Segment Reporting

12 Months Ended

Aug. 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, Summary of Major Accounting Policies), the Company has realigned its operations into three reportable segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. The operating 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 operating segments, which have been aggregated as described below. The chief operating decision maker uses adjusted operating income to assess segment profitability. The chief operating decision maker does not use total assets by segment to make decisions regarding resources, therefore the total asset disclosure by segment has not been included.

· 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 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 United Kingdom, Mexico, Chile, Thailand, Norway, the 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, United Kingdom, 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, Summary of Major Accounting Policies.

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 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 fiscal 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 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 fiscal 2014 and 2013, 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
For the Year Ended August 31, 2015
Sales to external customers	$	80,974	$	8,657	$	13,813	$	-		$	103,444
Intersegment sales		-		124		1,514		(1,638	)		-
Total Sales	$	80,974	$	8,781	$	15,327	$	(1,638	)	$	103,444
Adjusted Operating Income	$	5,098	$	616	$	450	$	(7	)	$	6,157
Depreciation and amortization	$	1,217	$	393	$	120	$	12		$	1,742
Additions to property, plant and equipment		951		249		51		-			1,251
For the Year Ended August 31, 2014
Sales to external customers	$	76,392	$	-	$	-	$	-		$	76,392
Intersegment sales		-		-		-		-			-
Total Sales		76,392		-		-		-			76,392
Adjusted Operating Income	$	4,866	$	-	$	-	$	-		$	4,866
Depreciation and amortization	$	1,316	$	-	$	-	$	-		$	1,316
Additions to property, plant and equipment		1,106		-		-		-			1,106
For the Year Ended August 31, 2013
Sales to external customers	$	72,217	$	-	$	-	$	-		$	72,217
Intersegment sales		-		-		-		-			-
Total Sales		72,217		-		-		-			72,217
Adjusted Operating Income	$	4,828	$	-	$	-	$	-		$	4,828
Depreciation and amortization	$	1,283	$	-	$	-	$	-		$	1,283
Additions to property, plant and equipment		1,212		-		-		-			1,212

The following table reconciles adjusted operating income to operating income (in millions):

	Retail Pharmacy
	USA		International		Pharmaceutical Wholesale		Eliminations and Unallocated Items			Consolidated
For the Year Ended August 31, 2015
Adjusted Operating Income	$	5,098	$	616	$	450	$	(7	)	$	6,157
Cost transformation											(542	)
Acquisition-related amortization											(515	)
LIFO provision											(285	)
Asset impairment											(110	)
Acquisition-related costs											(87	)
Store closures and other optimization costs											(56	)
Loss on sale of business											(17	)
Increase in fair market value of warrants											123
Operating Income										$	4,668
For the Year Ended August 31, 2014
Adjusted Operating Income	$	4,866	$	-	$	-	$	-		$	4,866
Acquisition-related amortization											(364	)
LIFO provision											(132	)
Store closure and other optimization costs											(271	)
Acquisition-related costs											(82	)
Increase in fair market value of warrants											168
Gain on sale of business											9
Operating Income										$	4,194
For the Year Ended August 31, 2013
Adjusted Operating Income	$	4,828	$	-	$	-	$	-		$	4,828
Acquisition-related amortization											(394	)
LIFO provision											(239	)
Acquisition-related costs											(96	)
Hurricane Sandy costs											(39	)
DEA settlement costs											(28	)
Distributor transition costs											(13	)
Gain on sale of business											20
Increase in fair market value of warrants											53
Operating Income										$	4,092

No single customer accounted for more than 10% of the Company’s consolidated net sales for any of the periods presented. One payer, OptumRx, accounted for approximately 12.3% of the Retail Pharmacy USA division’s sales in fiscal 2015. One customer in the Retail Pharmacy International division, NHS England, accounted for approximately 20.0% of the division’s sales in fiscal 2015.

Geographic data for net sales is as follows (in millions):

	2015		2014		2013
United States	$	80,974	$	76,392	$	72,217
United Kingdom		9,235		-		-
Europe (excluding the United Kingdom)		11,402		-		-
Other		1,833		-		-
Net sales	$	103,444	$	76,392	$	72,217

Geographic data for long-lived assets, defined as property, plant and equipment is as follows (in millions):

	2015		2014
United States	$	11,327	$	12,257
United Kingdom		2,835		-
Europe (excluding the United Kingdom)		725		-
Other		181		-
Total long-lived assets	$	15,068	$	12,257