, Inc. ("Walgreens Boots Alliance ") and its subsidiaries are a global leader in retail and wholesale pharmacy. Its operations are conducted through three reportable segments: •Retail PharmacyUSA ; •Retail Pharmacy International; and •Pharmaceutical Wholesale.
See note 14, segment reporting and note 15, sales for further information.
FACTORS AFFECTING OUR RESULTS AND COMPARABILITYThe Company has been, and we expect it to continue to be, affected by a number of factors that may cause actual results to differ from our historical results or current expectations. These factors include: the impact of the coronavirus COVID-19 ("COVID-19") pandemic on our operations and financial results; the financial performance of our equity method investees, including AmerisourceBergen; the influence of certain holidays; seasonality; foreign currency rates; changes in vendor, payer and customer relationships and terms and associated reimbursement pressure; strategic transactions and acquisitions, including the acquisition of stores and other assets from Rite Aid; joint ventures and other strategic collaborations; changes in laws, including theU.S. tax law changes; changes in trade, tariffs, including trade relations betweenthe United States andChina , and international relations, including theUK's withdrawal from theEuropean Union and its impact on our operations and prospects and those of our customers and counterparties; the timing and magnitude of cost reduction initiatives, including under our Transformational Cost Management Program (as defined below); fluctuations in variable costs; and general economic conditions in the markets in which the Company operates. These and other factors can affect the Company's operations and net earnings for any period and may cause such results not to be comparable to the same period in previous years. The results presented in this report are not necessarily indicative of future operating results. Uncertainty Relating to COVID-19 We are closely monitoring the impact of COVID-19 on all aspects of our business and geographies, including how it will impact our customers, team members, suppliers, vendors, business partners and distribution channels. While we did not incur significant disruptions during the three and six months endedFebruary 29, 2020 from COVID-19, we are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties. These uncertainties include the severity of the virus, the duration of the outbreak, governmental, business or other actions (which could include limitations on our operations or mandates to provide products or services), impacts on our supply chain, the effect on customer demand, store closures or changes to our operations. The health of our workforce, and our ability to meet staffing needs in our stores, distribution facilities, wholesale operations and other critical functions cannot be predicted and is vital to our operations. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. In addition, we cannot predict the impact that COVID-19 will have on our customers, vendors, suppliers and other business partners; however, any material effect on these parties could adversely impact us. Effects from COVID-19 pandemic began at the end of the second quarter and were not material to the three and six months results. The situation surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our financial position and operating results, as well as adverse developments in our business. For further information regarding the impact of COVID-19 on the Company, please see item 1A, risk factors in this report, which is incorporated herein by reference. - 34 - -------------------------------------------------------------------------------- The Impact of Brexit InJune 2016 , voters in theUnited Kingdom approved an advisory referendum to withdraw from theEuropean Union , which exit (and the political, economic and other uncertainties it has raised) is commonly referred to as "Brexit". Since the Brexit vote inJune 2016 , the deadline for Brexit has been extended multiple times and there has been significant volatility in the global stock markets and currency exchange rates, as well as challenging market conditions in theUnited Kingdom . TheDecember 2019 general election in theUnited Kingdom resulted in a significant working majority for the ruling Conservative party, and as a result, theUnited Kingdom left theEuropean Union onJanuary 31, 2020 . There is now a transition period untilDecember 31, 2020 in which theUnited Kingdom andEuropean Union are to negotiate a new trading relationship for goods and services. Failure to complete negotiations by the implementation deadline ofDecember 31, 2020 , subject to any extension thereof, or failure to agree with theEuropean Union to favorable terms, could result in theUnited Kingdom becoming subject to trade agreements with theEuropean Union that are less favorable than those currently in effect. Although we continue to actively monitor the ongoing potential impacts of Brexit and continue to work to minimize its impact on our business, if negotiations are not complete byDecember 31, 2020 , these conditions could continue and there could be increased costs from tariffs on trade between theUnited Kingdom andEuropean Union and disruptions to the free movement of goods, services and people between theUnited Kingdom and theEuropean Union and other parties. Further, uncertainty around and developments regarding these and related issues has contributed to deteriorating market conditions and could further adversely impact consumer and investor confidence and the economy of theUnited Kingdom and the economies of other countries in which we operate and cause significant volatility in currency exchange rates. Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the withdrawal of theUnited Kingdom from theEuropean Union will have on our business, particularlyUnited Kingdom and other European operations; however, Brexit and its related effects could have a material impact on the Company's consolidated financial position or operating results. TRANSFORMATIONAL COST MANAGEMENT PROGRAM OnDecember 20, 2018 , the Company announced a transformational cost management program that was expected to deliver in excess of$1.0 billion of annual cost savings by fiscal 2022 (the "Transformational Cost Management Program"). InApril 2019 , the Company announced that it had increased the expected annual cost savings to in excess of$1.5 billion by fiscal 2022, which was further increased to in excess of$1.8 billion inOctober 2019 . The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company's information technology (IT) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program. The actions under the Transformational Cost Management Program focus on all reportable segments and the Company's global functions. Divisional optimization within each of the Company's segments includes activities such as optimization of stores which includes plans to close approximately 200 stores in theUnited Kingdom and approximately 200 locations inthe United States . The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its generally accepted accounting principles inthe United States ("GAAP") financial results of approximately$1.9 billion to$2.4 billion , of which$1.6 billion to$2.0 billion are expected to be recorded as exit and disposal activities. The Company estimates that approximately 80% of the cumulative pre-tax charges will be associated with cash expenditures, primarily related to employee severance and business transition costs, IT transformation costs and lease and real estate payments.
The Company currently estimates that it will recognize aggregate pre-tax charges to its GAAP financial results related to Transformational Cost Management Program as follows:
Transformational Cost Program Activities
Range of Charges
$200 to 300 Lease obligations and other real estate costs million$400 to 500 Asset impairments1 million$600 to 700 Employee severance and business transition costs million$400 to 500 Information technology transformation and other exit costs million$1.6 to 2.0 Total cumulative pre-tax exit and disposal costs billion$300 to 400 Other IT transformation costs million$1.9 to 2.4 Total estimated pre-tax costs billion
1Primarily related to asset write-offs from store closures, information technology and other asset write-offs.
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In addition to the impacts discussed above, as a result of the actions related
to store closures taken under the Transformational Cost Management Program, the
Company recorded $508 million of transition adjustments to decrease retained
earnings due to the adoption of the new lease accounting standard (Topic 842)
that became effective on September 1, 2019 . See note 17, new accounting
pronouncements, for additional information.
Since the inception of the Transformational Cost Management Program to February
29, 2020 , the Company has recognized aggregate cumulative pre-tax charges to
its financial results in accordance with GAAP of $686 million , of which $605
million are recorded as exit and disposal activities. See note 3, exit and
disposal activities, for additional information. These charges included $36
million related to lease obligations and other real estate costs, $275 million
in asset impairments, $236 million in employee severance and business transition
costs, $58 million of information technology transformation and other exit costs
and $80 million other information technology costs.
Costs under the Transformational Cost Management Program, which were primarily
recorded in selling, general and administrative expenses for the three and six
months ended February 29, 2020 , respectively, were as follows (in millions):
Retail Pharmacy Retail Pharmacy Walgreens Boots
Three months ended February 29, 2020 USA International Pharmaceutical Wholesale Alliance, Inc.
Lease obligations and other real estate
costs $ 9 $ 1 $ - $ 10
Asset impairments 3 - - 3
Employee severance and business transition
costs 39 29 4 72
Information technology transformation and
other exit costs 9 13 1 24
Total pre-tax exit and disposal costs $ 60 $ 43 $ 5 $ 109
Other IT transformation costs 9 4 1 14
Total pre-tax costs $ 70 $ 47 $ 6 $ 123
Retail Pharmacy Retail Pharmacy Pharmaceutical Walgreens Boots
Six months ended February 29, 2020 USA International Wholesale Alliance, Inc.
Lease obligations and other real estate
costs $ 10 $ 1 $ - $ 11
Asset impairments 11 3 - 15
Employee severance and business transition
costs 72 30 9 111
Information technology transformation and
other exit costs 16 17 2 36
Total pre-tax exit and disposal costs $ 110 $ 52 $ 12 $ 173
Other IT transformation costs 26 7 2 35
Total pre-tax costs $ 136 $ 59 $ 14 $ 209
Costs under the Transformational Cost Management Program, which were primarily
recorded in selling, general and administrative expenses for the six months
ended February 28, 2019 , were $179 million . These charges primarily relate to
actions taken in the Pharmaceutical Wholesale and Retail Pharmacy International
divisions.
Transformational Cost Management Program charges are recognized as the costs are
incurred over time in accordance with GAAP. The Company treats charges related
to the Transformational Cost Management Program as special items impacting
comparability of results in its earnings disclosures.
The amounts and timing of all estimates are subject to change until finalized.
The actual amounts and timing may vary materially based on various factors. See
"cautionary note regarding forward-looking statements" below.
RITE AID TRANSACTION
On September 19, 2017 , the Company announced it had secured regulatory clearance
for an amended and restated asset purchase agreement to purchase 1,932 stores,
three distribution centers and related inventory from Rite Aid for $4.375
billion in cash and other consideration. The Company has completed the
acquisition of all 1,932 Rite Aid stores and two distribution centers and
related inventory, while the transition of the remaining distribution center and
related inventory remains subject to closing conditions set forth in the amended
and restated asset purchase agreement.
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The Company expects to incur approximately
Integration of acquired stores and related assets The Company expects to complete integration of the acquired stores and related assets by the end of fiscal 2020, at an estimated total cost of approximately$800 million , which is reported as acquisition-related costs, compared to the Company's previously stated expectation of$850 million and is treated as special items impacting comparability of results in its earnings disclosures. Since fiscal 2018, the Company has recognized cumulative pre-tax charges of$737 million , which includes pre-tax charges of$220 million for six months endedFebruary 29, 2020 related to integration of the acquired stores and related assets. The Company expects annual synergies from the transaction of more than$325 million , which are expected to be fully realized within four years of the initial closing of this transaction and derived primarily from procurement, cost savings and other operational matters. In addition, the Company expects to spend approximately$500 million on store conversions and related activities. The amounts and timing of all estimates are subject to change until finalized. The actual amounts and timing may vary materially based on various factors. See "cautionary note regarding forward-looking statements" below. Store Optimization Program OnOctober 24, 2017 , the Company's Board of Directors approved a plan to implement a program (the "Store Optimization Program") to optimize store locations through the planned closure of approximately 600 stores and related assets within the Company'sRetail Pharmacy USA segment upon completion of the acquisition of certain stores and related assets from Rite Aid. As of the date of this report, the Company expects to close approximately 750 stores and related assets, of which the majority have been closed as part of this program. The actions under the Store Optimization Program commenced inMarch 2018 and are expected to be complete by the end of fiscal 2020. The Store Optimization Program is expected to result in cost savings of approximately$350 million per year to be fully delivered by the end of fiscal 2020. The Company currently estimates that it will recognize cumulative pre-tax charges to its GAAP financial results of approximately$400 million , compared to the Company's previously stated expectation of$350 million , of which$335 million have been recorded to date, primarily within selling, general and administrative expenses, including costs associated with lease obligations and other real estate costs and employee severance and other exit costs. The Company expects to incur pre-tax charges of approximately$190 million for lease obligations and other real estate costs, of which$159 million have been recorded to date and approximately$210 million for employee severance and other exit costs of which$176 million have been recorded to date. The Company estimates that substantially all of these cumulative pre-tax charges will result in cash expenditures. Store Optimization Program charges are recognized as the costs are incurred over time in accordance with GAAP. The Company treats charges related to the Store Optimization Program as special items impacting comparability of results in its earnings disclosures. The amounts and timing of all estimates are subject to change until finalized. The actual amounts and timing may vary materially based on various factors. See "cautionary note regarding forward-looking statements" below. INVESTMENT IN AMERISOURCEBERGEN As ofFebruary 29, 2020 , the Company owned 56,854,867 shares of AmerisourceBergen common stock (representing approximately 28% of its outstanding common stock based on most recent share count publicly reported by AmerisourceBergen) and may, subject to certain conditions, acquire up to an additional 8,398,752 AmerisourceBergen shares in the open market. The Company accounts for its investment in AmerisourceBergen using the equity method of accounting, subject to a two-month reporting lag, with the net earnings attributable to the investment classified within the operating income of the Company's Pharmaceutical Wholesale segment. The financial performance of AmerisourceBergen, including any charges which may arise relating to its ongoing opioid litigation, will impact the Company's results of operations. Additionally, a substantial and sustained decline in the price of AmerisourceBergen's common stock could trigger an impairment evaluation of our investment. These considerations may materially and adversely affect the Company's financial condition and results of operations.
For more information, see note 5, equity method investments to the Consolidated Condensed Financial Statements.
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EXECUTIVE SUMMARY
The following table presents certain key financial statistics.
(in millions, except per share amounts)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales $ 35,820 $ 34,528 $ 70,160 $ 68,321
Gross profit 7,513 7,754 14,776 15,395
Selling, general and administrative
expenses 6,308 6,320 12,570 12,599
Equity earnings in AmerisourceBergen 28 83 41 121
Operating income 1,233 1,517 2,247 2,918
Adjusted operating income (Non-GAAP
measure)1 1,703 1,935 3,166 3,667
Earnings before interest and income tax
provision 1,259 1,536 2,307 2,963
Net earnings attributable to Walgreens
Boots Alliance, Inc. 946 1,156 1,791 2,279
Adjusted net earnings attributable to
Walgreens Boots Alliance, Inc. (Non-GAAP
measure)1 1,343 1,522 2,565 2,908
Net earnings per common share - diluted 1.07 1.24 2.01 2.42
Adjusted net earnings per common share -
diluted (Non-GAAP measure)1 1.52 1.64 2.88 3.09
Percentage increases (decreases)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales 3.7 4.6 2.7 7.2
Gross profit (3.1) (4.2) (4.0) (0.3)
Selling, general and administrative
expenses (0.2) - (0.2) 3.0
Operating income (18.7) (23.3) (23.0) (11.5)
Adjusted operating income (Non-GAAP
measure)1 (12.0) (10.4) (13.7) (7.5)
Earnings before interest and income
tax provision (18.1) (22.8) (22.1) (6.7)
Net earnings attributable to Walgreens
Boots Alliance, Inc. (18.2) (14.3) (21.4) 5.1
Adjusted net earnings attributable to
Walgreens Boots Alliance, Inc.
(Non-GAAP measure)1 (11.8) (11.5) (11.8) (3.6)
Net earnings per common share -
diluted (14.0) (8.3) (16.8) 12.0
Adjusted net earnings per common share
- diluted (Non-GAAP measure)1 (7.3) (5.4) (6.6) 2.8
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Percent to sales
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Gross margin 21.0 22.5 21.1 22.5
Selling, general and administrative
expenses 17.6 18.3 17.9 18.4
1 See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Net earnings Net earnings attributable toWalgreens Boots Alliance for the three months endedFebruary 29, 2020 decreased 18.2% to$946 million , while diluted net earnings per share decreased 14.0% to$1.07 compared with the prior year period. The decreases in net earnings and diluted earnings per share primarily reflect operating performance, mainly lowerU.S. pharmacy gross margin and year-over-year bonus changes, partially offset by cost savings from the Transformational Cost Management Program. Diluted net earnings per share was positively affected by a lower number of shares outstanding compared to the prior year period. Net earnings attributable toWalgreens Boots Alliance for the six months endedFebruary 29, 2020 decreased 21.4% to$1.8 billion , while diluted net earnings per share decreased 16.8% to$2.01 compared with the prior year period. The decreases in net earnings and diluted earnings per share primarily reflect operating performance, mainly lowerU.S. pharmacy gross margin and year-over-year bonus changes, as well as a decrease from the Company's share of equity earnings in AmerisourceBergen and increase in Rite Aid acquisition related costs, partially offset by cost savings from the Transformational Cost Management Program and the lower effective tax rate in the period. Diluted net earnings per share was positively affected by a lower number of shares outstanding compared to the prior year period. Other income for the three months endedFebruary 29, 2020 was$25 million compared to income of$19 million for the prior year period. Other income for the six months endedFebruary 29, 2020 was$60 million compared to income of$45 million for the prior year period. Interest was a net expense of$162 million and$328 million for the three and six months endedFebruary 29, 2020 , respectively, compared to$181 million and$342 million for the three and six months endedFebruary 28, 2019 , respectively. The effective tax rate for the three and six months endedFebruary 29, 2020 was 14.6% and 9.7%, respectively, compared to 16.7% and 15.5% for the three and six months endedFebruary 28, 2019 , respectively. The decrease in the effective tax rate for the three months endedFebruary 29, 2020 was primarily due to the mix of earnings betweenU.S and international operations. The decrease in the effective tax rate for the six months endedFebruary 29, 2020 was primarily due to discrete tax benefits recorded from the reduction of a valuation allowance on net deferred tax assets related to anticipated capital gains. Adjusted diluted net earnings (Non-GAAP measure) Adjusted net earnings attributable toWalgreens Boots Alliance for the three months endedFebruary 29, 2020 decreased 11.8% to$1.3 billion , on both a reported and constant currency basis, compared with the prior year period. Adjusted diluted net earnings per share decreased 7.3% to$1.52 , on both a reported and constant currency basis compared with the year-ago quarter. The decreases in adjusted net earnings and adjusted diluted net earnings per share for the three months endedFebruary 29, 2020 primarily reflect lowerU.S. pharmacy gross margin and year-over-year bonus changes partially offset by cost savings from the Transformational Cost Management Program. Adjusted diluted net earnings per share for the three months endedFebruary 29, 2020 benefited from a lower number of shares outstanding compared with the prior year period. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Adjusted net earnings attributable toWalgreens Boots Alliance for the six months endedFebruary 29, 2020 decreased 11.8% to$2.6 billion , down 11.7% on a constant currency basis, compared with the prior year period. Adjusted diluted net earnings per share decreased 6.6% to$2.88 , a decrease of 6.5% on a constant currency basis compared with the year-ago period. - 39 - -------------------------------------------------------------------------------- The decreases in adjusted net earnings and adjusted diluted net earnings per share for the six months endedFebruary 29, 2020 primarily reflect lowerU.S. pharmacy gross margin, year-over-year bonus changes, and a challengingUK market, partially offset by cost savings from the Transformational Cost Management Program. Adjusted diluted net earnings per share for the six months endedFebruary 29, 2020 benefited from a lower number of shares outstanding compared with the prior year period. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
RESULTS OF OPERATIONS BY SEGMENT
Retail Pharmacy USA This division comprises the retail pharmacy business operating inthe United States . (in
millions, except location amounts)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales $ 27,245 $ 26,257 $ 53,377 $ 51,979
Gross profit 5,806 6,067 11,497 12,067
Selling, general and administrative
expenses 4,844 4,840 9,686 9,675
Operating income 963 1,226 1,811 2,393
Adjusted operating income (Non-GAAP
measure)1 1,267 1,455 2,423 2,834
Number of prescriptions2* 213.0 211.9 426.0 428.5
30-day equivalent prescriptions2,3* 296.8 286.3 590.9 576.2
Number of locations at period end* 9,165 9,446 9,165 9,446
Percentage increases (decreases)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales 3.8 7.3 2.7 10.7
Gross profit (4.3) (3.2) (4.7) 1.7
Selling, general and administrative
expenses 0.1 (0.5) 0.1 3.6
Operating income (21.5) (12.6) (24.3) (5.4)
Adjusted operating income (Non-GAAP
measure)1 (12.9) (11.9) (14.5) (6.4)
Comparable store sales4* 2.7 - 2.2 0.5
Pharmacy sales 5.3 9.8 4.1 13.6
Comparable pharmacy sales4* 3.7 1.9 3.1 2.3
Retail sales (0.3) 1.3 (1.2) 3.5
Comparable retail sales4* 0.6 (3.8) 0.1 (3.5)
Comparable number of prescriptions2,4* 2.0 (1.4) 1.0 (0.8)
Comparable 30-day equivalent
prescriptions2,3,4* 4.9 1.8 3.8 1.9
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Percent to sales
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Gross margin 21.3 23.1 21.5 23.2
Selling, general and administrative
expenses 17.8 18.4 18.1 18.6
1See "--Non-GAAP Measures" below for a reconciliation to the most directly
comparable financial measure calculated in accordance with GAAP and related
disclosures.
2Includes immunizations.
3Includes the adjustment to convert prescriptions greater than 84 days to the
equivalent of three 30-day prescriptions. This adjustment reflects the fact that
these prescriptions include approximately three times the amount of product days
supplied compared to a normal prescription.
4Comparable stores are defined as those that have been open for at least twelve
consecutive months without closure for seven or more consecutive days and
without a major remodel or being subject to a natural disaster in the past
twelve months. Relocated stores are not included as comparable stores for the
first twelve months after the relocation. Acquired stores are not included as
comparable stores for the first twelve months after acquisition or conversion,
when applicable, whichever is later. Comparable store sales, comparable pharmacy
sales, comparable retail sales, comparable number of prescriptions and
comparable number of 30-day equivalent prescriptions refer to total sales,
pharmacy sales, retail sales, number of prescriptions and number of 30-day
equivalent prescriptions, respectively, in such stores. The method of
calculating comparable sales varies across the retail industry. As a result, our
method of calculating comparable sales may not be the same as other retailers'
methods. The three and six month periods ended February 29, 2020 figures include
an adjustment to remove February 29, 2020 results due to the leap year .
*The Company considers these items to be key performance indicators because the
Company's management has evaluated its results of operations using these metrics
and believes that these key performance indicators presented provide additional
perspective and insights when analyzing the core operating performance of the
Company from period to period and trends in its historical operating results.
These key performance indicators should not be considered superior to, as a
substitute for or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented herein. These measures may not be
comparable to similarly-titled performance indicators used by other companies.
Sales for the three months ended February 29, 2020 and February 28, 2019
The Retail Pharmacy USA division's sales for the three months ended February 29,
2020 increased 3.8% to $27.2 billion . Sales in comparable stores increased 2.7%
compared with the year-ago quarter. Comparable store data has been adjusted to
remove the effects of February 29, 2020 due to the leap year .
Pharmacy sales increased 5.3% for the three months ended February 29, 2020 and
represented 73.0% of the division's sales. The increase is primarily due to
higher brand inflation and prescription volumes. In the year-ago quarter,
pharmacy sales increased 9.8% and represented 71.9% of the division's sales.
Comparable pharmacy sales increased 3.7% for the three months ended February 29,
2020 compared to an increase of 1.9% in the year-ago quarter. The effect of
generic drugs, which have a lower retail price, replacing brand name drugs
reduced prescription sales by 2.7% in the three months ended February 29, 2020
compared to a reduction of 0.9% in the year-ago quarter. The effect of generics
mix on division sales caused a reduction of 1.8% for the three months ended
February 29, 2020 compared to a reduction of 0.6% for the year-ago quarter.
Third party sales, where reimbursement is received from managed care
organizations, governmental agencies, employers or private insurers, were 97.1%
of prescription sales for the three months ended February 29, 2020 compared to
97.0% in the year ago quarter. The total number of prescriptions (including
immunizations) filled for the three months ended February 29, 2020 was 213.0
million compared to 211.9 million in the year-ago quarter. Prescriptions
(including immunizations) filled adjusted to 30-day equivalents were 296.8
million in the three months ended February 29, 2020 compared to 286.3 million in
the year-ago quarter.
Retail sales for the three months ended February 29, 2020 decreased 0.3% and
were 27.0% of the division's sales. In the year-ago quarter, retail sales
increased 1.3% and comprised 28.1% of the division's sales. Comparable retail
sales increased 0.6% in the three months ended February 29, 2020 compared to a
decrease of 3.8% in the year-ago quarter. The increase in the current period is
driven by health and wellness, including a favorable cough cold and flu season.
Operating income for the three months ended February 29, 2020 and February 28,
2019
Retail Pharmacy USA division's operating income for the three months ended
February 29, 2020 decreased 21.5% to $963 million . The decrease was primarily
due to reimbursement pressure and year-on-year bonus impact as well as the
increase in costs related to the Transformational Cost Management Program.
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Gross margin was 21.3% for the three months ended
Selling, general and administrative expenses as a percentage of sales were 17.8% in the three months endedFebruary 29, 2020 compared to 18.4% in the year-ago quarter. As a percentage of sales, expenses were lower in the current period primarily due to savings related to the Transformational Cost Management Program partially offset by year-on-year bonus impacts. Adjusted operating income (Non-GAAP measure) for the three months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy USA division's adjusted operating income was$1.3 billion for the three months endedFebruary 29, 2020 , a decrease of 12.9% from the year-ago quarter. The decrease was primarily due to reimbursement pressure and year-on- year bonus impact partially offset by savings related to the Transformational Cost Management Program. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Sales for the six months endedFebruary 29, 2020 andFebruary 28, 2019 The Retail Pharmacy USA division's sales for the six months endedFebruary 29, 2020 increased 2.7% to$53.4 billion . Sales in comparable stores increased 2.2% compared with the year-ago period. Comparable store data has been adjusted to remove the effects ofFebruary 29, 2020 due to theleap year . Pharmacy sales increased 4.1% for the six months endedFebruary 29, 2020 and represented 74.2% of the division's sales. The increase is primarily due to brand inflation and prescription volume growth. In the year-ago period, pharmacy sales increased 13.6% and represented 73.2% of the division's sales. Comparable pharmacy sales increased 3.1% for the six months endedFebruary 29, 2020 compared to an increase of 2.3% in the year-ago period. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 2.6% in the six months endedFebruary 29, 2020 compared to a reduction of 0.9% in the year-ago period. The effect of generics mix on division sales caused a reduction of 1.8% for the six months endedFebruary 29, 2020 compared to a reduction of 0.6% for the year-ago period. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.0% of prescription sales for the six months endedFebruary 29, 2020 compared to 97.1% in the year ago period. The total number of prescriptions (including immunizations) filled for the six months endedFebruary 29, 2020 was 426.0 million compared to 428.5 million in the year-ago period. Prescriptions (including immunizations) filled adjusted to 30-day equivalents were 590.9 million in the six months endedFebruary 29, 2020 compared to 576.2 million in the year-ago period. Retail sales for the six months endedFebruary 29, 2020 decreased 1.2% and were 25.8% of the division's sales. In the year-ago period, retail sales increased 3.5% and comprised 26.8% of the division's sales. Comparable retail sales increased 0.1% in the six months endedFebruary 29, 2020 compared to a decrease of 3.5% in the year-ago period. Operating income for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy USA division's operating income for the six months endedFebruary 29, 2020 decreased 24.3% to$1.8 billion . The decrease was primarily due to lower pharmacy gross margin, Transformational Cost Management Program costs, year-on-year bonus impact and Rite Aid acquisition-related costs partially offset by savings related to the Transformational Cost Management Program.
Gross margin was 21.5% for the six months ended
Selling, general and administrative expenses as a percentage of sales were 18.1% in the six months endedFebruary 29, 2020 compared to 18.6% in the year-ago period. As a percentage of sales, expenses were lower in the current period primarily due to savings related to the Transformational Cost Management Program and gains on sale-leaseback transactions partially offset by year-on-year bonus impact, costs related to the Company's Transformational Cost Management Program and Rite Aid acquisition-related costs. Adjusted operating income (Non-GAAP measure) for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy USA division's adjusted operating income was$2.4 billion for the six months endedFebruary 29, 2020 , a decrease of 14.5% from the year-ago period. The decrease was primarily due to lower pharmacy gross margin and year-on-year bonus impact partially offset by savings related to the Transformational Cost Management Program. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. - 42 - --------------------------------------------------------------------------------Retail Pharmacy International This division comprises retail pharmacy businesses operating in countries outsidethe United States and in currencies other than theU.S. dollar, including the British pound sterling, Euro, Chilean peso and Mexican peso and therefore the division's results are impacted by movements in foreign currency exchange rates. See item 3, quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk, for further information on currency risk. (in
millions, except location amounts)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales $ 3,056 $ 3,082 $ 5,801 $ 5,982
Gross profit 1,182 1,179 2,238 2,306
Selling, general and administrative
expenses 1,050 987 2,062 2,036
Operating income 132 192 176 270
Adjusted operating income (Non-GAAP
measure)1 198 256 276 388
Number of locations at period end* 4,539 4,626 4,539 4,626
Percentage increases (decreases)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales (0.8) (7.1) (3.0) (6.5)
Gross profit 0.3 (8.9) (3.0) (8.4)
Selling, general and administrative
expenses 6.4 (5.7) 1.3 (2.6)
Operating income (31.4) (22.6) (34.9) (36.8)
Adjusted operating income (Non-GAAP
measure)1 (22.9) (6.8) (28.9) (19.2)
Comparable store sales2* (2.3) (1.4) (2.0) (2.0)
Pharmacy sales 1.5 (7.8) (1.1) (6.8)
Comparable pharmacy sales2* 1.5 (0.7) 1.0 (1.8)
Retail sales (2.0) (6.7) (4.0) (6.4)
Comparable retail sales2* (4.3) (1.7) (3.7) (2.0)
Percent to sales
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Gross margin 38.7 38.2 38.6 38.6
Selling, general and administrative
expenses 34.4 32.0 35.6 34.0
1See "--Non-GAAP Measures" below for a reconciliation to the most directly
comparable financial measure calculated in accordance with GAAP and related
disclosures.
2Comparable stores are defined as those that have been open for at least twelve
consecutive months without closure for seven or more consecutive days and
without a major remodel or being subject to a natural disaster in the past
twelve months. Relocated stores are not included as comparable stores for the
first twelve months after the relocation. Acquired stores are not included as
comparable stores for the first twelve months after acquisition or conversion,
when applicable, whichever is later. Comparable store sales, comparable pharmacy
sales and comparable retail sales refer to total sales,
- 43 -
--------------------------------------------------------------------------------
pharmacy sales and retail sales, respectively, in such stores. The method of
calculating comparable sales varies across the retail industry. As a result, our
method of calculating comparable sales may not be the same as other retailers'
methods. With respect to the Retail Pharmacy International division, comparable
store sales, comparable pharmacy sales and comparable retail sales are presented
on a constant currency basis, which are non-GAAP financial measures. Refer to
the discussion below in "--Non-GAAP Measures" for further details on constant
currency calculations. The three and six month periods ended February 29, 2020
figures include an adjustment to remove February 29, 2020 results due to the
leap year .
*The Company considers these items to be key performance indicators because the
Company's management has evaluated its results of operations using these metrics
and believes that these key performance indicators presented provide additional
perspective and insights when analyzing the core operating performance of the
Company from period to period and trends in its historical operating results.
These key performance indicators should not be considered superior to, as a
substitute for or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented herein. These measures may not be
comparable to similarly-titled performance indicators used by other companies.
Sales for the three months ended February 29, 2020 and February 28, 2019
Retail Pharmacy International division's sales for the three months ended
February 29, 2020 decreased 0.8% to $3.1 billion from the year-ago quarter. The
positive impact of currency translation was 0.9 percentage points. Comparable
store sales decreased 2.3%, mainly due to lower retail sales in Boots UK and
Thailand , and lower retail and pharmacy sales in Chile . Comparable sales data
has been adjusted to remove the effects of February 29, 2020 due to the leap
year .
Pharmacy sales increased 1.5% in the three months ended February 29, 2020 and
represented 33.5% of the division's sales. The positive impact of currency
translation on pharmacy sales was 0.3 percentage points. Comparable pharmacy
sales increased 1.5% from the year-ago quarter primarily due to the UK , driven
by higher National Health Service ("NHS") reimbursement, partially offset by
lower prescription volume.
Retail sales decreased 2.0% for the three months ended February 29, 2020 and
represented 66.5% of the division's sales. The positive impact of currency
translation on retail sales was 1.2 percentage points. Comparable retail sales
decreased 4.3%, from the year-ago quarter reflecting lower Boots UK retail sales
in a challenging market place.
Operating income for the three months ended February 29, 2020 and February 28,
2019
Retail Pharmacy International division's operating income for the three months
ended February 29, 2020 decreased 31.4% to $132 million . The decrease was
primarily due to the UK , driven by lower sales and gross margin, with an adverse
impact from higher year-on-year bonus and technology investments.
Gross profit increased 0.3% from the year-ago quarter. Gross profit was
positively impacted by 0.8 percentage points (
Selling, general and administrative expenses increased 6.4% from the year-ago quarter. Expenses were negatively impacted by 0.7 percentage points ($7 million ) as a result of currency translation. Excluding the impact of currency translation, the increase was primarily due to higher Transformational Cost Management Program expenses, and higher bonus and technology investments compared with the year-ago quarter. As a percentage of sales, selling, general and administrative expenses were 34.4% in the three months endedFebruary 29, 2020 compared to 32.0% in the year-ago quarter. Adjusted operating income (Non-GAAP measure) for the three months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy International division's adjusted operating income for the three months endedFebruary 29, 2020 decreased 22.9% to$198 million . Adjusted operating income was positively impacted by 1.1 percentage points ($3 million ) of currency translation. Excluding the impact of currency translation, the decrease in adjusted operating income was primarily due to lower sales and gross margin, with an adverse impact from higher year-on-year bonus and technology investments on selling, general and administrative expenses in theUK . See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Sales for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy International division's sales for the six months endedFebruary 29, 2020 decreased 3.0% to$5.8 billion from the year-ago period. The negative impact of currency translation was 0.9%. Comparable store sales decreased 2.0%, mainly due to lower retail sales in BootsUK andThailand , and lower retail and pharmacy sales inChile , in part due to social unrest. Comparable sales data has been adjusted to remove the effects ofFebruary 29, 2020 due to theleap year . - 44 - -------------------------------------------------------------------------------- Pharmacy sales decreased 1.1% in the six months endedFebruary 29, 2020 and represented 34.9% of the division's sales. The negative impact of currency translation on pharmacy sales was 1.5 percentage points. Comparable pharmacy sales increased 1.0% from the year-ago period primarily due to theUK , driven by higher National Health Service ("NHS") reimbursement levels, partially offset by lower prescription volume. Retail sales decreased 4.0% for the six months endedFebruary 29, 2020 and represented 65.1% of the division's sales. The negative impact of currency translation on retail sales was 0.5 percentage points. Comparable retail sales decreased 3.7%, from the year-ago period reflecting lower BootsUK retail sales in a challenging market place. Operating income for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy International division's operating income for the six months endedFebruary 29, 2020 decreased 34.9% to$176 million . The decrease was primarily due to theUK , driven by lower sales and gross margin, with an adverse impact from higher year-on-year bonus and technology investments.
Gross profit decreased 3.0% from the year-ago period. Gross profit was
negatively impacted by 0.9 percentage points (
Selling, general and administrative expenses increased 1.3% from the year-ago period. Expenses were positively impacted by 1.0 percentage points ($21 million ) as a result of currency translation. The remaining increase was primarily due to higher year-on-year bonus impact and technology investments. As a percentage of sales, selling, general and administrative expenses were 35.6% in the six months endedFebruary 29, 2020 compared to 34.0% in the year-ago period. Adjusted operating income (Non-GAAP measure) for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Retail Pharmacy International division's adjusted operating income for the six months endedFebruary 29, 2020 decreased 28.9% to$276 million . Adjusted operating income was positively impacted by 0.2 percentage points ($1 million ) of currency translation. Excluding the impact of currency translation, the decrease in adjusted operating income was primarily due to lower retail sales and margin, with an adverse impact from higher year-on-year bonus and technology investments on selling, general and administrative expenses in theUK . See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Pharmaceutical Wholesale This division includes pharmaceutical wholesale businesses operating in currencies other than theU.S. dollar including the British pound sterling, Euro and Turkish lira, and thus the division's results are impacted by movements in foreign currency exchange rates. See item 3, quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk, for further information on currency risk. (in millions) Three months ended Six months ended February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019 Sales $ 6,066 $ 5,738 $ 12,072 $ 11,446 Gross profit 523 511 1,039 1,023 Selling, general and administrative expenses 414 493 822 889 Equity earnings in AmerisourceBergen 28 83 41 121 Operating income 136 100 258 255 Adjusted operating income (Non-GAAP measure)1 235 225 464 445 - 45 -
--------------------------------------------------------------------------------
Percentage increases (decreases)
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Sales 5.7 (0.3) 5.5 (0.2)
Gross profit 2.3 (4.1) 1.6 (2.9)
Selling, general and administrative
expenses (16.0) 20.2 (7.6) 10.4
Operating income 36.2 (69.1) 1.1 (24.4)
Adjusted operating income (Non-GAAP
measure)1 4.6 (3.3) 4.3 (2.3)
Comparable sales2* 8.0 9.1 8.1 7.9
Percent to sales
Three months ended Six months ended
February 29, 2020 February 28, 2019 February 29, 2020 February 28, 2019
Gross margin 8.6 8.9 8.6 8.9
Selling, general and administrative
expenses 6.8 8.6 6.8 7.8
1See "--Non-GAAP Measures" below for a reconciliation to the most directly
comparable financial measure calculated in accordance with GAAP and related
disclosures.
2Comparable sales are defined as sales excluding acquisitions and dispositions.
With respect to the Pharmacy Wholesale division, comparable sales are presented
on a constant currency basis, which is a non-GAAP financial measure. Refer to
the discussion below in "--Non-GAAP Measures" for further details on constant
currency calculations.
*The Company considers these items to be key performance indicators because the
Company's management has evaluated its results of operations using these metrics
and believes that these key performance indicators presented provide additional
perspective and insights when analyzing the core operating performance of the
Company from period to period and trends in its historical operating results.
These key performance indicators should not be considered superior to, as a
substitute for or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented herein. These measures may not be
comparable to similarly-titled performance indicators used by other companies.
Sales for the three months ended February 29, 2020 and February 28, 2019
Pharmaceutical Wholesale division's sales for the three months ended February
29, 2020 increased 5.7% to $6.1 billion .
Sales were negatively impacted by 2.3 percentage points as a result of currency
translation. Comparable sales increased 8.0%, led by growth in emerging markets
and the UK .
Operating income for the three months ended February 29, 2020 and February 28,
2019
Pharmaceutical Wholesale division's operating income for the three months ended
February 29, 2020 increased 36.2% to $136 million primarily due to lower
Transformation Cost Management expenses compared with the year-ago quarter,
partially offset by lower Company's share of equity earnings in
AmerisourceBergen. Operating income was negatively impacted by $1 million as a
result of currency translation.
Gross profit increased 2.3% from the year-ago quarter. Gross profit was
negatively impacted by 1.5 percentage points (
Selling, general and administrative expenses decreased 16.0% from the year-ago quarter. Expenses were positively impacted by 1.3 percentage points ($7 million ) as a result of currency translation. Excluding the currency translation impact, the decrease was primarily due to lower Transformation Cost Management expenses compared with the year-ago quarter. As a percentage of sales, selling, general and administrative expenses for the three months endedFebruary 29, 2020 were 6.8% compared to 8.6% in the year-ago quarter. - 46 - -------------------------------------------------------------------------------- Adjusted operating income (Non-GAAP measure) for the three months endedFebruary 29, 2020 andFebruary 28, 2019 Pharmaceutical Wholesale division's adjusted operating income for the three months endedFebruary 29, 2020 , which included$101 million from the Company's share of adjusted equity earnings in AmerisourceBergen, increased 4.6% to$235 million . Adjusted operating income was negatively impacted by 0.6 percentage points ($1 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily due to higher sales and a higher contribution from AmerisourceBergen, partially offset by lower gross margin. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales for the six months ended
Operating income for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Pharmaceutical Wholesale division's operating income for the six months endedFebruary 29, 2020 increased 1.1% to$258 million primarily due to higher sales and lower Transformation Cost Management expenses compared with the year-ago period, partially offset by the Company's share of equity earnings from AmerisourceBergen and lower gross margin. Operating income was negatively impacted by$3 million as a result of currency translation.
Gross profit increased 1.6% from the year-ago period. Gross profit was
negatively impacted by 2.1 percentage points (
Selling, general and administrative expenses decreased 7.6% from the year-ago period. Expenses were positively impacted by 2.2 percentage points ($19 million ) as a result of currency translation. Excluding the currency translation impact, the decrease was primarily due to lower Transformational Cost Management expenses compared with the year-ago period. As a percentage of sales, selling, general and administrative expenses for the six months endedFebruary 29, 2020 were 6.8% compared to 7.8% in the year-ago period. Adjusted operating income (Non-GAAP measure) for the six months endedFebruary 29, 2020 andFebruary 28, 2019 Pharmaceutical Wholesale division's adjusted operating income for the six months endedFebruary 29, 2020 , which included$193 million from the Company's share of adjusted equity earnings in AmerisourceBergen, increased 4.3% to$464 million . Adjusted operating income was negatively impacted by 0.7 percentage points ($3 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily due to higher sales and a higher contribution from AmerisourceBergen, partially offset by lower gross margin. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. NON-GAAP MEASURES The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under the rules of theSecurities and Exchange Commission , presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because the Company's management has evaluated its financial results both including and excluding the adjusted items or the effects of foreign currency translation, as applicable, and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in its historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented. The Company also presents certain information related to current period operating results in "constant currency," which is a non-GAAP financial measure. These amounts are calculated by translating current period results at the foreign currency exchange rates used in the comparable period in the prior year. The Company presents such constant currency financial information because it has significant operations outside ofthe United States reporting in currencies other than theU.S. dollar and such presentation provides a framework to assess how its business performed excluding the impact of foreign currency exchange rate fluctuations. - 47 - -------------------------------------------------------------------------------- (in millions) Three months ended February 29, 2020 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 963 $ 132 $ 136$ 2 $ 1,233 Acquisition-related amortization and impairment 79 19 19 - 117 Acquisition-related costs 99 - - - 99 Transformational cost management 69 47 6 -
123
Adjustments to equity earnings in AmerisourceBergen - - 73 - 73 LIFO provision 28 - - - 28 Store optimization 30 - - - 30 Adjusted operating income (Non-GAAP measure)$ 1,267 $ 198 $ 235$ 2 $ 1,703 (in millions) Three months ended February 28, 2019 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 1,226 $ 192 $ 100$ (1) $ 1,517 Acquisition-related amortization and impairment 79 25 20 - 123 Acquisition-related costs 82 - - - 82 Transformational cost management 14 40 96 -
150
Adjustments to equity earnings in AmerisourceBergen - - 9 - 9 LIFO provision 8 - - - 8 Store optimization 31 - - - 31 Certain legal and regulatory accruals and settlements 14 - - -
14
Adjusted operating income (Non-GAAP measure)$ 1,455 $ 256 $ 225$ (1) $ 1,935 (in millions) Six months ended February 29, 2020 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 1,811 $ 176 $ 258$ 2 $ 2,247 Acquisition-related amortization and impairment 156 41 39 - 235 Acquisition-related costs 221 - 1 - 223 Transformational cost management 136 59 14 -
209
Adjustments to equity earnings in AmerisourceBergen - - 152 - 152 LIFO provision 61 - - - 61 Store optimization 39 - - - 39
Adjusted operating income (Non-GAAP measure)
276 $ 464 $ 2 $ 3,166
- 48 -
--------------------------------------------------------------------------------
(in millions)
Six months ended February 28, 2019
Retail Retail Pharmacy Pharmaceutical Walgreens Boots
Pharmacy USA International Wholesale Eliminations Alliance, Inc.
Operating income (GAAP) $ 2,393 $ 270 $ 255 $ - $ 2,918
Acquisition-related amortization and
impairment 155 52 39 - 246
Acquisition-related costs 148 - - - 148
Transformational cost management 16 67 96 - 179
Adjustments to equity earnings in AmerisourceBergen - - 54 - 54 LIFO provision 48 - - - 48 Store optimization 51 - - - 51 Certain legal and regulatory accruals and settlements 24 - - -
24
Adjusted operating income (Non-GAAP measure)
388 $ 445 $ - $ 3,667
- 49 ---------------------------------------------------------------------------------
(in millions, except per share amounts)
Three months ended Six months ended
February 28, February 29,
February 29, 2020 2019 2020 February 28, 2019
Net earnings attributable to Walgreens Boots
Alliance, Inc. (GAAP) $ 946 Adjustments to operating income: Acquisition-related amortization and impairment 117 123 235 246 Acquisition-related costs 99 82 223 148 Transformational cost management 123 150 209 179 Adjustments to equity earnings in AmerisourceBergen 73 9 152 54 LIFO provision 28 8 61 48 Store optimization 30 31 39 51 Certain legal and regulatory accruals and settlements - 14 - 24 Total adjustments to operating income 469 417 919 749 Adjustments to other income (expense): Net investment hedging (gain) loss 7 6 (4) 2 Gain on sale of equity method investment - - (1) - Total adjustments to other income (expense) 6 6 (5) 2 Adjustments to income tax provision: Equity method non-cash tax 1 15 (1) 19 U.S. tax law changes1 - 9 (6) (3) Tax impact of adjustments2 (97) (81) (177) (139) Total adjustments to income tax provision (95) (57) (184) (123) Adjustments to post tax equity earnings from other equity method investments: Adjustments to equity earnings in other equity method investments3 15 - 43 -
Total adjustments to post tax equity earnings from other equity method investments
15 - 43 -
Adjusted net earnings attributable to Walgreens
Boots Alliance, Inc. (Non-GAAP measure) $ 1,343 Diluted net earnings per common share (GAAP) $ 1.07
Adjustments to operating income 0.53 0.45 1.03 0.80 Adjustments to other income (expense) 0.01 0.01 (0.01) - Adjustments to income tax provision (0.11) (0.06) (0.21) (0.13) Adjustments to equity earnings in other equity method investments3 0.02 - 0.05 - Adjusted diluted net earnings per common share (Non-GAAP measure) $ 1.52
Weighted average common shares outstanding, diluted
(in millions) 885.5 930.7 889.1 941.1
- 50 --------------------------------------------------------------------------------- 1Discrete tax-only items. 2Represents the adjustment to the GAAP basis tax provision commensurate with non-GAAP adjustments and the adjusted tax rate true-up. 3Beginning in the quarter endedMay 31, 2019 , management reviewed and refined its practice to reflect the proportionate share of certain equity method investees' non-cash items or unusual or infrequent items consistent with the Company's non-GAAP measures in order to provide investors with a comparable view of performance across periods. These adjustments include acquisition-related amortization and acquisition-related costs and were immaterial for the prior periods presented. Although the Company may have shareholder rights and board representation commensurate with its ownership interests in these equity method investees, adjustments relating to equity method investments are not intended to imply that the Company has direct control over their operations and resulting revenue and expenses. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all revenue and expenses of these equity method investees. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were$0.8 billion (including$0.2 billion in non-U.S. jurisdictions) as ofFebruary 29, 2020 , compared to$0.8 billion (including$0.4 billion in non-U.S. jurisdictions) as ofFebruary 28, 2019 . Short-term investment objectives are primarily to minimize risk and maintain liquidity. To attain these objectives, investment limits are placed on the amount, type and issuer of securities. Investments are principally inU.S. Treasury money market funds and AAA-rated money market funds. The Company's long-term capital policy is to: maintain a strong balance sheet and financial flexibility; reinvest in its core strategies; invest in strategic opportunities that reinforce its core strategies and meet return requirements; and return surplus cash flow to stockholders in the form of dividends and share repurchases over the long term. InJune 2018 , the Company's Board of Directors reviewed and refined the Company's dividend policy to set forth the Company's current intention to increase its dividend each year. Cash provided by operations and the incurrence of debt are the principal sources of funds for expansion, investments, acquisitions, remodeling programs, dividends to stockholders and stock repurchases. Net cash provided by operating activities for the six months endedFebruary 29, 2020 was$2.5 billion , compared to$1.2 billion for the year-ago period. The$1.3 billion increase in cash provided by operating activities includes lower cash outflows from accounts receivable, net and inventories, higher cash inflows from accrued expenses and other liabilities partially offset by lower cash inflows from trade accounts payable. Changes in accounts receivable, net, inventories, and trade accounts payable are mainly driven by timing of collections and payments. Changes in accrued expenses and other liabilities are mainly driven by prior year cash payments for certain legal and regulatory settlements and timing of accruals. Net cash used for investing activities was$0.6 billion for the six months endedFebruary 29, 2020 compared to$1.0 billion for the year-ago period. This change in net cash used for investing activities includes$0.3 billion in proceeds from sale-leaseback transactions for the six months endedFebruary 29, 2020 . Business, investment and asset acquisitions were$0.3 billion for each of the six months endedFebruary 29, 2020 andFebruary 28, 2019 . For the six months endedFebruary 29, 2020 , additions to property, plant and equipment were$705 million compared to$793 million in the year-ago period. Capital expenditures by reporting segment were as follows (in millions): Six months ended February 29, 2020 February 28, 2019 Retail Pharmacy USA $ 553 $ 605 Retail Pharmacy International 125 135 Pharmaceutical Wholesale 27 53 Total $ 705 $ 793
Significant capital expenditures primarily relate to investments in our stores and information technology projects.
Net cash used for financing activities for the six months endedFebruary 29, 2020 was$2.1 billion , compared to$0.1 billion in the year-ago period. In the six months endedFebruary 29, 2020 there were$9.9 billion in net proceeds primarily from revolving credit facilities described below and commercial paper debt compared to$6.8 billion in net proceeds in the year-ago period. In the six months endedFebruary 29, 2020 there were$10.1 billion in payments of debt made primarily for revolving credit facilities and commercial paper debt compared to$3.1 billion in six months endedFebruary 28, 2019 . The Company - 51 - -------------------------------------------------------------------------------- repurchased shares as part of the stock repurchase program described below and to support the needs of the employee stock plans totaling$0.9 billion compared to$3.1 billion in the year-ago period. Proceeds related to employee stock plans were$28 million during the six months endedFebruary 29, 2020 , compared to$138 million during the six months endedFebruary 28, 2019 . Cash dividends paid were$0.9 billion during the six months endedFebruary 29, 2020 , compared to$0.8 billion for the same period a year ago. Recent financing actions Subsequent toFebruary 29, 2020 , the Company has taken actions and may continue to take actions intended to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets. As ofMarch 31, 2020 , the Company has total borrowings of approximately$8.3 billion outstanding under the credit facilities and commercial paper program described above, of which$2.0 billion was commercial paper. The Company believes that cash flow from operations, availability under existing credit facilities and arrangements, current cash and investment balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for the Company's foreseeable working capital needs, capital expenditures at existing facilities, pending acquisitions, dividend payments and debt service obligations for at least the next 12 months. The Company's cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. For information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see item 1A, risk factors in this report. OnApril 1, 2020 , the Company entered into a revolving credit agreement for a$750 million senior unsecured revolving credit facility with the lenders from time to time party thereto. As ofApril 1, 2020 , there were no borrowings outstanding under this facility.
See item 3, qualitative and quantitative disclosures about market risk, below for a discussion of certain financing and market risks.
Stock repurchase program InJune 2018 ,Walgreens Boots Alliance authorized a stock repurchase program (the "June 2018 stock repurchase program"), which authorized the repurchase of up to$10.0 billion ofWalgreens Boots Alliance common stock of which the Company had repurchased$7.3 billion as ofFebruary 29, 2020 . TheJune 2018 stock repurchase program has no specified expiration date. The Company determines the timing and amount of repurchases, including repurchases to offset anticipated dilution from equity incentive plans, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. The Company has repurchased and may from time to time in the future repurchase, shares on the open market through Rule 10b5-1 plans, which enable the Company to repurchase shares at times when we otherwise might be precluded from doing so under federal securities laws. Commercial paper The Company periodically borrows under its commercial paper program and may borrow under it in future periods. The Company had average daily commercial paper outstanding of$3.0 billion and$2.4 billion at a weighted average interest rate of 2.42% and 2.96% for the six months endedFebruary 29, 2020 andFebruary 28, 2019 , respectively. Financing actions OnAugust 29, 2018 ,Walgreens Boots Alliance entered into a revolving credit agreement (the "August 2018 Revolving Credit Agreement") with the lenders and letter of credit issuers from time to time party thereto. TheAugust 2018 Revolving Credit Agreement is an unsecured revolving credit facility with an aggregate commitment in the amount of$3.5 billion , with a letter of credit subfacility commitment amount of$500 million . The facility termination date is the earlier of (a)August 29, 2023 , subject to extension thereof pursuant to theAugust 2018 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the revolving commitments pursuant to theAugust 2018 Revolving Credit Agreement. Borrowings under theAugust 2018 Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, in each case, plus an applicable margin calculated based onWalgreens Boots Alliance's credit ratings. As ofFebruary 29, 2020 , there were no borrowings under theAugust 2018 Revolving Credit Agreement. OnNovember 30, 2018 ,Walgreens Boots Alliance entered into a credit agreement (as amended the "November 2018 Credit Agreement") with the lenders from time to time party thereto and, onMarch 25, 2019 , the Company entered into an amendment to such credit agreement reflecting certain changes to the borrowing notice provisions thereto. TheNovember 2018 Credit Agreement includes a$500 million senior unsecured revolving credit facility and a$500 million senior unsecured term loan - 52 - -------------------------------------------------------------------------------- facility. The facility termination date is, with respect to the revolving credit facility, the earlier of (a)May 30, 2020 and (b) the date of termination in whole of the aggregate amount of the revolving commitments pursuant to theNovember 2018 Credit Agreement and, with respect to the term loan facility, the earlier of (a)May 30, 2020 and (b) the date of acceleration of all term loans pursuant to theNovember 2018 Credit Agreement. Borrowings under theNovember 2018 Credit Agreement will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, in each case, plus an applicable margin calculated based onWalgreens Boots Alliance's credit ratings. As ofFebruary 29, 2020 , there were$0.9 billion of borrowings under theNovember 2018 Credit Agreement. OnDecember 5, 2018 ,Walgreens Boots Alliance entered into a$1.0 billion term loan credit agreement (as amended, the "December 2018 Credit Agreement") with the lenders from time to time party thereto and, onAugust 9, 2019 , the Company entered into an amendment to such credit agreement to permit the Company to borrow, repay and reborrow amounts borrowed thereunder prior to the maturity date. TheDecember 2018 Credit Agreement is a senior unsecured revolving credit facility with a facility termination date of the earlier of (a)January 29, 2021 , subject to extension thereof pursuant to theDecember 2018 Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to theDecember 2018 Credit Agreement. Borrowings under theDecember 2018 Credit Agreement will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of 0.75% in the case of Eurocurrency rate loans. As ofFebruary 29, 2020 , there were$1.0 billion of borrowings outstanding under theDecember 2018 Credit Agreement. OnDecember 21, 2018 , the Company entered into a$1.0 billion revolving credit agreement (the "December 2018 Revolving Credit Agreement") with the lenders from time to time party thereto. TheDecember 2018 Revolving Credit Agreement is a senior unsecured revolving credit facility with a facility termination date of the earlier of (a) 18 months followingJanuary 28, 2019 , the date of the effectiveness of the commitments pursuant to theDecember 2018 Revolving Credit Agreement, subject to extension thereof pursuant to theDecember 2018 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to theDecember 2018 Revolving Credit Agreement. Borrowings under theDecember 2018 Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of 0.75% in the case of Eurocurrency rate loans. As ofFebruary 29, 2020 , there were$0.1 billion of borrowings outstanding under theDecember 2018 Revolving Credit Agreement. OnJanuary 18, 2019 , the Company entered into a$2.0 billion 364-day revolving credit agreement (as extended, the "January 2019 364-Day Revolving Credit Agreement") with the lenders from time to time party thereto. TheJanuary 2019 364-Day Revolving Credit Agreement is a senior unsecured 364-day revolving credit facility, with a facility termination date of the earlier of (a) 364 days followingJanuary 31, 2019 , the date of the effectiveness of the commitments pursuant to the January 364- Day Revolving Credit Agreement, subject to extension thereof pursuant to theJanuary 2019 364-Day Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to theJanuary 2019 364-Day Revolving Credit Agreement. OnDecember 18, 2019 , the Company entered into an Extension Agreement (the "Extension Agreement") relating to theJanuary 2019 364-Day Revolving Credit Agreement with the lenders party thereto and Mizuho, as administrative agent. The Extension Agreement extends the Maturity Date (as defined in the Credit Agreement) for an additional period of 364 days toJanuary 28, 2021 . Such extension became effective onJanuary 30, 2020 . Borrowings under theJanuary 2019 364-Day Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, in each case, plus an applicable margin calculated based on the Company's credit ratings. As ofFebruary 29, 2020 , there were$0.6 billion of borrowings outstanding under the January 364-Day Revolving Credit Agreement. OnAugust 30, 2019 , the Company entered into three$500 million revolving credit agreements (together, the "August 2019 Revolving Credit Agreements" and each individually, an "August 2019 Revolving Credit Agreement") with the lenders from time to time party thereto. Each of theAugust 2019 Revolving Credit Agreements are senior unsecured revolving credit facilities, with facility termination dates of the earlier of (a) 18 months followingAugust 30, 2019 , subject to extension thereof pursuant to the applicableAugust 2019 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to the applicableAugust 2019 Revolving Credit Agreement. Borrowings under each of theAugust 2019 Revolving Credit Agreements will bear interest at a fluctuating rate per annum equal to, atWalgreens Boots Alliance's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of 0.95% in the case of Eurocurrency rate loans. As ofFebruary 29, 2020 , there were no borrowings outstanding under theAugust 2019 Revolving Credit Agreements. Debt covenants Each of the Company's credit facilities described above 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 0.60:1.00, subject to increase in certain circumstances set forth - 53 -
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in the applicable credit agreement. As of
Credit ratings As ofApril 1, 2020 , the credit ratings ofWalgreens Boots Alliance were: Rating agency Long-term debt rating Commercial paper rating Outlook Fitch BBB F2 Negative Moody's Baa2 P-2 Stable Standard & Poor's BBB A-2 Stable In assessing the Company's credit strength, each rating agency considers various factors including the Company's business model, capital structure, financial policies and financial performance. There can be no assurance that any particular rating will be assigned or maintained. The Company's credit ratings impact its borrowing costs, access to capital markets and operating lease costs. The rating agency ratings are not recommendations to buy, sell or hold the Company's debt securities or commercial paper. Each rating may be subject to revision or withdrawal at any time by the assigning rating agency and should be evaluated independently of any other rating. AmerisourceBergen relationship As ofFebruary 29, 2020 , the Company owned 56,854,867 AmerisourceBergen common shares representing approximately 28% of the outstanding common stock based on most recent share count publicly reported by AmerisourceBergen and had designated one member of AmerisourceBergen's board of directors. As ofFebruary 29, 2020 , the Company can acquire up to an additional 8,398,752 AmerisourceBergen shares in the open market and thereafter designate another member of AmerisourceBergen's board of directors, subject in each case to applicable legal and contractual requirements. The amount of permitted open market purchases is subject to increase or decrease in certain circumstances. Subject to applicable legal and contractual requirements, share purchases may be made from time to time in open market transactions or pursuant to instruments and plans complying with Rule 10b5-1. See note 5, equity method investments, to the Consolidated Condensed Financial Statements included herein for further information. OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any unconsolidated special purpose entities and, except as described herein, the Company does not have significant exposure to any off-balance sheet arrangements. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity not consolidated by the Company is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
At
CONTRACTUAL OBLIGATIONS AND COMMITMENTS There have been no material changes, outside of the ordinary course of business, in the Company's outstanding contractual obligations disclosed in theWalgreens Boots Alliance Annual Report on Form 10-K for the year endedAugust 31, 2019 . CRITICAL ACCOUNTING POLICIES The Consolidated Condensed Financial Statements are prepared in accordance with GAAP and include amounts based on management's prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future periods. For a discussion of our significant accounting policies, please see theWalgreens Boots Alliance Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 . Some of the more significant estimates include business combinations, goodwill and indefinite-lived intangible asset impairment, cost of sales and inventory, equity method investments, pension and postretirement benefits and income taxes. See note 17, new accounting pronouncements, for additional information. NEW ACCOUNTING PRONOUNCEMENTS A discussion of new accounting pronouncements is described in note 17, new accounting pronouncements, to the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q and is incorporated herein by reference. - 54 - -------------------------------------------------------------------------------- CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other documents that we file or furnish with theSEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on the Company's website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications. Some of such forward-looking statements may be based on certain data and forecasts relating to our business and industry that we have obtained from internal surveys, market research, publicly available information and industry publications. Industry publications, surveys and market research generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Statements that are not historical facts are forward-looking statements, including, without limitation, those regarding estimates of and goals for future financial and operating performance as well as forward-looking statements concerning the expected execution and effect of our business strategies, our cost-savings and growth initiatives, pilot programs, strategic partnerships and initiatives, and restructuring activities and the amounts and timing of their expected impact and delivery of estimated cost savings, our amended and restated asset purchase agreement with Rite Aid and the transactions contemplated thereby and their possible timing and effects, our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and their possible effects, estimates of the impact of developments on our earnings, earnings per share and other financial and operating metrics, cough, cold and flu season, the potential impacts on our business of the spread and impact of the COVID-19 pandemic, prescription volume, pharmacy sales trends, prescription margins and reimbursement rates, changes in generic prescription drug prices, retail margins, number and location of new store openings, network participation, vendor, payer and customer relationships and terms, possible new contracts or contract extensions, the withdrawal of theUnited Kingdom from theEuropean Union and its possible effects, competition, economic and business conditions, outcomes of litigation and regulatory matters, the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, impairment or other charges, acquisition and joint venture synergies, competitive strengths and changes in legislation or regulations. All statements in the future tense and all statements accompanied by words such as "expect," "likely," "outlook," "forecast," "preliminary," "pilot," "would," "could," "should," "can," "will," "project," "intend," "plan," "goal," "guidance," "target," "aim," "continue," "sustain," "synergy," "transform," "accelerate," "model," "long-term," "on track," "on schedule," "headwind," "tailwind," "believe," "seek," "estimate," "anticipate," "upcoming," "to come," "may," "possible," "assume," and variations of such words and similar expressions are intended to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated, including, but not limited to, those relating to the impact of private and public third-party payers' efforts to reduce prescription drug reimbursements, fluctuations in foreign currency exchange rates, the timing and magnitude of the impact of branded to generic drug conversions and changes in generic drug prices, our ability to realize synergies and achieve financial, tax and operating results in the amounts and at the times anticipated, the inherent risks, challenges and uncertainties associated with forecasting financial results of large, complex organizations in rapidly evolving industries, particularly over longer time periods, supply arrangements including our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and their possible effects, the risks associated with our equity method investment in AmerisourceBergen, circumstances that could give rise to the termination, cross-termination or modification of any of our contractual obligations, the amount of costs, fees, expenses and charges incurred in connection with strategic transactions, whether the costs and charges associated with restructuring initiatives, including the Transformational Cost Management Program and Store Optimization Program, will exceed estimates, our ability to realize expected savings and benefits from cost-savings initiatives, including the Transformational Cost Management Program and Store Optimization Program, restructuring activities and acquisitions and joint ventures in the amounts and at the times anticipated, the timing and amount of any impairment or other charges, the timing and severity of cough, cold and flu season, risks relating to the spread and impact of the COVID-19, risks related to pilot programs and new business initiatives and ventures generally, including the risks that anticipated benefits may not be realized, changes in management's plans and assumptions, the risks associated with governance and control matters, the ability to retain key personnel, changes in economic and business conditions generally or in particular markets in which we participate, changes in financial markets, credit ratings and interest rates, the risks relating to the terms, timing and magnitude of any share repurchase activity, the risks associated with international business operations, including the risks associated with the withdrawal of theUnited Kingdom from theEuropean Union and international trade policies, tariffs, including tariff negotiations betweenthe United States andChina , and relations, the risks associated with cybersecurity or privacy breaches related to customer information, changes in vendor, customer and payer relationships and terms, including changes in network participation and reimbursement terms and the associated impacts on volume and operating results, risks related to competition including changes in market dynamics, participants, product and service offerings, retail formats and competitive positioning, risks associated with new business areas and activities, risks associated with - 55 -
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acquisitions, divestitures, joint ventures and strategic investments, including those relating to the asset acquisition from Rite Aid, the risks associated with the integration of complex businesses, the impact of regulatory restrictions and outcomes of legal and regulatory matters and risks associated with changes in laws, including those related to theDecember 2017 U.S. tax law changes, regulations or interpretations thereof. These and other risks, assumptions and uncertainties are described in Item 1A, Risk factors, in theWalgreens Boots Alliance Annual Report on Form 10-K for the fiscal year endedAugust 31, 2019 , in Item 1A. "Risk factors" in this report and in other documents that we file or furnish with theSEC . Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
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