Walgreens 2014 Annual Report Download - page 69

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Notes to Consolidated Financial Statements
(1) Summary of Major Accounting Policies
Description of Business
The Company is principally in the retail drugstore business and its operations are within one reportable
segment. At August 31, 2014, there were 8,309 drugstore and other locations in all 50 states, the District of
Columbia, Puerto Rico and U.S. Virgin Islands. Prescription sales were 64.2% of total sales for fiscal 2014
compared to 62.9% in 2013 and 63.2% in 2012.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All
intercompany transactions have been eliminated. The consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of America and include amounts
based on management’s prudent judgments and estimates. Actual results may differ from these estimates.
The Company’s 45% proportionate share of earnings in the Alliance Boots GmbH (Alliance Boots) equity
method investment is included in consolidated net earnings. The Company reports its share of equity earnings in
Alliance Boots within the operating section in the Consolidated Statements of Earnings because operations of
Alliance Boots are integral to Walgreens. The companies share common board of director members, recognize
purchasing synergies through Walgreens Boots Alliance Development GmbH, a 50/50 joint venture, as well as
engage in intercompany sales transactions on select front-end merchandise. Because of the three-month lag and
the timing of the closing of this investment, only the ten months of August through May’s results of operations
are reflected in the equity earnings in Alliance Boots included in the Company’s reported net earnings for year
ended August 31, 2013 compared to twelve months operating results for June through May in the current fiscal
year.
The Company directly owns a 50% interest in Walgreens Boots Alliance Development GmbH and indirectly
owns an additional ownership interest through its 45% ownership in Alliance Boots, representing a direct and
indirect economic interest of 72.5%. The financial results of the Walgreens Boots Alliance Development GmbH
joint venture are fully consolidated into the Company’s consolidated financial statements and reported without a
lag. As the joint venture is included within the Company’s operating results, Alliance Boots proportionate share
of Walgreens Boots Alliance Development GmbH earnings is removed from equity earnings and presented as a
component of noncontrolling interests.
Other Matters
Subsidiary Issuer Information
Walgreens Boots Alliance, Inc. (WBA) is a new corporation incorporated on September 2, 2014 under the
laws of Delaware and is currently a direct 100% owned finance subsidiary of the Company. Walgreens
Boots Alliance, Inc. is anticipated to be the issuer of one or more series of unsecured, unsubordinated notes
(WBA notes) in connection with the financing of a portion of the cash consideration payable in connection
with the second step transaction, the refinancing of substantially all of Alliance Boots’ total borrowings in
connection with the second step transaction and/or the payment of related fees and expenses. Following the
completion of the second step transaction, a portion of the net proceeds from the issuance of the WBA notes
may also be used for general corporate purposes, including the repayment and/or refinancing of existing
Company obligations. The Company will guarantee the WBA notes and such guarantee will be full and
unconditional.
The Company anticipates that neither the WBA notes nor any other potential Company or WBA financings
in connection with the second step transaction will contain any significant restrictions on the ability of the
Company’s subsidiaries to make dividend payments, loans or advances to the Company or WBA.
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