Walgreens 2014 Annual Report Download - page 11

return a 3% interest in Alliance Boots in exchange for a nominal amount. Additional information regarding our
investment in Alliance Boots and the pending second step transaction is available in our and Walgreens Boots
Alliance’s filings with the Securities and Exchange Commission (the SEC), including our Form 8-K filed on
May 15, 2014 that includes Alliance Boots’ audited consolidated financial statements and accompanying notes
(prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS) and audited in accordance with auditing standards generally accepted in the
United States (U.S. GAAS)), including the statements of financial position at March 31, 2014 and 2013 of
Alliance Boots and its subsidiaries (the Group), and the related Group income statements, Group statements of
comprehensive income, Group statements of changes in equity and Group statements of cash flows for each of
the years in the three-year period ended March 31, 2014, and our Form 8-K filed on September 16, 2014 that
discloses certain unaudited pro forma consolidated financial information related to the pending Transactions.
We plan to complete, immediately prior to the completion of the second step transaction, the Reorganization of
Walgreens into a holding company structure, under which Walgreens would become a wholly-owned subsidiary
of a new Delaware corporation named “Walgreens Boots Alliance, Inc.” and Walgreen Co. shareholders
immediately prior to the Reorganization would become shareholders of Walgreens Boots Alliance, with shares of
Walgreen Co. common stock being converted automatically into shares of Walgreens Boots Alliance common
stock on a one-for-one basis. The Reorganization is conditioned upon the second step transaction being
completed immediately following the completion of the Reorganization. The second step transaction is not
conditioned on the completion of the Reorganization. If the Reorganization is completed, Walgreens Boots
Alliance, immediately following the completion of the Reorganization, will issue, in a private placement, shares
of Walgreens Boots Alliance common stock to the sellers of the 55% of Alliance Boots that Walgreens does not
own as of the date of this report (collectively, the Sellers) in connection with the second step transaction and if
the Reorganization is not completed, Walgreens will issue, in a private placement, shares of Walgreens common
stock to the Sellers in connection with the second step transaction. Closing of the Transactions is subject to
shareholder and various regulatory approvals and is expected to occur in the first quarter of calendar 2015.
Walgreens equity earnings, initial investment and the call option exclude the Alliance Boots minority interest in
Galenica Ltd. (Galenica). The Alliance Boots investment in Galenica was distributed to the Alliance Boots
shareholders other than Walgreens during May 2013, which had no impact to the Company. We account for our
45% investment in Alliance Boots using the equity method of accounting. Investments accounted for under the
equity method are recorded initially at cost and subsequently adjusted for our share of the net income or loss and
cash contributions and distributions to or from these entities. Net income reported by Alliance Boots is translated
from British pounds Sterling at the average rate for the period. We utilize a three-month lag in reporting equity
income from our investment in Alliance Boots, reported as equity earnings in Alliance Boots on the Consolidated
Statements of Earnings. The investment is recorded as Equity investment in Alliance Boots in the Consolidated
Balance Sheets. See “Description of Business-Overview of Alliance Boots” below for additional
information. Upon closing of the second step transaction, the financial results of Alliance Boots will be fully
consolidated into our consolidated financial statements. The timing of the closing of the second step transaction
and the length of the reporting lag, if any, we use to report the results of Alliance Boots after the closing of the
second step transaction are expected to impact our reported financial results in fiscal 2015. An earlier closing
and/or shorter reporting lag would increase, and a later closing would decrease, the extent to which fully
consolidated Alliance Boots results would be reflected in our consolidated fiscal 2015 financial statements.
On March 19, 2013, the Company, Alliance Boots and AmerisourceBergen Corporation (AmerisourceBergen)
announced various agreements and arrangements, including a ten-year pharmaceutical distribution agreement
between the Company and AmerisourceBergen pursuant to which the Company will source branded and generic
pharmaceutical products from AmerisourceBergen; an agreement which provides AmerisourceBergen the ability
to access generics and related pharmaceutical products through Walgreens Boots Alliance Development GmbH,
a global sourcing joint venture between the Company and Alliance Boots; and agreements and arrangements
pursuant to which the Company and Alliance Boots together have the right, but not the obligation, to purchase a
minority equity position in AmerisourceBergen and gain associated representation on AmerisourceBergen’s
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