Walgreens 2014 Annual Report Download - page 35

Download and view the complete annual report

Please find page 35 of the 2014 Walgreens annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

The amount and mix of consideration required to be paid by us to the Sellers in connection with the second
step transaction is subject to adjustment in certain circumstances.
If the second step transaction is completed, we will acquire the remaining 55% interest in Alliance Boots for
£3.133 billion (equivalent to approximately $5.2 billion based on exchange rates as of August 31, 2014) in cash,
payable in British pounds sterling, and 144.3 million shares of Walgreens common stock, subject to the volume
weighted average price of Walgreens common stock not being below $31.18 per share during a period shortly
before the closing of the second step transaction. However, if the volume weighted average price per share is
below that level, the difference in value would be made up by a cash payment or the issuance of additional shares
of common stock at the Company’s election. In addition, in certain circumstances following a change of control
of the Company (as defined in the Purchase and Option Agreement) prior to the closing of the second step
transaction, AB Acquisitions has the right to cause us to pay 100% of the second step transaction consideration in
cash. These provisions could potentially make the second step transaction significantly more costly or
inadvisable by increasing the amount of cash and/or stock consideration we are required to pay. If the amount of
cash we pay increases, the amount of indebtedness we incur also may increase, and if the amount of stock we are
required to deliver increases, the percentage ownership interests of our existing shareholders would further
decrease.
We expect to incur significant additional debt in connection with the second step transaction.
As of March 31, 2014, Alliance Boots had approximately £5.7 billion (equivalent to approximately $9.5 billion
based on exchange rates as of March 31, 2014) of outstanding indebtedness, including short-term borrowings. In
connection with the consummation of the second step transaction, we are likely to incur significant additional
debt in connection with the financing thereof and the assumption and/or refinancing of all or substantially all of
the Alliance Boots debt then outstanding. As described above under the heading “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 that subjects
us to certain risks and the incurrence of additional debt in connection with the consummation of the second step
transaction would cause these risks to increase. We currently expect to finance the cash consideration and/or the
refinancing of all or substantially all of the indebtedness of Alliance Boots and its subsidiaries in connection with
the second step transaction with a combination of the issuance of new debt and available cash. Our obligation to
complete the second step transaction is not subject to the receipt of financing. If we are unable to find financing
sources on acceptable terms, or at all, we may experience a material adverse effect on our business, results of
operation and financial condition.
The amount of goodwill and other intangible assets we have recorded as a result of acquisitions is expected
to substantially increase upon completion of the Transactions. In the future, our goodwill or other
intangible assets may become impaired, which could result in material non-cash charges to our results of
operations.
As of August 31, 2014, we had $3.5 billion of goodwill and other intangible assets. The underlying net assets of
the Company’s equity method investment in Alliance Boots include goodwill and indefinite-lived intangible
assets. The Company utilizes a three-month lag in reporting its share of equity income in Alliance Boots. As of
March 31, 2014, its most recent fiscal year end, Alliance Boots had £9.9 billion (equivalent to approximately
$16.5 billion based on exchange rates as of March 31, 2014) of goodwill and other intangible assets on its Group
statement of financial position ( prepared in accordance with IFRS), which represented approximately 57% of its
total assets. Walgreens Boots Alliance will account for the Transactions, if completed, using the purchase method
of accounting in accordance with U.S. GAAP, with the purchase price paid allocated to recognize the acquired
assets and liabilities at their fair value and Walgreens being treated as the accounting acquiror. While the fair
values and associated purchase price allocation will be determined following completion of the Transactions, we
anticipate that our goodwill and other intangible assets will increase substantially following completion of the
Transactions.
27