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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _______to _______
Commission File Number
001-36759
WALGREENS BOOTS ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware47-1758322
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
108 Wilmot Road, Deerfield, Illinois
60015
(Address of principal executive offices)(Zip Code)
(847) 315-2500
(Registrant’s telephone number, including area code)
__________________________________________
Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueWBAThe NASDAQ Stock Market LLC
2.875% Walgreens Boots Alliance, Inc. notes due 2020WBA20The NASDAQ Stock Market LLC
3.600% Walgreens Boots Alliance, Inc. notes due 2025WBA25The NASDAQ Stock Market LLC
2.125% Walgreens Boots Alliance, Inc. notes due 2026WBA26The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ      No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).         Yes þ     No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer 
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes       No þ
The number of shares outstanding of the registrant’s Common Stock, $0.01 par value, as of December 31, 2019 was 885,861,624.




WALGREENS BOOTS ALLIANCE, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED NOVEMBER 30, 2019

TABLE OF CONTENTS

PART I.  FINANCIAL INFORMATION
 Item 1.Consolidated Condensed Financial Statements (Unaudited)
  a)
  b)
  c)
  d)
  e)
  f)
 Item 2.
 Item 3.
 Item 4.

PART II. OTHER INFORMATION
 Item 1.
 Item 1A.
 Item 2.
 Item 6.



Part I. Financial Information

Item 1. Consolidated Condensed Financial Statements (Unaudited)

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(in millions, except shares and per share amounts)

 November 30, 2019August 31, 2019
Assets  
Current assets:  
Cash and cash equivalents$811  $1,023  
Accounts receivable, net7,435  7,226  
Inventories10,536  9,333  
Other current assets822  1,118  
Total current assets19,604  18,700  
Non-current assets: 
Property, plant and equipment, net13,620  13,478  
Operating lease right-of-use assets21,674  —  
Goodwill16,800  16,560  
Intangible assets, net11,055  10,876  
Equity method investments (see note 5)6,902  6,851  
Other non-current assets1,152  1,133  
Total non-current assets71,203  48,899  
Total assets$90,807  $67,598  
Liabilities and equity  
Current liabilities:  
Short-term debt$6,225  $5,738  
Trade accounts payable (see note 16)15,401  14,341  
Operating lease obligation2,288  —  
Accrued expenses and other liabilities5,370  5,474  
Income taxes210  216  
Total current liabilities29,494  25,769  
Non-current liabilities:  
Long-term debt10,628  11,098  
Operating lease obligation21,894  —  
Deferred income taxes1,618  1,785  
Other non-current liabilities2,861  4,795  
Total non-current liabilities37,000  17,678  
Commitments and contingencies (see note 10)
Equity:  
Preferred stock $.01 par value; authorized 32 million shares, none issued    
Common stock $.01 par value; authorized 3.2 billion shares; issued 1,172,513,618 at November 30, 2019 and August 31, 201912  12  
Paid-in capital10,648  10,639  
Retained earnings35,810  35,815  
Accumulated other comprehensive loss(3,313) (3,897) 
Treasury stock, at cost; 284,423,873 shares at November 30, 2019 and 277,126,116 shares at August 31, 2019(19,496) (19,057) 
Total Walgreens Boots Alliance, Inc. shareholders’ equity23,661  23,512  
Noncontrolling interests653  641  
Total equity24,314  24,152  
Total liabilities and equity$90,807  $67,598  
The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EQUITY
(UNAUDITED)
For the three months ended November 30, 2019 and 2018
(in millions, except shares)

 Equity attributable to Walgreens Boots Alliance, Inc.  
 Common stock sharesCommon stock amountTreasury stock amountPaid-in capitalAccumulated other comprehensive income (loss)Retained earningsNoncontrolling interestsTotal equity
August 31, 2019895,387,502  $12  $(19,057) $10,639  $(3,897) $35,815  $641  $24,152  
Net earnings (loss)—  —  —  —  —  845  (3) 842  
    Other comprehensive income (loss), net of tax
—  —  —  —  585  —  15  600  
Dividends declared—  —  —  —  —  (407)   (407) 
Treasury stock purchases
(8,464,066) —  (473) —  —  —  —  (473) 
    Employee stock purchase and option plans
1,166,309  —  35  (20) —  —  —  14  
Stock-based compensation
—  —  —  28  —  —  —  28  
    Adoption of new accounting standards
—  —  —  —  —  (442) —  (442) 
November 30, 2019888,089,745  $12  $(19,496) $10,648  $(3,313) $35,810  $653  $24,314  


 Equity attributable to Walgreens Boots Alliance, Inc.  
 Common stock sharesCommon stock amountTreasury stock amountPaid-in capitalAccumulated other comprehensive income (loss)Retained earningsNoncontrolling interestsTotal equity
August 31, 2018952,133,418  $12  $(15,047) $10,493  $(3,002) $33,551  $682  $26,689  
Net earnings (loss)—  —  —  —  —  1,123  (23) 1,100  
    Other comprehensive income (loss), net of tax
—  —  —  —  (229) —  (3) (232) 
Dividends declared—  —  —  —  —  (418) (2) (420) 
Treasury stock purchases(11,994,557) —  (912) —  —  —  —  (912) 
    Employee stock purchase and option plans
3,305,875  —  99  2  —  —  —  101  
Stock-based compensation—  —  —  27  —  —  —  27  
    Adoption of new accounting standards
—  —  —  —  —  (88) —  (88) 
November 30, 2018943,444,736  $12  $(15,862) $10,522  $(3,231) $34,168  $654  $26,263  

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(in millions, except per share amounts)

 Three months ended November 30,
 20192018
Sales$34,339  $33,793  
Cost of sales27,077  26,152  
Gross profit7,263  7,641  
Selling, general and administrative expenses6,262  6,280  
Equity earnings in AmerisourceBergen13  39  
Operating income1,013  1,400  
Other income 35  26  
Earnings before interest and income tax provision1,048  1,427  
Interest expense, net166  161  
Earnings before income tax provision882  1,265  
Income tax provision32  180  
Post tax earnings (loss) from other equity method investments(9) 15  
Net earnings842  1,100  
Net loss attributable to noncontrolling interests(3) (23) 
Net earnings attributable to Walgreens Boots Alliance, Inc.$845  $1,123  
Net earnings per common share:  
Basic$0.95  $1.18  
Diluted$0.95  $1.18  
Weighted average common shares outstanding:  
Basic891.4  948.2  
Diluted892.6  951.4  

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in millions)
 Three months ended November 30,
 20192018
Comprehensive income:  
Net earnings$842  $1,100  
Other comprehensive income (loss), net of tax:  
Pension/postretirement obligations(7) (4) 
Unrealized gain (loss) on cash flow hedges  3  
Net investment hedges(42)   
Share of other comprehensive income (loss) of equity method investments(8) 1  
Currency translation adjustments657  (232) 
Total other comprehensive income (loss)600  (232) 
Total comprehensive income1,442  868  
Comprehensive income (loss) attributable to noncontrolling interests12  (26) 
Comprehensive income attributable to Walgreens Boots Alliance, Inc.$1,430  $894  

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
 Three months ended November 30,
 20192018
Cash flows from operating activities:
  
Net earnings$842  $1,100  
Adjustments to reconcile net earnings to net cash provided by operating activities:  
Depreciation and amortization477  490  
Deferred income taxes(62) 24  
Stock compensation expense28  27  
Equity (earnings) from equity method investments(4) (54) 
Other28  97  
Changes in operating assets and liabilities:  
Accounts receivable, net(116) (515) 
Inventories(1,099) (1,424) 
Other current assets(5) (83) 
Trade accounts payable924  1,097  
Accrued expenses and other liabilities45  (341) 
Income taxes2  94  
Other non-current assets and liabilities1  (54) 
Net cash provided by operating activities1,061  460  
Cash flows from investing activities:
  
Additions to property, plant and equipment(387) (470) 
Proceeds from sale-leaseback transactions147  —  
Proceeds from sale of other assets22  30  
Business, investment and asset acquisitions, net of cash acquired(180) (200) 
Other(4) 5  
Net cash used for investing activities(402) (635) 
Cash flows from financing activities:
  
Net change in short-term debt with maturities of 3 months or less(392) 1,067  
Proceeds from debt5,072  1,085  
Payments of debt(4,702) (545) 
Stock purchases(473) (912) 
Proceeds related to employee stock plans14  101  
Cash dividends paid(410) (422) 
Other24  16  
Net cash (used for) provided by financing activities(866) 390  
Effect of exchange rate changes on cash, cash equivalents and restricted cash1  (6) 
Changes in cash, cash equivalents and restricted cash:
  
Net increase (decrease) in cash, cash equivalents and restricted cash(206) 208  
Cash, cash equivalents and restricted cash at beginning of period1,207  975  
Cash, cash equivalents and restricted cash at end of period$1,000  $1,183  

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Accounting policies

Basis of presentation
The Consolidated Condensed Financial Statements of Walgreens Boots Alliance, Inc. (“Walgreens Boots Alliance” or the “Company”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. The Consolidated Condensed Financial Statements include all subsidiaries in which the Company holds a controlling interest. The Company uses the equity method of accounting for equity investments in less than majority-owned companies if the investment provides the ability to exercise significant influence. All intercompany transactions have been eliminated.

The Consolidated Condensed Financial Statements included herein are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited Consolidated Condensed Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Walgreens Boots Alliance Annual Report on Form 10-K for the fiscal year ended August 31, 2019.

In the opinion of management, the unaudited Consolidated Condensed Financial Statements for the interim periods presented include all adjustments (consisting only of normal recurring adjustments) necessary to present a fair statement of the results for such interim periods. The influence of certain holidays, seasonality, foreign currency rates, changes in vendor, payer and customer relationships and terms, strategic transactions including acquisitions, changes in laws and general economic conditions in the markets in which the Company operates and other factors on the Company’s operations and net earnings for any period may not be comparable to the same period in previous years.

Certain amounts in the Consolidated Condensed Financial Statements and associated notes may not add due to rounding. All percentages have been calculated using unrounded amounts for the three months ended November 30, 2019.

Note 2. Acquisitions

Acquisition of certain Rite Aid Corporation (Rite Aid) assets
Pursuant to an amended and restated purchase agreement entered into in September 2017, the Company acquired certain inventory from Rite Aid during the three months ended November 30, 2019 for cash consideration of $24 million. The Company acquired the first of three distribution centers and related inventory from Rite Aid for cash consideration of $61 million in fiscal 2019. The transition of the other two distribution centers and related inventory remains subject to the closing conditions set forth in the amended and restated asset purchase agreement.

Other acquisitions
The Company acquired certain prescription files and related pharmacy inventory in Retail Pharmacy USA for the aggregate purchase price of $80 million during the three months ended November 30, 2019.

Note 3. Exit and disposal activities

Transformational Cost Management Program
On December 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”). In April 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 in October 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 the United Kingdom and approximately 200 locations in the United States.

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The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its 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. In addition to these impacts, as a result of the actions related to store closures taken under the Transformational Cost Management Program, the Company recorded $508 million of transition adjustments to decrease retained earnings due to the adoption of the new lease accounting standard (Topic 842) that became effective on September 1, 2019. See note 17, new accounting pronouncements, for additional information.

Since the approval of the Transformational Cost Management Program, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $496 million, which were primarily recorded within selling, general and administrative expenses. 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 and $34 million of information technology transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses included in the three months ended November 30, 2019 and November 30, 2018 were as follows (in millions):

Three months ended November 30, 2019Retail Pharmacy USARetail Pharmacy InternationalPharmaceutical WholesaleWalgreens Boots Alliance, Inc.
Lease obligations and other real estate costs$1  $  $  $1  
Asset impairments8  3    11  
Employee severance and business transition costs34  1  5  40  
Information technology transformation and other exit costs7  4  1  12  
Total pre-tax exit and disposal charges$49  $9  $6  $64  

Three months ended November 30, 2018Retail Pharmacy USARetail Pharmacy InternationalPharmaceutical WholesaleWalgreens Boots 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  

The changes in liabilities and assets related to the exit and disposal activities under Transformational Cost Management Program include the following (in millions):

Lease obligations and other real estate costsAsset ImpairmentsEmployee severance and business transition costsInformation technology transformation and other exit costsTotal
Balance at August 31, 2019$17  $  $57  $4  $78  
Costs1  11  40  12  64  
Payments(1)   (22) (4) (27) 
Other - non cash  (11)   (2) (14) 
Currency translation adjustments1        1  
ASC 842 Leases adoption1
(4)       (4) 
Balance at November 30, 2019$14  $  $75  $9  $98  

1 Represents liability for facility closings and related lease termination charges recorded as an offset to right-of-use assets upon the adoption of ASC 842. Refer to note 4, leases and note 17, new accounting pronouncements for additional information.

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Store Optimization Program
On October 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’s Retail 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 in March 2018 and are expected to be complete by 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, of which $305 million have been recorded to date, primarily within selling, general and administrative expenses. The Company expects to incur charges of approximately $160 million for lease obligations and other real estate costs, of which $141 million have been recorded to date and approximately $190 million for employee severance and other exit costs of which $164 million have been recorded to date. The Company estimates that substantially all of these cumulative pre-tax charges will result in cash expenditures.

Costs related to the Store Optimization Program for the three months ended November 30, 2019 and November 30, 2018 were as follows (in millions):

Three months ended November 30,
20192018
Lease obligations and other real estate costs$3  $(7) 
Employee severance and other exit costs6  27  
Total costs$9  $20  

The changes in liabilities related to the Store Optimization Program include the following (in millions):

Lease obligations and other real estate costsEmployee severance and other exit costsTotal
Balance at August 31, 2019$407  $22  $429  
Costs3  6  9  
Payments(9) (26) (35) 
ASC 842 Leases adoption1
(378)   (378) 
Balance at November 30, 2019$23  $1  $24  

1 Represents liability for facility closings and related lease termination charges recorded as an offset to right-of-use assets upon the adoption of ASC 842. Refer to note 4, leases and note 17, new accounting pronouncements for additional information.

Cost Transformation Program
On April 8, 2015, the Walgreens Boots Alliance Board of Directors approved a plan to implement a restructuring program (the “Cost Transformation Program”) as part of an initiative to reduce costs and increase operating efficiencies. The Cost Transformation Program implemented and built on the cost-reduction initiative previously announced by the Company on August 6, 2014 and included plans to close stores across the United States; reorganize corporate and field operations; drive operating efficiencies; and streamline information technology and other functions. The actions under the Cost Transformation Program focused primarily on the Retail Pharmacy USA segment, but included activities from all segments. The Company completed the Cost Transformation Program in the fourth quarter of fiscal 2017.

The liabilities related to the Cost Transformation Program declined by $382 million representing liability for facility closings and related lease termination charges recorded as an offset to right-of-use assets upon the adoption of ASC 842. The remaining liabilities as of November 30, 2019 were not material.

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Note 4. Leases

The Company leases certain retail stores, warehouses, distribution centers, office space, land and equipment. For leases in the United States, the initial lease term is typically 15 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales. See note 17, new accounting pronouncements for additional information.

Supplemental balance sheet information related to leases were as follows (in millions):
November 30, 2019
Operating Leases:
Operating lease right-of-use assets$21,674  
Operating lease obligations - current2,288  
Operating lease obligations - non current 21,894  
Total operating lease obligations$24,182  
Finance Leases:
Right-of-use assets included in:
 Property, plant and equipment, net$755  
Lease obligations included in:
Accrued expenses and other liabilities43  
Other non-current liabilities977  
Total finance lease obligations$1,020  

The components of lease costs were as follows (in millions):
Three months ended November 30, 2019
Operating lease cost
Fixed$830  
Variable14  
Finance lease cost
Amortization$9  
Interest14  
Sublease income(15) 

Other supplemental information were as follows (in millions):
Three months ended November 30, 2019
Gains on sale-leaseback transactions1
$77  
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases$831  
Operating cash flows from finance leases11  
Financing cash flows from finance leases13  
Total$855  
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases$552  
1 Recorded within selling, general and administrative expenses.
- 11 -

Average lease term and discount rate were as follows:
Three months ended November 30, 2019
Weighted average remaining lease term in years:
Operating leases11.1
Finance leases20.8
Weighted average discount rate
Operating leases4.95 %
Finance leases5.42 %

The aggregate future lease payments for operating and finance leases as of November 30, 2019 were as follows (in millions):

Fiscal yearFinance leaseOperating lease
2020 (Remaining period)$72  $2,597  
202194  3,357  
202293  3,165  
202392  2,984  
202489  2,807  
202587  2,611  
Later1,170  14,092  
Total undiscounted minimum lease payments$1,697  $31,615  
Less: Present value discount(677) (7,433) 
Lease liability$1,020  $24,182  

Note 5. Equity method investments

Equity method investments as of November 30, 2019 and August 31, 2019, were as follows (in millions, except percentages):
 November 30, 2019August 31, 2019
 Carrying valueOwnership percentageCarrying valueOwnership percentage
AmerisourceBergen$5,194  28 $5,211  27 
Others1,708  8% - 50%