Walgreens 2014 Annual Report Download - page 25

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distribution of pharmaceuticals and controlled substances. We are required to hold valid DEA and state-level
licenses, meet various security and operating standards and comply with the Controlled Substance Act and its
accompanying regulations governing the sale, marketing, packaging, holding and distribution of controlled
substances. The DEA, FDA and state regulatory authorities have broad enforcement powers, including the ability
to suspend our distribution centers’ licenses to distribute pharmaceutical products (including controlled
substances), seize or recall products and impose significant criminal, civil and administrative sanctions for
violations of these laws and regulations. For example, in June 2013, the Company entered into a settlement
agreement with the DEA and the United States Department of Justice relating to controlled substance matters that
required the Company to pay $80 million and implement certain remedial actions. We are also governed by
federal and state laws of general applicability, including laws regulating matters of working conditions, health
and safety and equal employment opportunity. In addition, we could have exposure if we are found to have
infringed another party’s intellectual property rights.
Should a product liability issue, recall or personal injury issue arise it may damage our reputation, which
may result in a material adverse effect on our business and financial condition and adversely affect our
ability to maintain adequate product or other liability insurance coverage. If we fail or are unable to
maintain adequate product or other liability insurance coverage for any reason, it may also result in a
material adverse effect on our business and financial condition.
Products that we sell could become subject to contamination, product tampering, mislabeling, recall or other
damage. In addition, errors in the dispensing and packaging of pharmaceuticals could lead to serious injury or
death. Product liability or personal injury claims may be asserted against us with respect to any of the products or
pharmaceuticals we sell or services we provide. Our health and wellness business also involves exposure to
professional liability claims related to medical care. Should a product or other liability issue arise, the coverage
limits under our insurance programs and the indemnification amounts available to us may not be adequate to
protect us against claims. We also may not be able to maintain this insurance on acceptable terms in the
future. Damage to our reputation in the event of a product liability or personal injury issue or judgment against us
or a product recall could have a significant adverse effect on our business, financial condition and results of
operations.
We have significant outstanding debt; our debt will increase if we incur additional debt in the future and
do not retire existing debt.
We have outstanding debt and other financial obligations and significant unused borrowing capacity. As of
August 31, 2014, we had approximately $4.5 billion of outstanding indebtedness, including short-term
borrowings. Our debt level and related debt service obligations could have negative consequences, including:
• requiring us to dedicate significant cash flow from operations to the payment of principal, interest and
other amounts payable on our debt, which would reduce the funds we have available for other
purposes, such as working capital, capital expenditures, acquisitions, share repurchases and dividends;
• making it more difficult or expensive for us to obtain any necessary future financing for working
capital, capital expenditures, debt service requirements, debt refinancing, acquisitions or other
purposes;
• reducing our flexibility in planning for or reacting to changes in our industry and market conditions;
• making us more vulnerable in the event of a downturn in our business; and
• exposing us to interest rate risk given that a portion of our debt obligations is at variable interest rates.
We may incur or assume significantly more debt in the future. See “Risk Factors—Additional Risks Related to
our Alliance Boots Investment and the Second Step Transaction—We expect to incur significant additional debt
in connection with second step transaction” below. If we add new debt and do not retire existing debt, the risks
described above could increase.
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