Walgreens 2015 Annual Report Download - page 41

We intend to finance the transaction through a combination of cash on hand and debt financing. Concurrently
with the signing of the Merger Agreement, the Company entered into a bridge facility commitment letter (the
“Commitment Letter”), dated October 27, 2015, with UBS Securities LLC and UBS AG, Stamford Branch for a
$12.8 billion senior unsecured bridge facility (the “Facility”). The Facility, if funded, will mature 364 days after
the initial borrowings; provided that the Company can extend up to $3.0 billion of the Facility for an additional
90 day period if desired. The interest rate applicable to borrowings under the Facility will be LIBOR or the
applicable base rate plus a margin. The financing commitments of the lenders are subject to certain customary
conditions set forth in the Commitment Letter. We expect to obtain permanent financing for the transaction prior
to the closing date, which would replace the Facility.
COMPARABILITY
As a result of the completion of the Second Step Transaction on December 31, 2014, there are a number of items
that affect comparability for the Company. Historically, Walgreens operations were within one reportable
segment that included the results of the Retail Pharmacy USA division and corporate costs, along with the full
consolidated results of WBAD and equity earnings from Alliance Boots (on a three-month reporting lag). Upon
completion of the Second Step Transaction, Alliance Boots became a consolidated subsidiary and the Company
eliminated the three-month reporting lag. Prior period results have been recast to reflect the elimination of the
reporting lag. Additionally, following the completion of the Reorganization and the Second Step Transaction on
December 31, 2014, the Company now reports results in three segments. Segmental reporting includes the
allocation of synergy benefits, including WBAD’s results, and the combined corporate costs for periods
subsequent to December 31, 2014. The Company has determined that it is impracticable to allocate historical
results to the current segmental presentation.
The completion of the Second Step Transaction on December 31, 2014 also means that results for fiscal 2015
include the results of Alliance Boots for eight months (January through August 2015) on a fully consolidated
basis and four months (September through December 2014) as equity income from Walgreen’s pre-closing 45
percent interest.
The Company’s balance sheet reflects the full consolidation of Alliance Boots assets and liabilities as a result of
the close of the combination on December 31, 2014. The Company’s purchase accounting remains preliminary as
contemplated by GAAP and, as a result, there may be upon further review future changes to the value, as well as
allocation, of the acquired assets and liabilities, associated amortization expense, goodwill and the gain on the
previously held equity interest. These changes may be material.
Year-over-year comparisons of results require consideration of the foregoing factors and are not directly
comparable.
In addition, the Company’s sales are affected by a number of factors including, among others, our sales
performance during holiday periods and during the cough, cold and flu season, significant weather conditions,
timing of our own or competitor discount programs and pricing actions, levels of reimbursement from
governmental agencies and other third party health providers and general economic conditions in the markets in
which we operate.
AMERISOURCEBERGEN CORPORATION RELATIONSHIP
On March 19, 2013, Walgreens, Alliance Boots and AmerisourceBergen announced various agreements and
arrangements, including a ten-year pharmaceutical distribution agreement between Walgreens and
AmerisourceBergen pursuant to which branded and generic pharmaceutical products are sourced from
AmerisourceBergen in the U.S.; an agreement which provides AmerisourceBergen the ability to access generics
and related pharmaceutical products through WBAD, a global sourcing enterprise formed by Walgreens and
Alliance Boots; and agreements and arrangements pursuant to which we have the right, but not the obligation, to
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