Segment Reporting

9 Months Ended

May. 31, 2015

Segment Reporting [Abstract]

Segment Reporting

19. Segment Reporting

Prior to December 31, 2014, the Company’s operations were within one reportable segment.  As a result of the closing of the Second Step Transaction on December 31, 2014, (see Note 1, Organization, and Note 2, Basis of Presentation), the Company has realigned its operations into three reportable segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The reportable segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker) to assess segment performance and allocate resources among the Company’s reportable segments. The chief operating decision maker uses operating income to assess segment profitability.

· The Retail Pharmacy USA segment consists of the legacy Walgreens business, which includes the operation of retail drugstores and convenient care clinics, in addition to providing specialty and infusion and respiratory pharmacy services. Revenues for the segment are principally derived from the sale of prescription drugs and a wide assortment of general merchandise, including non-prescription drugs, beauty products, photo finishing, seasonal merchandise, greeting cards and convenience foods.

· The Retail Pharmacy International segment consists primarily of the legacy Alliance Boots pharmacy-led health and beauty stores, optical practices, and related contract manufacturing operations. Stores are located in the UK, Mexico, Chile, Thailand, Norway, Republic of Ireland, The Netherlands and Lithuania. Revenues for the segment are principally derived from the sale of prescription drugs and retail health, beauty, toiletries and other consumer products.

· The Pharmaceutical Wholesale segment consists of the legacy Alliance Boots pharmaceutical wholesaling and distribution businesses. Wholesale operations are located in France, UK, Germany, Turkey, Spain, Russia, The Netherlands, Egypt, Norway, Romania, Czech Republic and Lithuania. Revenues for the segment are principally derived from wholesaling and distribution of a comprehensive offering of brand-name pharmaceuticals (including specialty pharmaceutical products) and generic pharmaceuticals, health and beauty products, home healthcare supplies and equipment, and related services to pharmacies and other healthcare providers.

The accounting policies of the segments are in accordance with Note 2, Basis of Presentation.

The results of operations for each reportable segment include synergy benefits, including WBAD operations and an allocation of corporate-related overhead costs. The “Eliminations and Unallocated Items” column contains corporate-related items not allocable to the reportable segments, as the information is not utilized by the chief operating decision maker to assess segment performance and allocate resources.

The segment information for the three and nine month periods ended May 31, 2015 reflects the operating results of the Company’s new business segments. The Company began recording revenue and expense transactions using the new segments effective January 1, 2015. Beginning January 1, 2015, synergy benefits including WBAD operations have been allocated to the Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale segments on a source of procurement benefit basis. Under this method, the synergy benefits are allocated to the segment whose purchase gave rise to the benefit. A synergy arising on the purchase of an item for use in an entity in the Retail Pharmacy USA segment is recognized in the Retail Pharmacy USA segment and similarly for the Retail Pharmacy International and Pharmaceutical Wholesale segments. Procurement service income related to third parties is recognized in the Pharmaceutical Wholesale segment. Corporate costs have been allocated to segments based on their respective gross profit.

The Company has determined that it is impracticable to restate segment information for the three and nine month periods ended May 31, 2014 as well as to provide disclosures under both the old basis and new basis of reporting for certain items. Specifically, WBAD operations historically have been recorded in the Retail Pharmacy USA segment and not restated as it is impracticable to separate the information to the individual reportable segments. Equity earnings from Alliance Boots prior to the completion of the Second Step Transaction have been recorded within the Retail Pharmacy USA segment. The equity earnings of the 45% interest in Alliance Boots have not been separated into the Retail Pharmacy International and Pharmaceutical Wholesale segments for the prior periods as it is impracticable. Additionally, comparative information has not been restated to reflect the 45% equity interest in Alliance Boots.

The following table reflects results of operations of the Company’s reportable segments (in millions):

	Retail Pharmacy
	USA		International		Pharmaceutical Wholesale		Eliminations  and Unallocated Items			Consolidated
Three Months Ended May 31, 2015
Sales to external customers	$	20,425	$	3,231	$	5,139	$	-		$	28,795
Intersegment sales		-		37		569		(606	)		-
Total Sales		20,425		3,268		5,708		(606	)		28,795
Cost of sales		14,898		1,875		5,148		(607	)		21,314
Gross Profit		5,527		1,393		560		1			7,481
Selling, general and administrative expenses		4,494		1,188		398		-			6,080
Operating Income	$	1,033	$	205	$	162	$	1		$	1,401
Three Months Ended May 31, 2014
Sales to external customers	$	19,401	$	-	$	-	$	-		$	19,401
Intersegment sales		-		-		-		-			-
Total Sales		19,401		-		-		-			19,401
Cost of sales		13,961		-		-		-			13,961
Gross Profit		5,440		-		-		-			5,440
Selling, general and administrative expenses		4,551		-		-		-			4,551
Equity earnings in Alliance Boots		135		-		-		-			135
Operating Income	$	1,024	$	-	$	-	$	-		$	1,024

	Retail Pharmacy
	USA		International		Pharmaceutical Wholesale		Eliminations and Unallocated  Items			Consolidated
Nine Months Ended May 31, 2015
Sales to external customers	$	61,027	$	5,248	$	8,647	$	-		$	74,922
Intersegment sales		-		67		926		(993	)		-
Total Sales		61,027		5,315		9,573		(993	)		74,922
Cost of sales		44,458		3,169		8,626		(990	)		55,263
Gross Profit		16,569		2,146		947		(3	)		19,659
Selling, general and administrative expenses		13,505		1,933		704		-			16,142
Equity earnings in Alliance Boots		315		-		-		-			315
Operating Income	$	3,379	$	213	$	243	$	(3	)	$	3,832
Nine Months Ended May 31, 2014
Sales to external customers	$	57,335	$	-	$	-	$	-		$	57,335
Intersegment sales		-		-		-		-			-
Total Sales		57,335		-		-		-			57,335
Cost of sales		41,093		-		-		-			41,093
Gross Profit		16,242		-		-		-			16,242
Selling, general and administrative expenses		13,499		-		-		-			13,499
Equity earnings in Alliance Boots		465		-		-		-			465
Operating Income	$	3,208	$	-	$	-	$	-		$	3,208
Total assets:
May 31, 2015	$	41,714	$	22,514	$	13,043	$	(6,627	)	$	70,644
August 31, 2014		44,255		-		-		(7,005	)		37,250

The following table reconciles the operating income from each reportable segment to earnings before interest and income tax provision (in millions):

	For the Three Months Ended				For the Nine Months Ended
	May 31, 2015		May 31, 2014		May 31, 2015			May 31, 2014
Operating income:
Retail Pharmacy USA	$	1,033	$	1,024	$	3,379		$	3,208
Retail Pharmacy International		205		-		213			-
Pharmaceutical Wholesale		162		-		243			-
Eliminations/Other		1		-		(3	)		-
Gain on previously held equity interest		-		-		706			-
Other income		461		124		1,164			290
Earnings Before Interest and Income Tax provision (EBIT)	$	1,862	$	1,148	$	5,702		$	3,498