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" and in item 1A, risk factors, in our Form 10-K for the fiscal year endedAugust 31, 2019 . 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 months endedNovember 30, 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 current expectations. These factors include: 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 proposed 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. 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 relating to the Transformational Cost Management Program will result in future cash expenditures, primarily related to lease and other real estate payments, employee severance and technology costs related to the Company's IT transformation.
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:
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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 charges billion$300 to 400 Other IT transformation costs million$1.9 to 2.4 Total estimated pre-tax charges billion
1 Primarily related to asset write-offs from store closures, information technology and other asset write-offs.
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 onSeptember 1, 2019 . See note 17, new accounting pronouncements, for additional information. Since the approval of the Transformational Cost Management Program, the Company has recognized aggregate cumulative pre-tax charges to its financial results in accordance with GAAP of$563 million , of which$496 million are recorded as exit and disposal activities. See note 3, exit and disposal activities, for additional information. These charges included$26 million related to lease obligations and other real estate costs,$271 million in asset impairments,$165 million in employee severance and business transition costs,$34 million of information technology transformation and other exit costs and$66 million other information technology costs. Costs under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses for the three months endedNovember 30, 2019 andNovember 30, 2018 were as follows (in millions): Retail Pharmacy Retail Pharmacy Walgreens Boots Three Months Ended November 30, 2019 USA International Pharmaceutical Wholesale Alliance, Inc. Lease obligations and other real estate costs$ 1 $ - $ - $ 1 Asset impairments 8 3 - 11 Employee severance and business transition costs 34 1 5 40 Information technology transformation and other exit costs 7 4 1 12 Total pre-tax exit and disposal charges$ 49 $ 9 $ 6 $ 64 Other IT transformation costs 17 3 1 21 Total pre-tax charges$ 66 $ 12 $ 7 $ 86 Retail Pharmacy Walgreens Boots
Three Months Ended
International Pharmaceutical Wholesale Alliance,
Inc.
Lease obligations and other real estate
costs $ - $ 4 $ - $ 4
Asset impairments - 8 - 8
Employee severance and business transition
costs - 13 - 13
Information technology transformation and
other exit costs - 1 1 2
Total pre-tax exit and disposal charges $ - $ 27 $ 1 $ 28
Other IT transformation costs 2 - - 2
Total pre-tax charges $ 2 $ 27 $ 1 $ 30
- 32 --------------------------------------------------------------------------------- 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 OnSeptember 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 the first distribution center and related inventory, while the transition of the remaining two distribution centers and related inventory remains subject to closing conditions set forth in the amended and restated asset purchase agreement.
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$850 million , which is reported as acquisition-related costs 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$638 million , which includes pre-tax charges of$122 million for three months endedNovember 30, 2019 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$350 million , 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$160 million for lease obligations and other real estate costs and approximately$190 million for employee severance and other exit costs. The Company estimates that substantially all of these cumulative pre-tax charges will result in cash expenditures. Since the approval of the Store Optimization Program, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP totaling$305 million , which were recorded within selling, general and administrative expenses. These charges included$141 million related to lease obligations and other real estate costs and$164 million in employee severance and other exit costs. 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. - 33 - -------------------------------------------------------------------------------- INVESTMENT IN AMERISOURCEBERGEN As ofNovember 30, 2019 , 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.
THE IMPACT OF BREXIT InJune 2016 , voters in theUnited Kingdom approved an advisory referendum to withdraw from theEuropean Union , which proposed exit (and the political, economic and other uncertainties it has raised) is commonly referred to as "Brexit". Since the Brexit vote inJune 2016 , there has been significant volatility in the global stock markets and currency exchange rates, as well as challenging market conditions in theUnited Kingdom . InMarch 2017 , theUnited Kingdom formally started the process to leave theEuropean Union . An original exit date was set forMarch 29, 2019 but following theUK parliament's rejection of a negotiated outcome, the leaders of the member countries of theEuropean Union have agreed to multiple extensions of the deadline for Brexit, and there can be no assurances regarding the terms, timing or consummation of any such arrangements. Based on theDecember 12, 2019 general election in theUK , it is expected that theUK will leave theEuropean Union byJanuary 31, 2020 . Failure to complete negotiations by the implementation deadline ofDecember 31, 2020 relating to Brexit could result in theUK reverting to undesirable and adverse trade agreements with theEuropean Union . Although we continue to actively monitor the ongoing potential impacts of Brexit and will seek to minimize its impact on our business, if theUK's membership in theEuropean Union terminates without an agreement, 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, particularly European operations; however, Brexit and its related effects could have a material impact on the Company's consolidated financial position or operating results. EXECUTIVE SUMMARY The following table presents certain key financial statistics for the Company for the three months endedNovember 30, 2019 and 2018, respectively.
(in millions, except per share amounts)
Three months ended
2019 2018
Sales $ 34,339 $ 33,793
Gross profit 7,263 7,641
Selling, general and administrative expenses 6,262 6,280
Equity earnings in AmerisourceBergen 13 39
Operating income 1,013 1,400
Adjusted operating income (Non-GAAP measure)1 1,463 1,732
Earnings before interest and income tax provision 1,048 1,427
Net earnings attributable to Walgreens Boots Alliance , Inc. 845 1,123
Adjusted net earnings attributable to
1,222 1,386
Net earnings per common share - diluted 0.95 1.18
Adjusted net earnings per common share - diluted (Non-GAAP measure)1
1.37 1.46
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Percentage increases (decreases)
Three months ended
2019 2018
Sales 1.6 9.9
Gross profit (5.0) 4.1
Selling, general and administrative expenses (0.3) 6.3
Operating income (27.6) 6.1
Adjusted operating income (Non-GAAP measure)1 (15.6) (4.1)
Earnings before interest and income tax provision (26.5) 20.4
Net earnings attributable to Walgreens Boots Alliance , Inc. (24.8) 36.8
Adjusted net earnings attributable to
(11.8) 7.0
Net earnings per common share - diluted (19.8) 45.7
Adjusted net earnings per common share - diluted (Non-GAAP
measure)1 (6.0) 14.1
Percent to sales
Three months ended
2019 2018
Gross margin 21.1 22.6
Selling, general and administrative expenses 18.2 18.6
1 See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
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Net earnings Net earnings attributable toWalgreens Boots Alliance for the three months endedNovember 30, 2019 decreased 24.8% to$845 million , while diluted net earnings per share decreased 19.8% to$0.95 compared with the prior year period. The decreases in net earnings and diluted earnings per share primarily reflect operating performance, including Rite Aid acquisition related costs and costs related to the Company's Transformational Cost Management Program, partially offset by the lower effective tax rate in the quarter. 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 endedNovember 30, 2019 was$35 million compared to income of$26 million for the prior year period. Interest was a net expense of$166 million and$161 million for the three months endedNovember 30, 2019 and 2018, respectively. The effective tax rate for the three months endedNovember 30, 2019 was 3.6% compared to 14.2% for the prior year period. The decrease in the effective tax rate for the three months endedNovember 30, 2019 was primarily due to discrete tax benefits recorded during the current period from the release of a valuation allowance on net deferred tax assets due to anticipated capital gains. Adjusted diluted net earnings (Non-GAAP measure) Adjusted net earnings attributable toWalgreens Boots Alliance for the three months endedNovember 30, 2019 decreased 11.8% to$1.2 billion , down 11.6% on a constant currency basis, compared with the prior year period. Adjusted diluted net earnings per share decreased 6.0% to$1.37 , a decrease of 5.7% on a 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 endedNovember 30, 2019 primarily reflect lowerU.S. pharmacy gross margin and retail sales volume, and a challengingUK market, partially offset by the lower adjusted effective tax rate. Adjusted diluted net earnings per share for the three months endedNovember 30, 2019 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
2019 2018
Sales $ 26,133 $ 25,721
Gross profit 5,691 6,000
Selling, general and administrative expenses 4,843 4,834
Operating income 848 1,166
Adjusted operating income (Non-GAAP measure)1 1,155 1,379
Number of prescriptions2 213.0 216.5
30-day equivalent prescriptions2,3 294.0 289.8
Number of locations at period end 9,175 9,453
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Percentage increases (decreases)
Three months ended November 30,
2019 2018
Sales 1.6 14.4
Gross profit (5.2) 7.1
Selling, general and administrative expenses 0.2 8.0
Operating income (27.3) 3.5
Adjusted operating income (Non-GAAP measure)1 (16.2) 0.1
Comparable store sales4 1.6 1.0
Pharmacy sales 2.9 17.5
Comparable pharmacy sales4 2.5 2.8
Retail sales (2.2) 6.0
Comparable retail sales4 (0.5) (3.2)
Comparable number of prescriptions2,4 0.1 (0.3)
Comparable 30-day equivalent prescriptions2,3,4 2.8 2.0
Percent to sales
Three months ended
2019 2018
Gross margin 21.8 23.3
Selling, general and administrative expenses 18.5 18.8
1See "--Non-GAAP Measures" below for a reconciliation to the most directly
comparable financial measure calculated in accordance with GAAP.
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.
Sales for the three months ended November 30, 2019 and 2018
The Retail Pharmacy USA division's sales for the three months ended November 30,
2019 increased 1.6% to $26.1 billion . Sales in comparable stores increased 1.6%
compared with the year-ago quarter.
Pharmacy sales increased 2.9% for the three months ended November 30, 2019 and
represented 75.4% of the division's sales. The increase is primarily due to
brand inflation and continued prescription volume growth. In the year-ago
quarter, pharmacy sales increased 17.5% and represented 74.4% of the division's
sales. Comparable pharmacy sales increased 2.5% for the three months ended
November 30, 2019 compared to an increase of 2.8% in the year-ago quarter. The
effect of generic drugs, which have a lower retail price, replacing brand name
drugs reduced prescription sales by 2.5% in the three months ended November 30,
2019 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 November 30, 2019 compared to a reduction of 0.5% for the year-ago
quarter. Third party sales, where reimbursement is received from managed care
organizations, governmental agencies, employers or private insurers, were 96.9%
of prescription sales for the three months ended November 30, 2019 compared to
97.1% in the year ago quarter. The total number of prescriptions (including
immunizations) filled for the three months ended November 30 ,
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2019 was 213.0 million compared to 216.5 million in the year-ago quarter.
Prescriptions (including immunizations) filled adjusted to 30-day equivalents
were 294.0 million in the three months ended November 30, 2019 compared to 289.8
million in the year-ago quarter.
Retail sales for the three months ended November 30, 2019 decreased 2.2% and
were 24.6% of the division's sales. In the year-ago quarter, retail sales
increased 6.0% and comprised 25.6% of the division's sales. Comparable retail
sales decreased 0.5% in the three months ended November 30, 2019 compared to a
decrease of 3.2% in the year-ago quarter. The decrease in the current period is
entirely due to the continued de-emphasis of tobacco.
Operating income for the three months ended
Gross margin was 21.8% for the three months ended
Selling, general and administrative expenses as a percentage of sales were 18.5% in the three months endedNovember 30, 2019 compared to 18.8% 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 costs related to the Company's Transformational Cost Management Program and increases in Rite Aid acquisition related costs. Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2019 and 2018Retail Pharmacy USA division's adjusted operating income was$1.2 billion for the three months endedNovember 30, 2019 , a decrease of 16.2% from the year-ago quarter. The decrease was primarily due to lower pharmacy gross margin and retail sales volume 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.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
2019 2018
Sales $ 2,745 $ 2,901
Gross profit 1,056 1,128
Selling, general and administrative expenses 1,012 1,050
Operating income 44 78
Adjusted operating income (Non-GAAP measure)1 79 132
Number of locations at period end 4,578 4,624
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Percentage increases (decreases)
Three months ended
2019 2018
Sales (5.4) (5.9)
Gross profit (6.3) (7.8)
Selling, general and administrative expenses (3.5) 0.5
Operating income (43.7) (56.4)
Adjusted operating income (Non-GAAP measure)1 (40.5) (35.6)
Comparable store sales2 (1.7) (2.6)
Pharmacy sales (3.7) (5.9)
Comparable pharmacy sales2 0.6 (2.8)
Retail sales (6.3) (5.9)
Comparable retail sales2 (3.0) (2.4)
Percent to sales
Three months ended
2019 2018
Gross margin 38.5 38.9
Selling, general and administrative expenses 36.9 36.2
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, 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.
Sales for the three months ended November 30, 2019 and 2018
Retail Pharmacy International division's sales for the three months ended
November 30, 2019 decreased 5.4% to $2.7 billion from the year-ago quarter. The
negative impact of currency translation was 2.7%. Comparable store sales
decreased 1.7%, mainly due to lower retail sales in Boots UK and lower retail
and pharmacy sales in Chile , in part due to social unrest.
Pharmacy sales decreased 3.7% in the three months ended November 30, 2019 and
represented 36.5% of the division's sales. The negative impact of currency
translation on pharmacy sales was 3.2 percentage points. Comparable pharmacy
sales increased 0.6% from the year-ago quarter primarily due to the UK , driven
by higher National Health Service (NHS ) reimbursement levels and increased sales
of services, partially offset by lower prescription volume.
Retail sales decreased 6.3% for the three months ended November 30, 2019 and
represented 63.5% of the division's sales. The negative impact of currency
translation on retail sales was 2.4 percentage points. Comparable retail sales
decreased 3.0%, from the year-ago quarter reflecting lower Boots UK retail sales
in a challenging market place.
Operating income for the three months ended November 30, 2019 and 2018
Retail Pharmacy International division's operating income for the three months
ended November 30, 2019 decreased 43.7% to $44 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.
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Gross profit decreased 6.3% from the year-ago quarter. Gross profit was
negatively impacted by 2.6 percentage points (
Selling, general and administrative expenses decreased 3.5% from the year-ago quarter. Expenses were positively impacted by 2.7 percentage points ($28 million ) as a result of currency translation. The remaining decrease was due to lower Transformational Cost Management Program expenses compared with the year-ago quarter. As a percentage of sales, selling, general and administrative expenses were 36.9% in the three months endedNovember 30, 2019 compared to 36.2% in the year-ago quarter reflecting higher year-on-year bonus impact and technology investments. Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2019 and 2018Retail Pharmacy International division's adjusted operating income for the three months endedNovember 30, 2019 decreased 40.5% to$79 million . Adjusted operating income was negatively impacted by 1.4 percentage points ($2 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. 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
2019 2018
Sales $ 6,007 $ 5,708
Gross profit 517 512
Selling, general and administrative expenses 407 396
Equity earnings in AmerisourceBergen 13 39
Operating income 122 155
Adjusted operating income (Non-GAAP measure)1 229 220
Percentage increases (decreases)
Three months ended
2019 2018
Sales 5.2 (0.2)
Gross profit 0.8 (1.9)
Selling, general and administrative expenses 2.9 0.3
Operating income (21.5) 933.3
Adjusted operating income (Non-GAAP measure)1 4.1 (2.2)
Comparable sales2 8.3 6.6
Percent to sales
Three months ended
2019 2018
Gross margin 8.6 9.0
Selling, general and administrative expenses 6.8 6.9
1See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
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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.
Sales for the three months ended November 30, 2019 and 2018
Pharmaceutical Wholesale division's sales for the three months ended November
30, 2019 increased 5.2% to $6.0 billion .
Sales were negatively impacted by 3.0 percentage points as a result of currency
translation. Comparable sales increased 8.3%, led by growth in emerging markets
and the UK , including a customer contract change in the UK .
Operating income for the three months ended November 30, 2019 and 2018
Pharmaceutical Wholesale division's operating income for the three months ended
November 30, 2019 decreased $33 million to $122 million primarily due to the
Company's share of the litigation settlements included in AmerisourceBergen's
fourth quarter results for its fiscal year ended September 30, 2019 . Operating
income was negatively impacted by $1 million as a result of currency
translation.
Gross profit increased 0.8% from the year-ago quarter. Gross profit was
negatively impacted by 2.7 percentage points (
Selling, general and administrative expenses increased 2.9% from the year-ago quarter. Expenses were positively impacted by 3.2 percentage points ($13 million ) as a result of currency translation. The remaining increase was primarily due to increased sales and inflation in emerging markets. As a percentage of sales, selling, general and administrative expenses for the three months endedNovember 30, 2019 were 6.8% compared to 6.9% in the year-ago quarter. Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2019 and 2018 Pharmaceutical Wholesale division's adjusted operating income for the three months endedNovember 30, 2019 , which included$92 million from the Company's share of adjusted equity earnings in AmerisourceBergen, increased 4.1% to$229 million . Adjusted operating income was negatively impacted by 0.8 percentage points ($2 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. 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. - 41 - -------------------------------------------------------------------------------- (in millions) Three months ended November 30, 2019 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 848 $ 44 $ 122 $ -$ 1,013 Acquisition-related costs 122 - 1 - 124 Acquisition-related amortization and impairment 77 22 19 -
118
Transformational cost management 66 12 7 - 86 Adjustments to equity earnings in AmerisourceBergen - - 80 - 80 LIFO provision 33 - - - 33 Store optimization 9 - - - 9 Adjusted operating income (Non-GAAP measure)$ 1,155 $ 79 $ 229 $ -$ 1,463 (in millions) Three months ended November 30, 2018 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 1,166 $ 78 $ 155$ 1 $ 1,400 Acquisition-related costs 66 - - - 66 Acquisition-related amortization and impairment 76 27 20 -
123
Transformational cost management 2 27 1 -
30
Adjustments to equity earnings in AmerisourceBergen - - 44 - 44 LIFO provision 39 - - - 39 Store optimization 20 - - - 20 Certain legal and regulatory accruals and settlements 10 - - -
10
Adjusted operating income (Non-GAAP measure)$ 1,379 $ 132 $ 220$ 1 $ 1,732 - 42 -
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(in millions, except per share amounts)
Three months ended November 30,
2019 2018
Net earnings attributable to
845 $ 1,123
Adjustments to operating income:
Acquisition-related costs 124 66
Acquisition-related amortization and impairment 118 123
Transformational cost management 86 30
Adjustments to equity earnings in AmerisourceBergen 80 44
LIFO provision 33 39
Store optimization 9 20
Certain legal and regulatory accruals and settlements - 10
Total adjustments to operating income 449 332
Adjustments to other income:
Gain on sale of equity method investment (1) -
Net investment hedging gain (11) (3)
Total adjustments to other income (12) (3)
Adjustments to income tax provision:
Equity method non-cash tax (2) 4
U.S. tax law changes1 (6) (12)
Tax impact of adjustments2 (80) (57)
Total adjustments to income tax provision (88) (65)
Adjustments to post tax equity earnings from other equity method investments: Adjustments to equity earnings in other equity method investments3
28 -
Total adjustments to post tax equity earnings from other equity method investments
28 -
Adjusted net earnings attributable to
$ 1,222 $ 1,386
Diluted net earnings per common share (GAAP) $ 0.95 $ 1.18
Adjustments to operating income 0.50 0.35
Adjustments to other income (expense) (0.01) -
Adjustments to income tax provision (0.10) (0.07)
Adjustments to equity earnings in other equity method investments3
0.03 -
Adjusted diluted net earnings per common share (Non-GAAP measure) $
1.37 $ 1.46 Weighted average common shares outstanding, diluted (in millions)
892.6 951.4
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.
- 43 -
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3Beginning in the quarter ended May 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 $0.3 billion in non-U.S.
jurisdictions) as of November 30, 2019 , compared to $1.0 billion (including $0.4
billion in non-U.S. jurisdictions) as of November 30, 2018 . 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 in U.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. In June 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 three months ended November 30, 2019 was $1.1 billion ,
compared to $0.5 billion for the year-ago period. The $0.6 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, accrued expenses and other
liabilities, inventories, and trade accounts payable are mainly driven by timing
of collections and payments.
Net cash used for investing activities was $402 million for the three months
ended November 30, 2019 compared to $635 million for the year-ago period. This
change in net cash used for investing activities includes $147 million in
proceeds from sale-leaseback transactions for the three months ended November
30, 2019 . Business, investment and asset acquisitions for the three months ended
November 30, 2019 were $180 million compared to $200 million for the three
months ended November 30, 2018 .
For the three months ended November 30, 2019 , additions to property, plant and
equipment were $387 million compared to $470 million in the year-ago period.
Capital expenditures by reporting segment were as follows (in millions):
Three months ended November 30,
2019 2018
Retail Pharmacy USA $ 303 $ 365
Retail Pharmacy International 70 79
Pharmaceutical Wholesale 13 26
Total $ 387 $ 470 Significant capital expenditures primarily relate to investments in our stores and information technology projects.
Net cash used for financing activities for the three months endedNovember 30, 2019 was$866 million , compared to net cash provided by financing activities of$390 million in the year-ago period. In the three months endedNovember 30, 2019 there were$4.7 billion in net proceeds from debt and short term borrowings compared to$2.2 billion in net proceeds in the year-ago period. In the three months endedNovember 30, 2019 there were$4.7 billion in payments of debt compared to$0.5 billion in three months endedNovember 30, 2018 . The Company repurchased shares as part of the stock repurchase program described below and to support the needs of the employee stock plans totaling$473 million compared to$912 million in the year-ago period. Proceeds related to employee stock plans were$14 million during the three months endedNovember 30, 2019 , compared to$101 million during the three months endedNovember 30, 2018 . Cash dividends paid were$410 million during the three months endedNovember 30, 2019 , compared to$422 million for the same period a year ago. - 44 - -------------------------------------------------------------------------------- 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.
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$6.9 billion as ofNovember 30, 2019 . 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$2.9 billion and$1.8 billion at a weighted average interest rate of 2.55% and 2.61% for the three months endedNovember 30, 2019 and 2018, 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 ofNovember 30, 2019 , 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 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 ofNovember 30, 2019 , there were$700 million 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 - 45 -
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applicable margin of 0.75% in the case of Eurocurrency rate loans. As of
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 ofNovember 30, 2019 , there were$300 million 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 the January 2019 364-Day Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to the January 2019 364-Day Revolving Credit Agreement. OnDecember 18, 2019 , the Company entered into an Extension Agreement (the "Extension Agreement") relating to the January 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 shall become effective onJanuary 30, 2020 , subject to the Company satisfying certain customary conditions set forth in the Extension Agreement. Borrowings under the January 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 ofNovember 30, 2019 , there were$1.1 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 ofAugust 31, 2019 , 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 in the applicable credit agreement. As ofNovember 30, 2019 , the Company was in compliance with all such applicable covenants. Credit ratings As ofJanuary 7, 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 - 46 - -------------------------------------------------------------------------------- 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 ofNovember 30, 2019 , 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 ofNovember 30, 2019 , 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. 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 - 47 - -------------------------------------------------------------------------------- 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, 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 proposed 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, and charges incurred 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 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 proposed 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 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 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. - 48 -
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