Segment Reporting

3 Months Ended

Nov. 30, 2015

Segment Reporting [Abstract]

Segment Reporting

Note 19. Segment Reporting

The Company has 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 and the provision of 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, the 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 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 the three-month period ended November 30, 2015 reflects the operating results of the Company’s 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-month period ended November 30, 2014 as well as to provide disclosures under both the old basis and new basis of reporting for certain items. Specifically, WBAD operations historically were recorded in the Retail Pharmacy USA segment and not restated, as the Company believes 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 has 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 period, as the Company believes it is impracticable.

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

	Retail Pharmacy				Pharmaceutical Wholesale		Eliminations and Unallocated Items			Consolidated
	USA		International
Three Months Ended November 30, 2015
Sales to external customers	$	20,370	$	3,459	$	5,204	$	—		$	29,033
Intersegment sales		—		72		592		(664	)		—
Total Sales		20,370		3,531		5,796		(664	)		29,033
Adjusted Operating Income	$	1,243	$	315	$	166	$	(5	)	$	1,719
Three Months Ended November 30, 2014
Sales to external customers	$	19,554	$	—	$	—	$	—		$	19,554
Intersegment sales		—		—		—		—			—
Total Sales		19,554		—		—		—			19,554
Adjusted Operating Income	$	1,118	$	—	$	—	$	—		$	1,118

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

	Retail Pharmacy				Pharmaceutical Wholesale		Eliminations and Unallocated Items			Consolidated
	USA		International
Three Months Ended November 30, 2015
Adjusted Operating Income	$	1,243	$	315	$	166	$	(5	)	$	1,719
Cost transformation											(90	)
Acquisition-related amortization											(81	)
LIFO provision											(46	)
Acquisition-related costs											(34	)
Operating Income										$	1,468
Three Months Ended November 30, 2014
Adjusted Operating Income	$	1,118	$	—	$	—	$	—		$	1,118
Acquisition-related amortization											(89	)
LIFO provision											(52	)
Store closures and other optimization costs											(28	)
Acquisition-related costs											(24	)
Increase in fair market value of warrants											129
Operating Income										$	1,054