of operations The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein and the Consolidated Condensed Financial Statements, accompanying notes and management's discussion and analysis of financial condition and results of operations and other disclosures contained in theWalgreens Boots Alliance, Inc. Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 . This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under "Cautionary note regarding forward-looking statements", and in item 1A, risk factors, in our Form 10-K for the fiscal year endedAugust 31, 2020 . References herein to the "Company", "we", "us", or "our" refer toWalgreens Boots Alliance, Inc. and its subsidiaries, except as otherwise indicated or the context otherwise requires. Certain amounts in the management's discussion and analysis of financial condition and results of operations may not add due to rounding. All percentages have been calculated using unrounded amounts for the three months endedNovember 30, 2020 andNovember 30, 2019 . INTRODUCTION AND SEGMENTSWalgreens Boots Alliance, Inc. ("Walgreens Boots Alliance ") and its subsidiaries are a global leader in retail and wholesale pharmacy. Its operations are conducted through three reportable segments (sometimes referred to herein as "divisions"): •Retail PharmacyUSA ; •Retail Pharmacy International; and •Pharmaceutical Wholesale.
See Note 14, Segment reporting and Note 15, Sales to the Consolidated Condensed Financial Statements for further information.
RECENT DEVELOPMENTS
Pharmaceutical Wholesale Transaction OnJanuary 6, 2021 , the Company entered into a Share Purchase Agreement (the "Share Purchase Agreement") with AmerisourceBergen. Pursuant to the terms and subject to the conditions set forth in the Share Purchase Agreement, AmerisourceBergen will purchase the majority of the Company's Alliance Healthcare business ("Business") for approximately$6.5 billion , comprised of$6.275 billion in cash, subject to certain purchase price adjustments, and 2 million shares of AmerisourceBergen common stock (the "Transaction"). Alliance Healthcare's investment inChina andItaly and its operations inGermany are not part of the Transaction. The Transaction is subject to the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals. The Company will account for the Transaction as a business disposition and report the financial results of the Business as discontinued operations beginning in the second quarter of fiscal year 2021. In connection with the Transaction, the Company and AmerisounceBergen also agreed to a (i) three-year extension through 2029 of theU.S. pharmaceutical distribution agreement pursuant to which branded and generic pharmaceutical products are sourced from AmerisourceBergen in theU.S. , (ii) a three-year extension of the agreement, that provides AmerisourceBergen the ability to access generics pharmaceutical products throughWalgreens Boots Alliance Development GmbH , the Company's global sourcing enterprise, (iii) a distribution agreement pursuant to which AmerisourceBergen will supply branded and generic pharmaceutical products to the Company's BootsUK business following the closing of the Transaction and (iv) explore a series of strategic initiatives designed to create incremental growth and efficiencies in sourcing, logistics and distribution.
See Note 19, Subsequent events to the Consolidated Condensed Financial Statements for additional information.
VillageMD investment Subsequent toNovember 30, 2020 , the Company andVillageMD announced that the Company has accelerated its investment inVillageMD to support the opening of 600 to 700 Village Medical atWalgreens primary care clinics in more than 30U.S. markets within the next four years, with the intent to build hundreds more thereafter. InJuly 2020 , the Company andVillageMD announced an expansion of their partnership and the intent to open 500 to 700 clinics over a five-year period, supported by the Company's investment inVillageMD over three years of$1.0 billion in equity and convertible debt, which included an initial$250 million equity investment. The Company has now completed the remaining
WBA Q1 FY2021 Form 10-Q 33
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS$750 million investment, which will allow the Company to increase the minimum number of clinics to 600 and expand the rollout at a faster pace. See Note 19, Subsequent events to the Consolidated Condensed Financial Statements for additional information. FACTORS AFFECTING OUR RESULTS AND COMPARABILITYThe Company has been, and we expect it to continue to be affected by a number of factors that may cause actual results to differ from our historical results or current expectations. These factors include: the impact of the coronavirus COVID-19 ("COVID-19") pandemic on our operations and financial results; the financial performance of our equity method investees, including AmerisourceBergen; the influence of certain holidays; seasonality; foreign currency rates; changes in vendor, payer and customer relationships and terms and associated reimbursement pressure; strategic transactions and acquisitions, joint ventures and other strategic collaborations; changes in laws, includingU.S. tax law changes; changes in trade, tariffs, including trade relations between theU.S. andChina , and international relations, including theUK's withdrawal from theEuropean Union and its impact on our operations and prospects and those of our customers and counterparties; the timing and magnitude of cost reduction initiatives, including under our Transformational Cost Management Program (as defined below); the timing and severity of the cough, cold and flu season; fluctuations in variable costs; the impacts of looting, natural disasters, war, terrorism and other catastrophic events, and changes in general economic conditions in the markets in which the Company operates. These and other factors can affect the Company's operations and net earnings for any period and may cause such results not to be comparable to the same period in previous years. The results presented in this report are not necessarily indicative of future operating results. Estimated COVID-19 impacts and uncertainties COVID-19 has severely impacted, and is expected to continue to impact, the economies of theU.S. , theUK and other countries around the world. COVID-19 has created significant public health concerns as well as significant volatility, uncertainty and economic disruption in every region in which we operate, all of which have adversely affected and may continue to adversely affect our industries and our business operations. Further, financial and credit markets have experienced and may again experience volatility. Policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, temporary closure or reduced hours of operation of certain store locations inU.S. ,UK and other countries, reduced customer traffic and sales in our retail pharmacies and the adoption of work-from-home policies. COVID-19 continued to affect global economic conditions during the three months endedNovember 30, 2020 . The Company expects this will continue in the second quarter of fiscal 2021 (including a weaker cough, cold and flu season). The situation surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our financial position and operating results, as well as developments in our business. As COVID-19 impacts the economies of theU.S. ,UK and other countries around the world, the Company has put preparedness plans in place at our facilities to maintain continuity of our operations, while also taking steps to keep our team members healthy and safe. During the three months endedNovember 30, 2020 , we experienced certain adverse impacts of COVID-19. Sales were negatively impacted with the majority of the decline within theRetail Pharmacy International division. This reflected a reduction in footfall in BootsUK stores as a second national lockdown was declared in November and social distancing measures remained in place. Globally, pharmacy volume was impacted by a decline in doctor visits and gross margin was negatively impacted by higher supply chain costs in theUK . The Company took measures to keep stores open, incurring incremental selling, general and administrative expenses, including higher employee costs and store expenses related to social distancing and incremental cleaning and COVID-19 drive-thru testing sites expenses. The Company also took certain actions during the three months endedNovember 30, 2020 to partly mitigate the impact of COVID-19 through cost containment across the Company including temporary store closures and decreasing store hours and reducing rent at some locations. However, operating income was significantly and adversely impacted during the three months endedNovember 30, 2020 as a result of COVID-19. In response to COVID-19, various domestic and foreign federal, state and local governmental legislation, regulations, orders, policies and initiatives have been implemented designed to reduce the transmission of COVID-19, as well as to help address economic and market volatility and instability resulting from COVID-19. The Company has assessed and will continue to assess the impact of these governmental actions on the Company. It has participated in certain of these programs, including for example availing itself to certain tax deferrals which were introduced by the CARES Act in theU.S. and certain tax deferral and benefit and employee wage support in theUK , and may continue to do so in the future. WBA Q1 FY2021 Form 10-Q 34
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS The Company has also taken a number of proactive actions consistent with regulatory directives, such as digital 'order ahead' drive-thru with an increased range of products available for drive-thru pick-up and curbside collection, and put in place new delivery options available nationwide in theU.S. To continue to work with customers and manage through the pandemic, the Company launched a new COVID-19 testing program for businesses in fiscal 2020. Since the launch of the program, the Company has administered more than 2.8 million COVID-19 tests across the US. The Company has worked with the federal and state government to help administer COVID-19 vaccines to residents and staff at more than 35,000 long-term care facilities in 49 states. The opportunity from the distribution of vaccinations is likely to be partly offset by new COVID-19 related lock-downs and restrictions, and by increased growth investments. As a result of COVID-19, a portion of our global workforce, including employees and extended workforce, rapidly shifted to a work from home environment beginning inMarch 2020 and many continue to work remotely. While our system of internal controls were not specifically designed and implemented to accommodate for this shift, we have evaluated and concluded that these changes to the working environment did not have a material effect on the Company's internal control over financial reporting during the most recent quarter, as further described in Item 4. Controls and procedures below. The Company will continue to monitor and assess the COVID-19 situation and its internal controls and seek to mitigate any impact on their design and operating effectiveness. The Company anticipates additional mandates and directives, including revisions thereto, from foreign, federal, state, county and city authorities throughout the continuation of the COVID-19 pandemic and for some time thereafter. The impact of this activity on theU.S. and global economies and consumer, customer and health care utilization patterns depends upon the evolving factors and future developments related to COVID-19. As a result, the financial and/or operational impact these COVID-19 related governmental actions and inactions will have on our businesses, operating results, cash flows and/or financial condition is uncertain, but the impact, singularly or collectively, could be material and adverse. We continue to closely monitor the impact of COVID-19 on our business and geographies, including how it is impacting our customers, team members, suppliers, vendors, business partners and distribution channels. However, the future impact that COVID-19 will have on our financial position and operating results may be affected by numerous uncertainties, including the severity of the virus; the duration of the outbreak; governmental, business or other actions; impacts on our supply chain; the effect on customer demand; store closures or changes and our operations. The health of our workforce, and our ability to meet staffing needs in our stores, distribution facilities, wholesale operations and other critical functions cannot be predicted but is vital to our operations. The impacts of a potential worsening of global economic conditions and continued disruptions to, and volatility in, the credit and financial markets and consumer spending, as well as other unanticipated consequences, remain unknown. Further, additional waves of COVID-19 in fiscal 2021 or beyond could cause many of the impacts to the Company described herein to return or be exacerbated. The circumstances, containment and impacts of COVID-19 remain fluid due to rising incident rates and associated additional lockdowns.
The Company's current expectations described above are forward-looking
statements and our actual results may differ. Factors that might cause a
difference include, but are not limited to, those discussed below under
"Cautionary note regarding forward-looking statements" and in Item 1A, Risk
factors, in our Form 10-K for the fiscal year ended
Pharmaceutical wholesale business inGermany OnNovember 1, 2020 , the Company and McKesson Corporation closed a transaction to form a combined pharmaceutical wholesale business inGermany , as part of a strategic alliance. The Company owns a 70% controlling equity interest in the combined business which is consolidated by the Company and reported within the Pharmaceutical Wholesale segment in its financial statements. The Company accounted for this acquisition as a business combination involving noncash purchase consideration of$291 million consisting of the issuance of an equity interest in the combined business. See Note 2, Acquisitions to the Consolidated Condensed Financial Statements for further information. The potential impacts of Brexit As a result of a referendum inJune 2016 , theUK withdrew from theEuropean Union ("Brexit") onJanuary 31, 2020 . It began a transition period in which to negotiate a new trading relationship for goods and services that ended onDecember 31, 2020 . OnDecember 24, 2020 , the EU andUK agreed to a trade deal with no tariffs nor quotas on products, regulatory and customs cooperation mechanisms as well as provisions ensuring a level playing field for open and fair competition. Since the referendum, there have been periods of significant volatility in the global stock markets and currency exchange rates, as well as challenging market conditions in theUK . Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the agreed Brexit trade deal will have on our business, particularly ourUK and other European WBA Q1 FY2021 Form 10-Q 35
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
operations; however, Brexit and its related effects could have a material adverse impact on the Company's consolidated financial position and results of operations.
TRANSFORMATIONAL COST MANAGEMENT PROGRAM OnDecember 20, 2018 , the Company announced a transformational cost management program that is currently expected to deliver in excess of$2.0 billion of annual cost savings by fiscal 2022 (the "Transformational Cost Management Program"). 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 including current plans to close approximately 200 Boots stores in theUK and approximately 250 stores in theU.S. . The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its generally accepted accounting principles in theU.S. ("GAAP") financial results of approximately$2.1 billion to$2.4 billion , of which$1.8 billion to$2.1 billion are expected to be recorded as exit and disposal activities. The Company estimates that approximately 80% of the cumulative pre-tax charges will be associated with cash expenditures, primarily related to employee severance and business transition costs, IT transformation costs and lease and real estate payments.
The Company currently estimates that it will recognize aggregate pre-tax charges to its GAAP financial results related to Transformational Cost Management Program as follows:
Transformational Cost Management Program Activities Range of
Charges
Lease obligations and other real estate costs1$350 to 400 million Asset impairments2$350 to 400 million Employee severance and business transition costs$850 to 950 million Information technology transformation and other exit costs$250 to 300 million Total cumulative pre-tax exit and disposal costs$1.8 to 2.1 billion Other IT transformation costs$300 to 350 million Total estimated pre-tax costs$2.1 to
2.4 billion
1Includes impairments relating to operating lease right-of-use and finance lease assets. 2Primarily related to asset write-offs from store closures, information technology and other asset write-offs. In addition to the impacts discussed above, 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) onSeptember 1, 2019 . Since the inception of the Transformational Cost Management Program toNovember 30, 2020 , the Company has recognized aggregate cumulative pre-tax charges to its financial results in accordance with GAAP of$1.4 billion , of which$1.2 billion are recorded as exit and disposal activities. See Note 3, Exit and disposal activities, for additional information. These charges included$264 million related to lease obligations and other real estate costs,$354 million in asset impairments,$471 million in employee severance and business transition costs,$146 million of information technology transformation and other exit costs and$139 million other information technology costs. Costs under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses for the three months endedNovember 30, 2020 andNovember 30, 2019 , were as follows (in millions): WBA Q1 FY2021 Form 10-Q 36
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Retail Pharmacy Retail Pharmacy Pharmaceutical Walgreens Boots Three months ended November 30, 2020 USA International Wholesale Alliance, Inc. Lease obligations and other real estate costs $ 22 $ - $ - $ 22 Asset impairments 4 - - 4 Employee severance and business transition costs 21 28 2 51 Information technology transformation and other exit costs 10 (6) 1 6
Total pre-tax exit and disposal costs $ 58 $
22 $ 4 $ 83 Other IT transformation costs 13 6 2 21 Total pre-tax costs $ 70 $ 28 $ 6 $ 104 Retail Pharmacy Retail Pharmacy Pharmaceutical Walgreens Boots Three months ended November 30, 2019 USA International Wholesale Alliance, Inc. Lease obligations and other real estate costs $ 1 $ - $ - $ 1 Asset impairments 8 3 - 11 Employee severance and business transition costs 34 1 5 40 Information technology transformation and other exit costs 7 4 1 12
Total pre-tax exit and disposal costs $ 49 $
9 $ 6 $ 64 Other IT transformation costs 17 3 1 21 Total pre-tax costs $ 66 $ 12 $ 7 $ 86 Transformational Cost Management Program charges are recognized as the costs are incurred over time in accordance with GAAP. The Company treats charges related to the Transformational Cost Management Program as special items impacting comparability of results in its earnings disclosures. The amounts and timing of all estimates are subject to change until finalized. The actual amounts and timing may vary materially based on various factors. See "Cautionary note regarding forward-looking statements" below. INVESTMENT IN AMERISOURCEBERGEN As ofNovember 30, 2020 , the Company owned 56,854,867 shares of AmerisourceBergen common stock (representing approximately 28% of its outstanding common stock based on most recent share count publicly reported by AmerisourceBergen) and may, subject to certain conditions, acquire up to an additional 8,398,752 AmerisourceBergen shares in the open market. The Company accounts for its investment in AmerisourceBergen using the equity method of accounting, subject to a two-month reporting lag, with the net earnings (loss) attributable to the investment classified within the operating income (loss) of the Company's Pharmaceutical Wholesale segment. The Company recognized equity losses in AmerisourceBergen of$1,373 million during the three months endedNovember 30, 2020 . These equity losses are primarily due to AmerisourceBergen recognition of$5.6 billion , net of tax charges related to its ongoing opioid litigation in its financial statements for the three months period endedSeptember 30, 2020 . The financial performance of AmerisourceBergen will impact the Company's results of operations. Additionally, a substantial and sustained decline in the price of AmerisourceBergen's common stock could trigger an impairment evaluation of our investment. These considerations may materially and adversely affect the Company's financial condition and results of operations. For more information, see Note 5, Equity method investments to the Consolidated Condensed Financial Statements. OnJanuary 6, 2021 , the Company entered into a Share Purchase Agreement with AmerisourceBergen pursuant to which AmerisourceBergen will purchase the majority of the Company's pharmaceutical wholesale operations, among other assets, for$6.275 billion in cash (subject to customary purchase price adjustments) and 2 million shares of common stock of AmerisourceBergen. See "Recent Developments" above and Note 19, Subsequent events to the Consolidated Condensed Financial Statements for additional information.
WBA Q1 FY2021 Form 10-Q 37
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS EXECUTIVE SUMMARY The following table presents certain key financial statistics. (in millions, except per share amounts) Three months ended November 30, 2020 2019 Sales$ 36,307 $ 34,339 Gross profit 7,139 7,263 Selling, general and administrative expenses 6,207 6,262 Equity earnings (loss) in AmerisourceBergen (1,373) 13 Operating income (loss) (440) 1,013 Adjusted operating income (Non-GAAP measure)1 1,318 1,463 Earnings (loss) before interest and income tax provision (380) 1,048
Net earnings (loss) attributable to
(308) 845
Adjusted net earnings attributable to
1,052 1,222 Net earnings (loss) per common share - diluted (0.36) 0.95
Adjusted net earnings per common share - diluted (Non-GAAP measure)1
1.22 1.37 Percentage increases (decreases)
Three months ended
2020 2019 Sales 5.7 1.6 Gross profit (1.7) (5.0) Selling, general and administrative expenses (0.9) (0.3) Operating income (loss) (143.5) (27.6) Adjusted operating income (Non-GAAP measure)1 (9.9) (15.6) Earnings (loss) before interest and income tax provision (136.3) (26.5)
Net earnings (loss) attributable to
(136.4) (24.8)
Adjusted net earnings attributable to
(13.9) (11.8) Net earnings (loss) per common share - diluted (137.6) (19.8) Adjusted net earnings per common share - diluted (Non-GAAP measure)1 (11.2) (6.0) Percent to sales Three months ended November 30, 2020 2019 Gross margin 19.7 21.1 Selling, general and administrative expenses 17.1 18.2
1See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Q1 FY2021 Form 10-Q 38
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
Net earnings (loss) Net loss attributable to the Company for the three months endedNovember 30, 2020 was$308 million compared to net earnings of$845 million for the prior year period. Diluted net loss per share was$0.36 compared to diluted net earnings$0.95 for the prior year quarter. The decreases in net earnings and diluted earnings per share are primarily due to the charges reflected in the Company's equity earnings (loss) in AmerisourceBergen.
Other income for the three months ended
Interest was a net expense of
The effective tax rate for the three months endedNovember 30, 2020 was 38.2% compared to 3.6% for the prior year quarter. The increase in the effective tax rate for the three months endedNovember 30, 2020 was primarily due to the discrete tax effect of equity earnings in AmerisourceBergen. Adjusted net earnings (Non-GAAP measure) Adjusted net earnings attributable toWalgreens Boots Alliance for the three months endedNovember 30, 2020 decreased 13.9% to$1.1 billion , a decrease of 14.3% on a constant currency basis, compared with the prior year quarter. Adjusted diluted net earnings per share decreased 11.2% to$1.22 , a decrease of 11.6% on a constant currency basis, compared with the prior year quarter. The decreases in adjusted net earnings and adjusted diluted net earnings per share for the three months endedNovember 30, 2020 primarily reflect COVID-19 impacts across the retail businesses and lowerU.S. pharmacy reimbursement, partially offset by cost savings from the Transformational Cost Management Program,U.S. retail gross margin andU.S. pharmacy procurement savings. The decrease in adjusted diluted net earnings per share for the three months endedNovember 30, 2020 was partially offset by a lower number of shares outstanding compared with the prior year quarter. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
RESULTS OF OPERATIONS BY SEGMENT
Retail Pharmacy USA This division comprises the Company's retail pharmacy business operating in theU.S. . FINANCIAL PERFORMANCE
(in millions, except location amounts)
Three months ended November 30, 2020 2019 Sales$ 27,163 $ 26,133 Gross profit 5,617 5,691 Selling, general and administrative expenses 4,825 4,843 Operating income 792 848 Adjusted operating income (Non-GAAP measure)1 989 1,155 Number of prescriptions2 204.6 213.0 30-day equivalent prescriptions2,3 297.3 294.0 Number of locations at period end 9,001 9,175 WBA Q1 FY2021 Form 10-Q 39
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Percentage increases (decreases) Three months ended November 30, 2020 2019 Sales 3.9 1.6 Gross profit (1.3) (5.2) Selling, general and administrative expenses (0.4) 0.2 Operating income (6.6) (27.3) Adjusted operating income (Non-GAAP measure)1 (14.4) (16.2) Comparable sales4 3.7 1.6 Pharmacy sales 5.9 2.9 Comparable pharmacy sales4 5.0 2.5 Retail sales (2.2) (2.2) Comparable retail sales4 0.4 (0.5) Comparable number of prescription2,4 (2.5) 0.1 Comparable 30-day equivalent prescriptions2,3,4 2.7 2.8 Percent to sales Three months ended November 30, 2020 2019 Gross margin 20.7 21.8 Selling, general and administrative expenses 17.8 18.5 1See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. 2Includes immunizations. 3Includes the adjustment to convert prescriptions greater than 84 days to the equivalent of three 30-day prescriptions. This adjustment reflects the fact that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription. 4Comparable sales are defined as sales from stores that have been open for at least twelve consecutive months without closure for seven or more consecutive days, including due to looting or store damage, and without a major remodel or being subject to a natural disaster, in the past twelve months as well as e-commerce sales. E-commerce sales include digitally initiated sales online or through mobile applications. Relocated stores are not included as comparable sales for the first twelve months after the relocation. Acquired stores are not included as comparable sales for the first twelve months after acquisition or conversion, when applicable, whichever is later. Comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions and comparable number of 30-day equivalent prescriptions refer to total sales, pharmacy sales, retail sales, number of prescriptions and number of 30-day equivalent prescriptions, respectively. Comparable retail sales for previous periods have been restated to include e-commerce sales. The method of calculating comparable sales varies across the retail industry. As a result, our method of calculating comparable sales may not be the same as other retailers' methods.
Sales for the three months ended
Pharmacy sales increased 5.9% for the three months endedNovember 30, 2020 compared with the prior year quarter and represented 76.8% of the division's sales. The increase is primarily due to lower generic utilization and higher volume. In the prior year quarter, pharmacy sales increased 2.9% and represented 75.4% of the division's sales. Comparable pharmacy sales increased 5.0% for the three months endedNovember 30, 2020 compared to an increase of 2.5% in the prior year quarter. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 0.4% in the
WBA Q1 FY2021 Form 10-Q 40
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS three months endedNovember 30, 2020 compared to a reduction of 2.5% in the prior year quarter. The effect of generics mix on division sales caused a reduction of 0.3% for the three months endedNovember 30, 2020 compared to a reduction of 1.8% for the prior year quarter. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.5% of prescription sales for the three months endedNovember 30, 2020 compared to 96.9% in the prior year quarter. The total number of prescriptions (including immunizations) filled for the three months endedNovember 30, 2020 was 204.6 million compared to 213.0 million in the prior year quarter. Prescriptions (including immunizations) filled adjusted to 30-day equivalents were 297.3 million in the three months endedNovember 30, 2020 compared to 294.0 million in the prior year quarter. Retail sales decreased 2.2% for the three months endedNovember 30, 2020 compared with the prior year quarter and represented 23.1% of the division's sales. In the prior year quarter, retail sales decreased 2.2% and comprised 24.6% of the division's sales. Comparable retail sales increased 0.4% in the three months endedNovember 30, 2020 compared to a decrease of 0.5% in the prior year quarter. The current period was impacted by a weaker cough, cold and flu season and decrease in discretionary categories offset by increase in health and wellness, excluding cough, cold and flu categories. Operating income for the three months endedNovember 30, 2020 and 2019Retail Pharmacy USA division's operating income for the three months endedNovember 30, 2020 decreased 6.6% compared with the prior year quarter to$792 million . The decrease was primarily due to pharmacy reimbursement pressure and adverse COVID-19 impacts partly offset by savings from the Transformational Cost Management Program and acquisition-related costs related to Rite Aid stores in the prior year quarter results. Gross margin was 20.7% for the three months endedNovember 30, 2020 compared to 21.8% in the prior year quarter. Gross margin was negatively impacted in the current period by pharmacy margins, which were negatively impacted by reimbursement pressure and COVID-19 impacts. Selling, general and administrative expenses as a percentage of sales were 17.8% for the three months endedNovember 30, 2020 compared to 18.5% in the prior year quarter. As a percentage of sales, expenses were lower in the current period primarily due to savings related to the Transformational Cost Management Program partially offset by COVID-19 impacts and higher growth investment. Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2020 and 2019Retail Pharmacy USA division's adjusted operating income for the three months endedNovember 30, 2020 decreased compared with the prior year quarter 14.4% to$989 million . The decrease was primarily due to lower pharmacy margins which were negatively impacted by increased reimbursement pressure and COVID-19 impacts. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.Retail Pharmacy International This division comprises the Company's retail pharmacy businesses operating in countries outside theU.S. and in currencies other than theU.S. dollar, including the British pound sterling, Euro, Chilean peso and Mexican peso and therefore the division's results are impacted by movements in foreign currency exchange rates. See Item 3, Quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk, for further information on currency risk. FINANCIAL PERFORMANCE (in
millions, except location amounts)
Three months ended November 30, 2020 2019 Sales$ 2,574 $ 2,745 Gross profit 961 1,056 Selling, general and administrative expenses 928 1,012 Operating income 34 44 Adjusted operating income (Non-GAAP measure)1 84 79 Number of locations at period end 4,394 4,578 WBA Q1 FY2021 Form 10-Q 41
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Percentage increases (decreases)
Three months ended
2020 2019 Sales (6.2) (5.4) Gross profit (9.0) (6.3) Selling, general and administrative expenses (8.4) (3.5) Operating income (loss) (22.7) (43.7) Adjusted operating income (loss) (Non-GAAP measure)1 6.4 (40.5) Comparable sales in constant currency2 (3.1) (1.4) Pharmacy sales 0.1 (3.7) Comparable pharmacy sales in constant currency2 3.8 0.6 Retail sales (9.8) (6.3) Comparable retail sales in constant currency2 (7.6) (2.5) Percent to sales Three months ended November 30, 2020 2019 Gross margin 37.3 38.5 Selling, general and administrative expenses 36.0 36.9 1See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. 2Comparable sales in constant currency are defined as sales from stores that have been open for at least twelve consecutive months without closure for seven or more consecutive days, including due to looting or store damage, and without a major remodel or being subject to a natural disaster, in the past twelve months as well as e-commerce sales. E-commerce sales include digitally initiated sales online or through mobile applications. Relocated stores are not included as comparable stores for the first twelve months after the relocation. Acquired stores are not included as comparable sales for the first twelve months after acquisition or conversion, when applicable, whichever is later. Comparable sales in constant currency, comparable pharmacy sales in constant currency and comparable retail sales in constant currency refer to total sales, pharmacy sales and retail sales, respectively. Comparable retail sales in constant currency for previous periods have been restated to include e-commerce sales. The method of calculating comparable sales in constant currency varies across the retail industry. As a result, our method of calculating comparable sales in constant currency may not be the same as other retailers' methods. The Company presents certain information related to current period operating results in "constant currency," which is a non-GAAP financial measure. Comparable sales in constant currency, comparable pharmacy sales in constant currency and comparable retail sales in constant currency exclude the effects of fluctuations in foreign currency exchange rates. See "--Non-GAAP Measures." Sales for the three months endedNovember 30, 2020 and 2019Retail Pharmacy International division's sales for the three months endedNovember 30, 2020 decreased compared to the prior year quarter 6.2% to$2.6 billion . Sales were positively impacted in the quarter by 1.9 percentage points ($53 million ) as a result of currency translation. Comparable sales in constant currency decreased 3.1%, primarily due to lower retail sales in BootsUK , including COVID-19 impacts.
Pharmacy sales increased 0.1% for the three months ended
WBA Q1 FY2021 Form 10-Q 42
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
Retail sales decreased 9.8% for the three months ended
Operating income for the three months endedNovember 30, 2020 and 2019Retail Pharmacy International division's operating income for the three months endedNovember 30, 2020 decreased compared to the prior year quarter 22.7% to$34 million . The decrease reflects increased investment in the Transformational Cost Management Program. Excluding the impact of the increased investment in the Transformational Cost Management Program, the lower footfall is fully mitigated by decisive cost management actions and strong performance of Boots.com. Gross profit decreased 9.0% from the prior year quarter. Gross profit in the quarter was positively impacted by 2.3 percentage points ($24 million ) as a result of currency translation. Excluding the impact of currency translation, the decrease was primarily due to lower retail sales in BootsUK and higher fulfillment costs partially offset by favorable timing ofNHS reimbursement. Selling, general and administrative expenses decreased 8.4% from the prior year quarter. Expenses in the quarter were negatively impacted by 2.0 percentage points ($21 million ) as a result of currency translation. Excluding the impact of currency translation, the decrease was due to short term cost mitigation and savings from the Transformational Cost Management Program. As a percentage of sales, selling, general and administrative expenses were 36.0% in the three months endedNovember 30, 2020 compared to 36.9% in the prior year quarter. Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2020 and 2019Retail Pharmacy International division's adjusted operating income for the three months endedNovember 30, 2020 increased 6.4% to$84 million compared to the prior year quarter. Adjusted operating income in the quarter was positively impacted by 5.8 percentage points ($5 million ) as a result of currency translation. Excluding the impact of currency translation, the increase was mainly due to decisive cost management actions and strong performance of Boots.com mitigating the impact of lower footfall. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Pharmaceutical Wholesale This division includes the Company's pharmaceutical wholesale businesses operating in currencies other than theU.S. dollar including the British pound sterling, Euro and Turkish lira, and thus the division's results are impacted by movements in foreign currency exchange rates. See Item 3, Quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk, for further information on currency risk. OnJanuary 6, 2021 , the Company entered into a Share Purchase Agreement with AmerisourceBergen pursuant to which AmerisourceBergen will purchase the majority of the Company's pharmaceutical wholesale operations, among other assets, for$6.275 billion in cash (subject to customary purchase price adjustments) and 2 million shares of common stock of AmerisourceBergen. See "Recent Developments" above and Note 19, Subsequent events to the Consolidated Condensed Financial Statements for additional information. FINANCIAL PERFORMANCE (in millions) Three months ended November 30, 2020 2019 Sales$ 7,125 $ 6,007 Gross profit 560 517 Selling, general and administrative expenses 455 407 Equity earnings (loss) in AmerisourceBergen (1,373) 13 Operating income (loss) (1,268) 122 Adjusted operating income (Non-GAAP measure)1 244 229 WBA Q1 FY2021 Form 10-Q 43
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Percentage increases (decreases)
Three months ended
2020 2019 Sales 18.6 5.2 Gross profit 8.5 0.8 Selling, general and administrative expenses 11.6 2.9 Operating income (loss) (1,140.6) (21.5) Adjusted operating income (Non-GAAP measure)1 6.7 4.1 Comparable sales in constant currency2 8.3 8.3 Percent to sales Three months ended November 30, 2020 2019 Gross margin 7.9 8.6 Selling, general and administrative expenses 6.4 6.8 1See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. 2Comparable sales in constant currency are defined as sales excluding acquisitions and dispositions. The Company presents certain information related to current period operating results in "constant currency," which is a non-GAAP financial measure. Comparable sales in constant currency exclude the effects of fluctuations in foreign currency exchange rates. See "--Non-GAAP Measures" below. Sales for the three months endedNovember 30, 2020 and 2019 Pharmaceutical Wholesale division's sales for the three months endedNovember 30, 2020 , including results of the Company's new combined business inGermany which were consolidated as of November, increased 18.6% compared to the prior year quarter to$7.1 billion . Sales were positively impacted in the quarter by 2.3 percentage points ($137 million ) as a result of currency translation. Comparable sales in constant currency which exclude the incremental impact of the joint venture, increased 8.3% compared to the prior year quarter, primarily due to growth in emerging markets and COVID-19 related sales inFrance . Operating income (loss) for the three months endedNovember 30, 2020 and 2019 Pharmaceutical Wholesale division's operating loss for the three months endedNovember 30, 2020 was$1.3 billion , including$1.4 billion loss from the Company's share of equity earnings in AmerisourceBergen. This compared with operating income of$122 million in the prior year quarter, including$13 million from the Company's equity earnings in AmerisourceBergen. Operating loss in the quarter was negatively impacted by 1.8 percentage points ($2 million ) as a result of currency translation. The operating loss is primarily due to$1.4 billion related to the Company's share of equity loss in AmerisourceBergen, partially offset by sales growth. Gross profit increased 8.5% from the prior year quarter. Gross profit in the quarter was positively impacted by 2.4 percentage points ($12 million ) as a result of currency translation. Excluding the currency translation impact, the increase was primarily due to sales growth partially offset by lower gross margins. Selling, general and administrative expenses increased 11.6% from the prior year quarter. Expenses in the quarter were negatively impacted by 3.5 percentage points ($14 million ) as a result of currency translation. Excluding the currency translation impact, the increase was due to additional costs due to impact of sales growth and from the company's new joint venture inGermany . As a percentage of sales, selling, general and administrative expenses for the three months endedNovember 30, 2020 were 6.4% compared to 6.8% in the prior year quarter. WBA Q1 FY2021 Form 10-Q 44
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted operating income (Non-GAAP measure) for the three months endedNovember 30, 2020 and 2019 Pharmaceutical Wholesale division's adjusted operating income for the three months endedNovember 30, 2020 , which includes$108 million from the Company's share of adjusted equity earnings in AmerisourceBergen, increased 6.7% compared to the prior year quarter to$244 million . Adjusted operating income in the quarter was negatively impacted by 0.7 percentage points ($2 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily due to sales growth and a higher contribution of adjusted equity earnings from AmerisourceBergen. See "--Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. NON-GAAP MEASURES The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under the rules of theSEC , presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because the Company's management has evaluated its financial results both including and excluding the adjusted items or the effects of foreign currency translation, as applicable, and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in its historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented. The Company also presents certain information related to current period operating results in "constant currency," which is a non-GAAP financial measure. These amounts are calculated by translating current period results at the foreign currency exchange rates used in the comparable period in the prior year. The Company presents such constant currency financial information because it has significant operations outside of theU.S. reporting in currencies other than theU.S. dollar and such presentation provides a framework to assess how its business performed excluding the impact of foreign currency exchange rate fluctuations. NON-GAAP RECONCILIATION (in millions) Three months ended November 30, 2020 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (loss) (GAAP)$ 792 $ 34 $ (1,268) $ 1 $
(440)
Adjustments to equity earnings (loss) in AmerisourceBergen - - 1,481 -
1,481
Acquisition-related amortization 76 20 20 -
116
Transformational cost management 70 28 6 - 104 LIFO provision 33 - - - 33 Acquisition-related costs 17 2 5 - 23
Adjusted operating income (Non-GAAP measure)
84 $ 244 $ 1$ 1,318 WBA Q1 FY2021 Form 10-Q 45
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (in millions) Three months ended November 30, 2019 Retail Retail Pharmacy Pharmaceutical Walgreens Boots Pharmacy USA International Wholesale Eliminations Alliance, Inc. Operating income (GAAP)$ 848 $ 44 $ 122 $ -$ 1,013 Adjustments to equity earnings in AmerisourceBergen - - 80 -
80
Acquisition-related amortization 77 22 19 -
118
Transformational cost management 66 12 7 - 86 LIFO provision 33 - - - 33 Acquisition-related costs 122 - 1 - 124 Store optimization 9 - - - 9
Adjusted operating income (Non-GAAP measure)
79 $ 229 $ -$ 1,463 Three months ended November 30, 2020 2019
Net earnings (loss) attributable to
$ (308)$ 845 Adjustments to operating income (loss): Adjustments to equity earnings (loss) in AmerisourceBergen1 1,481 80 Acquisition-related amortization2 116 118 Transformational cost management3 104 86 LIFO provision4 33 33 Acquisition-related costs5 23 124 Store optimization3 - 9 Total adjustments to operating income (loss) 1,759 449 Adjustments to other income (expense): Net investment hedging (gain) loss6 9 (11) Gain on sale of equity method investment7 - (1) Total adjustments to other income (expense) 9 (12) Adjustments to income tax provision: U.S. tax law changes8 - (6) Tax impact of adjustments8 (67) (80) Equity method non-cash tax8 (346) (2) Total adjustments to income tax provision (412) (88)
Adjustments to post tax equity earnings from other equity method investments: Adjustments to equity earnings in other equity method investments9
13 28
Total adjustments to post tax equity earnings from other equity method investments
13 28
Adjustments to net earnings (loss) attributable to noncontrolling interests:
WBA Q1 FY2021 Form 10-Q 46
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Acquisition-related amortization2 (4) - LIFO provision4 (3) -
Total adjustments to net earnings (loss) attributable to noncontrolling interests
(8) -
Adjusted net earnings attributable to
Diluted net earnings (loss) per common share (GAAP)10
Adjustments to operating income (loss) 2.03 0.50 Adjustments to other income (expense) 0.01 (0.01) Adjustments to income tax provision (0.48) (0.10)
Adjustments to equity earnings in other equity method investments9
0.01 0.03
Adjustments to net earnings (loss) attributable to noncontrolling interests
(0.01) -
Adjusted diluted net earnings per common share (Non-GAAP measure)11
Weighted average common shares outstanding, diluted (in millions)11 865.3 892.6 1Adjustments to equity earnings (loss) in AmerisourceBergen consist of the Company's proportionate share of non-GAAP adjustments reported by AmerisourceBergen consistent with the Company's non-GAAP measures. The Company recognized equity losses in AmerisourceBergen of$1,373 million during the three months endedNovember 30, 2020 . These equity losses are primarily due to AmerisourceBergen recognition of$5.6 billion , net of tax, charges related to its ongoing opioid litigation in its financial statements for the three months period endedSeptember 30, 2020 . 2Acquisition-related amortization includes amortization of acquisition-related intangible assets and inventory valuation adjustments. Amortization of acquisition-related intangible assets includes amortization of intangibles assets such as customer relationships, trade names, trademarks and contract intangibles. Intangible asset amortization excluded from the related non-GAAP measure represents the entire amount recorded within the Company's GAAP financial statements, the revenue generated by the associated intangible assets has not been excluded from the related non-GAAP measures. Amortization expense, unlike the related revenue, is not affected by operations of any particular period unless an intangible asset becomes impaired or the estimated useful life of an intangible asset is revised. These charges are primarily recorded within selling, general and administrative expenses. Business combination accounting principles require us to measure acquired inventory at fair value. The fair value of the inventory reflects cost of acquired inventory and a portion of the expected profit margin. The acquisition-related inventory valuation adjustments excludes the expected profit margin component from cost of sales recorded under the business combination accounting principles. 3Transformational Cost Management Program and Store Optimization Program charges are costs associated with a formal restructuring plan. These charges are primarily recorded within selling, general and administrative expenses. These costs do not reflect current operating performance and are impacted by the timing of restructuring activity. 4The Company'sRetail Pharmacy USA segment inventory is accounted for using the last-in-first-out ("LIFO") method. This adjustment represents the impact on cost of sales as ifRetail Pharmacy USA segment inventory is accounted for using first-in first-out ("FIFO") method. The LIFO provision is affected by changes in inventory quantities, product mix, and manufacturer pricing practices, which may be impacted by market and other external influences. Therefore, the Company cannot control the amounts recognized or timing of these items. 5Acquisition-related costs are transaction and integration costs associated with certain merger and acquisition related activities. These costs include all charges incurred on certain mergers and acquisition related activities, for example, including costs related to integration efforts for successful merger and acquisition activities. These charges are primarily recorded within selling, general and administrative expenses. These costs are significantly impacted by the timing and complexity of the underlying merger and acquisition related activities and do not reflect the Company's current operating performance. 6Gain or loss on certain derivative instruments used as economic hedges of the Company's net investments in foreign subsidiaries. These charges are recorded within other income (expense). We do not believe this volatility related to mark-to-market adjustment on the underlying derivative instruments reflects the Company's operational performance. 7Includes significant gain on sale of equity method investment and related adjustments. WBA Q1 FY2021 Form 10-Q 47
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 8Adjustments to income tax provision include adjustments to the GAAP basis tax provision commensurate with non-GAAP adjustments and certain discrete tax items includingU.S. tax law changes, aUK tax rate change and equity method non-cash tax. These charges are recorded within income tax provision (benefit). 9Adjustments to post tax equity earnings from other equity method investments consist of the proportionate share of certain equity method investees' non-cash items or unusual or infrequent items consistent with the Company's non-GAAP adjustments. These charges are recorded within post tax earnings (loss) from other equity method investments. Although the Company may have shareholder rights and board representation commensurate with its ownership interests in these equity method investees, adjustments relating to equity method investments are not intended to imply that the Company has direct control over their operations and resulting revenue and expenses. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all revenue and expenses of these equity method investees. 10Due to the anti-dilutive effect resulting from the reported net loss, the impact of potentially dilutive securities on the per share amounts has been omitted from the quarterly calculation of weighted-average common shares outstanding for diluted earnings per share for the three months endedNovember 30, 2020 . 11Includes impact of potentially dilutive securities in the quarterly calculation of weighted-average common shares, diluted for adjusted diluted net earnings per common share calculation purposes for the three months endedNovember 30, 2020 . The Company considers certain metrics presented in this report, such as comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions, and comparable 30-day equivalent prescriptions, to be key performance indicators because the Company's management has evaluated its results of operations using these metrics and believes that these key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in its historical operating results. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. These measures, which are described in more detail in this report, may not be comparable to similarly-titled performance indicators used by other companies. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were$1.1 billion (including$0.4 billion in non-U.S. jurisdictions) as ofNovember 30, 2020 , compared to$0.8 billion (including$0.3 billion in non-U.S. jurisdictions) as ofNovember 30, 2019 . Short-term investment objectives are primarily to minimize risk and maintain liquidity. To attain these objectives, investment limits are placed on the amount, type and issuer of securities. Investments are principally inU.S. Treasury money market funds. The Company's long-term capital policy is to: maintain a strong balance sheet and financial flexibility; reinvest in its core strategies; invest in strategic opportunities that reinforce its core strategies and meet return requirements; and return surplus cash flow to stockholders in the form of dividends and share repurchases over the long term. InJune 2018 , the Company's Board of Directors reviewed and refined the Company's dividend policy to set forth the Company's current intention to increase its dividend each year. Cash provided by operations and the incurrence of debt are the principal sources of funds for expansion, investments, acquisitions, remodeling programs, dividends to stockholders and stock repurchases. Net cash provided by operating activities for the three months endedNovember 30, 2020 was$1.2 billion , compared to$1.1 billion for the prior year quarter. The$0.1 billion increase in cash provided by operating activities reflects higher cash inflows from trade accounts payable, income taxes, and non-current assets and liabilities partially offset by higher cash outflows from accrued expenses and other liabilities, accounts receivables and inventories. Changes in accrued expenses and other liabilities are mainly driven by a non-comparable 2021 bonus payment. Changes in trade accounts payables, income taxes and other non-current assets and liabilities are mainly driven by timing of collections and payments. Net cash used for investing activities was$259 million for the three months endedNovember 30, 2020 compared to$402 million for the prior year quarter. This change in net cash used for investing activities includes$231 million in proceeds from sale-leaseback transactions for the three months endedNovember 30, 2020 compared to$147 million for the prior year quarter. Business, investment and asset acquisitions were$77 million for the three months endedNovember 30, 2020 compared to$180 million for the prior year quarter.
WBA Q1 FY2021 Form 10-Q 48
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS For the three months endedNovember 30, 2020 , additions to property, plant and equipment were$431 million compared to$387 million in the prior year quarter. Capital expenditures by reporting segment were as follows (in millions): Three months ended November 30, 2020 2019 Retail Pharmacy USA $ 353$ 303 Retail Pharmacy International 58 70 Pharmaceutical Wholesale 21 13 Total $ 431$ 387
Significant capital expenditures primarily relate to growth initiatives and information technology projects.
Net cash used for financing activities for the three months endedNovember 30, 2020 was$352 million , compared to$866 million in the prior year period. In the three months endedNovember 30, 2020 there were$3.3 billion in net debt proceeds primarily from revolving credit facilities described below and commercial paper debt compared to$4.7 billion in net proceeds in the prior year period. For the three months endedNovember 30, 2020 there were$3.2 billion in payments of debt made primarily for revolving credit facilities and commercial paper debt compared to$4.7 billion for the three months endedNovember 30, 2019 . The Company repurchased shares totaling$110 million to support the needs of its employee stock plans for the three months endedNovember 30, 2020 compared to$473 million in the prior year quarter which also included stock repurchase program described below. Proceeds related to employee stock plans were$4 million during the three months endedNovember 30, 2020 , compared to$14 million during the three months endedNovember 30, 2019 . Cash dividends paid were$405 million during the three months endedNovember 30, 2020 , compared to$410 million for the prior year quarter. The Company expects to fund its working capital needs, capital expenditures, pending acquisitions, dividend payments and debt service obligations from liquidity sources including cash flow from operations, availability under existing credit facilities, commercial paper programs, working capital financing arrangements and current cash and investment balances. The Company believes that these sources, and the ability to obtain other financing will provide adequate cash funds for the Company's foreseeable working capital needs, capital expenditures, pending acquisitions, dividend payments and debt service obligations for at least the next 12 months. The Company's cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. Additionally, the Company's cash requirements, and its ability to generate cash flow, have been and may continue to be adversely affected by COVID-19 and the resulting market volatility and instability. For further information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see Item 1A, Risk factors in the Company's Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 .
See Item 3, Qualitative and quantitative disclosures about market risk, below for a discussion of certain financing and market risks.
Stock repurchase program InJune 2018 , the Company'sBoard of Director's approved a stock repurchase program (the "June 2018 stock repurchase program"), which authorized the repurchase of up to$10.0 billion of the Company's common stock of which the Company had repurchased$8.0 billion as ofNovember 30, 2020 . TheJune 2018 stock repurchase program has no specified expiration date. InJuly 2020 , the Company announced that it was suspending activities under this program. The Company may continue to repurchase stock to offset anticipated dilution from equity incentive plans. The Company determines the timing and amount of repurchases, including repurchases to offset anticipated dilution from equity incentive plans, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. The Company has repurchased, and may from time to time in the future repurchase, shares on the open market through Rule 10b5-1 plans, which enable the Company to repurchase shares at times when we otherwise might be precluded from doing so under federal securities laws. Commercial paper The Company periodically borrows under its commercial paper program and may borrow under it in future periods. The Company had average dailyU.S. commercial paper outstanding of$1.6 billion and$2.9 billion at a weighted average interest rate of 0.63% and 2.55% for the three months endedNovember 30, 2020 and 2019, respectively. A subsidiary of the Company
WBA Q1 FY2021 Form 10-Q 49
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS had average daily commercial paper outstanding, which was issued under theJoint HM Treasury and Bank of England's COVID Corporate Financing Facility commercial paper program, of £300 million or approximately$401 million at a weighted average interest rate of 0.43% for the three months endedNovember 30, 2020 . The subsidiary's repayment obligations are guaranteed by the Company. Financing actions OnAugust 29, 2018 , the Company entered into a revolving credit agreement (the "August 2018 Revolving Credit Agreement") with the lenders and letter of credit issuers from time to time party thereto. TheAugust 2018 Revolving Credit Agreement is an unsecured revolving credit facility with aggregate commitment in the amount of$3.5 billion , with a letter of credit subfacility commitment amount of$500 million . The facility termination date is the earlier of (a)August 29, 2023 , subject to extension thereof pursuant to theAugust 2018 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the revolving commitments pursuant to theAugust 2018 Revolving Credit Agreement. Borrowings under theAugust 2018 Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the Company's option, the alternate base rate or the Eurocurrency rate, in each case, plus an applicable margin calculated based on the Company's credit ratings. As ofNovember 30, 2020 , there were no borrowings outstanding under theAugust 2018 Revolving Credit Agreement. OnNovember 30, 2018 , the Company entered into a$1.0 billion credit agreement, consisting of a$500 million senior unsecured revolving credit facility and a$500 million senior unsecured term loan facility, with the lenders from time to time party thereto, onMarch 25, 2019 , the Company entered into an amendment to such credit agreement (such credit agreement as so amended, the "November 2018 Credit Agreement") reflecting certain changes to the borrowing notice provisions thereto. OnApril 2, 2020 , the Company entered into a second amendment to theNovember 2018 Credit Agreement (such credit agreement as so further amended, the "AmendedNovember 2018 Credit Agreement"), which amendment became effective as ofMay 29, 2020 . As ofMay 29, 2020 , the$500 million revolving credit facility portion of theNovember 2018 Credit Agreement was converted into a term loan facility, such that the AmendedNovember 2018 Credit Agreement consists of a$1.0 billion senior unsecured term loan facility. The facility termination date is the earlier of (a)May 29, 2021 and (b) the date of acceleration of all loans under the AmendedNovember 2018 Credit Agreement pursuant to its terms. Borrowings under the AmendedNovember 2018 Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the Company's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of 1.25% in the case of Eurocurrency rate loans and 0.125% in the case of alternative base rate loans. As ofNovember 30, 2020 , there were$0.9 billion of borrowings outstanding under the AmendedNovember 2018 Credit Agreement. OnDecember 5, 2018 , the Company entered into a$1.0 billion term loan credit agreement with the lenders from time to time party thereto and, onAugust 9, 2019 , the Company entered into an amendment to such credit agreement (such credit agreement as so amended, the "December 2018 Credit Agreement") to permit the Company to borrow, repay and reborrow amounts borrowed thereunder prior to the maturity date. OnApril 2, 2020 , the Company amended and restated theDecember 2018 Credit Agreement (such credit agreement as so amended and restated, the "A&RDecember 2018 Credit Agreement"). The A&RDecember 2018 Credit Agreement governs a$2.0 billion senior unsecured revolving credit facility, consisting of the initial$1.0 billion senior unsecured revolving facility (the "Initial Commitments") previously governed by theDecember 2018 Credit Agreement and a new$1.0 billion senior unsecured revolving credit facility (the "New Commitments"). The facility termination date is the earlier of (a)January 29, 2021 (the "Initial Maturity Date") (which date shall be extended toFebruary 26, 2021 orJuly 31, 2021 pursuant to the terms of the A&RDecember 2018 Credit Agreement if the Company extends the maturity date of certain of its existing credit agreements or enters into new bank or bond financings with a certain maturity date and above an aggregate principal amount as described in the A&RDecember 2018 Credit Agreement ) and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to the A&RDecember 2018 Credit Agreement. Borrowings under the A&RDecember 2018 Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the Company's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of (i) in the case of the Initial Facility fromApril 2, 2020 through and including the Initial Maturity Date, 0.75% in the case of Eurocurrency rate loans and 0.00% in the case of alternate base rate loans and (ii) in the case of the New Facility and the Initial Facility after the Initial Maturity Date, 1.50% in the case of Eurocurrency rate loans and 0.50% in the case of alternate base rate loans. As ofNovember 30, 2020 , there were$0.7 billion borrowings outstanding under the A&RDecember 2018 Credit Agreement. Concurrently with the execution of the 2020 Revolving Credit Agreement described above, the A&RDecember 2018 Credit Agreement was partially terminated in accordance with its terms and conditions, by the cancellation of$1 billion of New Commitments, thereby reducing the amount available to$1 billion of Initial Commitments thereunder as ofDecember 23, 2020 . The A&R was also amended to set the final maturity date under the agreement atJanuary 29, 2021 . OnJanuary 18, 2019 , the Company entered into a$2.0 billion 364-day revolving credit agreement (as extended, the "January 2019 364-Day Revolving Credit Agreement") with the lenders from time to time party thereto. TheJanuary 2019 364-Day WBA Q1 FY2021 Form 10-Q 50
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Revolving Credit Agreement is a senior unsecured 364-day revolving credit facility, with an original facility termination date of 364 days followingJanuary 31, 2019 , subject to extension. OnDecember 18, 2019 , the Company entered into an Extension Agreement (the "Extension Agreement") relating to theJanuary 2019 364-Day Revolving Credit Agreement with the lenders party thereto and Mizuho, as administrative agent. The Extension Agreement extended the Maturity Date (as defined in theJanuary 2019 364-Day Revolving Credit Agreement) for an additional period of 364 days toJanuary 28, 2021 . Such extension became effective onJanuary 30 , 2020.Borrowings under theJanuary 2019 364-Day Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the Company's option, the alternate base rate or the Eurocurrency rate, in each case, plus an applicable margin calculated based on the Company's credit ratings. As ofNovember 30, 2020 , there were no borrowings outstanding under the January 364-Day Revolving Credit Agreement. TheJanuary 2019 364-Day Revolving Credit Agreement was partially terminated in accordance with its terms and conditions, reducing the amount available to$0.5 billion as ofDecember 23, 2020 , concurrently with the execution of the 2020 Revolving Credit Agreement described below. OnAugust 30, 2019 , the Company entered into three$500 million revolving credit agreements (together, the "August 2019 Revolving Credit Agreements" and each individually, an "August 2019 Revolving Credit Agreement") with the lenders from time to time party thereto. Each of theAugust 2019 Revolving Credit Agreements are senior unsecured revolving credit facilities, with facility termination dates of the earlier of (a) 18 months followingAugust 30, 2019 , subject to extension thereof pursuant to the applicableAugust 2019 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to the applicableAugust 2019 Revolving Credit Agreement. Borrowings under each of theAugust 2019 Revolving Credit Agreements will bear interest at a fluctuating rate per annum equal to, at the Company's option, the alternate base rate or the Eurocurrency rate, plus an applicable margin of 0.95% in the case of Eurocurrency rate loans. As ofNovember 30, 2020 , there were no borrowings outstanding under theAugust 2019 Revolving Credit Agreements. TheAugust 2019 Revolving Credit Agreements were terminated in accordance with their terms and conditions as ofDecember 23, 2020 . TheAugust 2019 Revolving Credit Agreements were terminated concurrently with the execution of the 2020 Revolving Credit Agreement described below. The Company entered into a$750 million revolving credit agreement onApril 1, 2020 (the "April 2020 Revolving Bilateral Credit Agreement") and a$1.325 billion revolving credit agreement onApril 2, 2020 (the "April 2020 Revolving Club Credit Agreement" and together with theApril 2020 Revolving Bilateral Credit Agreement, the "OtherApril 2020 Revolving Credit Agreements") with the lenders from time to time party thereto. Each of the OtherApril 2020 Revolving Credit Agreements is a senior unsecured revolving credit facility, with a facility termination date of the earlier of (a)March 31, 2021 (which date shall be shortened pursuant to the terms of the applicable OtherApril 2020 Revolving Credit Agreement if the Company does not extend the maturity date of certain of its existing credit agreements or enter into new bank or bond financings with a certain maturity date and above an aggregate principal amount as described in the applicable OtherApril 2020 Revolving Credit Agreement) and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to the applicable OtherApril 2020 Revolving Credit Agreement. Borrowings under the OtherApril 2020 Revolving Credit Agreements will bear interest at a fluctuating rate per annum equal to, at the Company's option, the Eurocurrency rate or the alternate base rate, plus an applicable margin of 1.25% in the case of Eurocurrency rate loans. As ofNovember 30, 2020 , there were no borrowings outstanding under the OtherApril 2020 Revolving Credit Agreements. The otherApril 2020 Revolving Credit Agreements were terminated in accordance with their terms and conditions as ofDecember 23, 2020 . The otherApril 2020 Revolving Credit Agreements were terminated concurrently with the execution of the 2020 Revolving Credit Agreement described below. OnApril 7, 2020 , the Company and withWBA Financial Services Limited , a private limited company incorporated under the laws ofEngland andWales ("WBAFSL"), as co-borrowers, entered into a$500 million revolving credit agreement (the "April 7, 2020 Revolving Credit Agreement") with the lenders from time to time party thereto. TheApril 7, 2020 Revolving Credit Agreement is a senior unsecured revolving credit facility, with a facility termination date of the earlier of (a) 364-days fromApril 7, 2020 and (b) the date of termination in whole of the aggregate amount of the commitments pursuant to theApril 7, 2020 Revolving Credit Agreement. The Company and WBAFSL are co-borrowers under theApril 7, 2020 Revolving Credit Agreement. Pursuant to the terms of theApril 7, 2020 Revolving Credit Agreement, the Company provides a guarantee of any obligations of WBAFSL under theApril 7, 2020 Revolving Credit Agreement. Borrowings under theApril 7, 2020 Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to, at the Company's option, the Eurocurrency rate or the alternate base rate, plus an applicable margin of 1.50% in the case of Eurocurrency rate loans. As ofNovember 30, 2020 , there were no borrowings outstanding under theApril 7, 2020 Revolving Credit Agreement. TheApril 7, 2020 Revolving Credit Agreement was terminated in accordance with its terms and conditions onDecember 23, 2020 . TheApril 7, 2020 Revolving Credit Agreement was terminated concurrently with the execution of the 2020 Revolving Credit Agreement described below.
WBA Q1 FY2021 Form 10-Q 51
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OnApril 15, 2020 , the Company issued in an underwritten public offering$0.5 billion of 3.20% notes due 2030 and$1.0 billion of 4.10% notes due 2050. Total issuance costs relating to the notes, including underwriting discounts and estimated offering expenses were$13.3 million . OnOctober 20, 2020 , the Company redeemed in full the £400 million aggregate principal amount outstanding of its 2.875% notes due 2020 issued by the Company onNovember 20, 2014 . OnDecember 23, 2020 , the Company entered into a revolving credit agreement (the "2020 Revolving Credit Agreement") with the lenders from time to time party thereto. The 2020 Revolving Credit Agreement includes a (i) a$1.25 billion senior unsecured 364-day revolving credit facility (the "364-Day Facility") and (ii) a$2.25 billion senior unsecured 18-month revolving credit facility, with a swing line subfacility commitment amount of$350 million . The 364-Day Facility's termination date is the earlier of (i) 364 days fromDecember 23, 2020 , the effective date (subject to the extension thereof pursuant to the 2020 Revolving Credit Agreement) and (ii) the date of termination in whole of the aggregate amount of the revolving commitments under the 364-Day Facility pursuant to the 2020 Revolving Credit Agreement. The 18-Month Facility's termination date is the earlier of (i) 18 months from the effective date (subject to the extension thereof pursuant to the 2020 Revolving Credit Agreement) and (ii) the date of termination in whole of the aggregate amount of the revolving commitments under the 18-Month Facility pursuant to the 2020 Revolving Credit Agreement. After the entry into the 2020 Revolving Credit Agreement and the full or partial termination of the Company's other credit agreements as discussed herein, as ofDecember 23, 2020 , the Company had an aggregate borrowing capacity of$9.5 billion including funds already drawn. Debt covenants Each of the Company's credit facilities described above contain a covenant to maintain, as of the last day of each fiscal quarter, a ratio of consolidated debt to total capitalization not to exceed 0.60:1.00, subject to increase in certain circumstances set forth in the applicable credit agreement. As ofNovember 30, 2020 , the Company was in compliance with all such applicable covenants. Credit ratings As ofJanuary 6, 2021 , the credit ratings ofWalgreens Boots Alliance were: Rating agency Long-term debt rating Commercial paper rating Outlook Fitch BBB- F3 Negative Moody's Baa2 P-2 Negative Standard & Poor's BBB A-2 Negative In assessing the Company's credit strength, each rating agency considers various factors including the Company's business model, capital structure, financial policies and financial performance. There can be no assurance that any particular rating will be assigned or maintained. The Company's credit ratings impact its borrowing costs, access to capital markets and operating lease costs. The rating agency ratings are not recommendations to buy, sell or hold the Company's debt securities or commercial paper. Each rating may be subject to revision or withdrawal at any time by the assigning rating agency and should be evaluated independently of any other rating. AmerisourceBergen relationship As ofNovember 30, 2020 , the Company owned 56,854,867 AmerisourceBergen common shares representing approximately 28% of the outstanding common stock based on most recent share count publicly reported by AmerisourceBergen and had designated one member of AmerisourceBergen's board of directors. As ofNovember 30, 2020 , the Company can acquire up to an additional 8,398,752 AmerisourceBergen shares in the open market and thereafter designate another member of AmerisourceBergen's board of directors, subject in each case to applicable legal and contractual requirements. The amount of permitted open market purchases is subject to increase or decrease in certain circumstances. Subject to applicable legal and contractual requirements, share purchases may be made from time to time in open market transactions or pursuant to instruments and plans complying with Rule 10b5-1. See Note 5, Equity method investments, to the Consolidated Condensed Financial Statements for further information. WBA Q1 FY2021 Form 10-Q 52
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OnJanuary 6, 2021 , the Company entered into a Share Purchase Agreement with AmerisourceBergen pursuant to which AmerisourceBergen will purchase the majority of the Company's pharmaceutical wholesale operations, among other assets, for$6.275 billion in cash (subject to customary purchase price adjustments) and 2 million shares of common stock of AmerisourceBergen. See "Recent Developments" above and Note 19, Subsequent events to the Consolidated Condensed Financial Statements for additional information. OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any unconsolidated special purpose entities and, except as described herein, the Company does not have significant exposure to any off-balance sheet arrangements. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity not consolidated by the Company is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS There have been no material changes, outside of the ordinary course of business, in the Company's outstanding contractual obligations disclosed in the Company's Annual Report on Form 10-K for the year endedAugust 31, 2020 . CRITICAL ACCOUNTING POLICIES The Consolidated Condensed Financial Statements are prepared in accordance with GAAP and include amounts based on management's prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future periods. For a discussion of our significant accounting policies, please see the Company's Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 . Some of the more significant estimates include business combinations, leases, goodwill and indefinite-lived intangible asset impairment, cost of sales and inventory, equity method investments, pension and postretirement benefits and income taxes. See Note 17, New accounting pronouncements, to the Consolidated Condensed Financial Statements for additional information. NEW ACCOUNTING PRONOUNCEMENTS A discussion of new accounting pronouncements is described in Note 17, New accounting pronouncements, to the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q and is incorporated herein by reference. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other documents that we file or furnish with theSEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management's assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on the Company's website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications. Some of such forward-looking statements may be based on certain data and forecasts relating to our business and industry that we have obtained from internal surveys, market research, publicly available information and industry publications. Industry publications, surveys and market research generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Statements that are not historical facts are forward-looking statements, including, without limitation, those regarding estimates of and goals for future financial and operating performance as well as forward-looking statements concerning the potential impacts on our business of the spread and impact of COVID-19, the expected execution and effect of our business strategies, our cost-savings and growth initiatives, pilot programs, strategic partnerships and initiatives, and restructuring activities and the amounts and timing of their expected impact and delivery of estimated cost savings, the withdrawal of theUK from theEuropean Union and its possible effects our amended and restated asset purchase agreement with Rite Aid and the transactions contemplated thereby and their possible timing and effects, our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and their possible effects, the closing of the sale of certain pharmaceutical wholesale operations to AmerisourceBergen pursuant to the Share Purchase Agreement datedJanuary 6, 2021 , estimates of the impact of developments on our earnings, earnings per share and other financial and operating metrics, cough, cold and flu season, prescription volume, pharmacy sales trends, prescription margins and reimbursement rates, changes in generic WBA Q1 FY2021 Form 10-Q 53
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS prescription drug prices, retail margins, number and location of new store openings, network participation, vendor, payer and customer relationships and terms, possible new contracts or contract extensions, competition, economic and business conditions, outcomes of litigation and regulatory matters, the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, impairment or other charges, acquisition and joint venture synergies, competitive strengths and changes in legislation or regulations. All statements in the future tense and all statements accompanied by words such as "expect," "likely," "outlook," "forecast," "preliminary," "pilot," "would," "could," "should," "can," "will," "project," "intend," "plan," "goal," "guidance," "target," "aim," "continue," "sustain," "synergy," "transform," "accelerate," "model," "long-term," "on track," "on schedule," "headwind," "tailwind," "believe," "seek," "estimate," "anticipate," "upcoming," "to come," "may," "possible," "assume," and variations of such words and similar expressions are intended to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated, including, but not limited to, those relating to the impact of private and public third-party payers' efforts to reduce prescription drug reimbursements, risks relating to the spread and impact of COVID-19, including the adverse impact on the global economy as well as our business, the risks associated with the withdrawal of theUK from theEuropean Union , fluctuations in foreign currency exchange rates, the timing and magnitude of the impact of branded to generic drug conversions and changes in generic drug prices, our ability to realize synergies and achieve financial, tax and operating results in the amounts and at the times anticipated, the inherent risks, challenges and uncertainties associated with forecasting financial results of large, complex organizations in rapidly evolving industries, particularly over longer time periods, and during periods with increased volatility and uncertainties, supply arrangements including our commercial agreement with AmerisourceBergen, the arrangements and transactions contemplated by our framework agreement with AmerisourceBergen and their possible effects, the risks associated with our equity method investment in AmerisourceBergen, circumstances that could give rise to the termination, cross-termination or modification of any of our contractual obligations, the amount of costs, fees, expenses and charges incurred in connection with strategic transactions, whether the costs and charges associated with restructuring initiatives, including the Transformational Cost Management Program and Store Optimization Program, will exceed estimates, our ability to realize expected savings and benefits from cost-savings initiatives, including the Transformational Cost Management Program and Store Optimization Program, restructuring activities and acquisitions and joint ventures in the amounts and at the times anticipated, the timing and amount of any impairment or other charges, the timing and severity of cough, cold and flu season, risks relating to looting and vandalism in regions in which we operate and the scope and magnitude of any property damage, inventory loss or other adverse impacts, risks related to pilot programs and new business initiatives and ventures generally, including the risks that anticipated benefits may not be realized, changes in management's plans and assumptions, the risks associated with governance and control matters, the ability to retain key personnel, changes in economic and business conditions generally or in particular markets in which we participate, changes in financial markets, credit ratings and interest rates, the risks relating to the terms, timing and magnitude of any share repurchase activity, the risks associated with international business operations, including international trade policies, tariffs, including tariff negotiations between theU.S. andChina , and relations, the risks associated with cybersecurity or privacy breaches related to customer information, changes in vendor, customer and payer relationships and terms, including changes in network participation and reimbursement terms and the associated impacts on volume and operating results, risks related to competition including changes in market dynamics, participants, product and service offerings, retail formats and competitive positioning, risks associated with new business areas and activities, risks associated with acquisitions, divestitures, joint ventures and strategic investments, including those relating to the asset acquisition from Rite Aid, the risks associated with the integration of complex businesses, the impact of regulatory restrictions and outcomes of legal and regulatory matters and risks associated with changes in laws, including those related to theDecember 2017 U.S. tax law changes, regulations or interpretations thereof. These and other risks, assumptions and uncertainties are described in Item 1A, Risk factors, in theWalgreens Boots Alliance Annual Report on Form 10-K for the fiscal year endedAugust 31, 2020 and in other documents that we file or furnish with theSEC . Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. All forward-looking statements we make or that are made on our behalf are qualified by these cautionary statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
WBA Q1 FY2021 Form 10-Q 54
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
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