Walgreens 2015 Annual Report Download - page 85

Alliance Boots
On August 2, 2012, pursuant to the Purchase and Option Agreement the Company acquired 45% of the issued
and outstanding share capital of Alliance Boots in exchange for $4.025 billion in cash and approximately
83.4 million shares of Walgreens common stock. The Purchase and Option Agreement provided, subject to the
satisfaction or waiver of specified conditions, a call option that gave the Company the right, but not the
obligation, to acquire the remaining 55% of Alliance Boots in exchange for an additional £3.1 billion in cash as
well as an additional 144.3 million Company shares, subject to certain adjustments (the “call option”). On
August 5, 2014, the Purchase and Option Agreement was amended to permit the exercise of the call option
beginning on that date, and the Company, through an indirectly wholly-owned subsidiary to which the Company
previously assigned its right to the call option, exercised the call option on August 5, 2014. The Company’s
equity earnings, initial investment and the call option excluded the Alliance Boots minority interest in Galenica
Ltd. (“Galenica”). The Alliance Boots investment in Galenica was distributed to the Alliance Boots shareholders
other than Walgreens in May 2013, which had no impact on the Company’s financial results.
Prior to the closing of the Second Step Transaction on December 31, 2014, the Company accounted for its 45%
investment in Alliance Boots using the equity method of accounting. Because the underlying net assets in
Alliance Boots were denominated in a foreign currency, translation gains or losses had an impact on the recorded
value of the Company’s investment. The Company utilized a three-month reporting lag in recording equity
income in Alliance Boots, which was eliminated on December 31, 2014 (See Note 3, Change in Accounting
Policy). The Company’s share of Alliance Boots earnings was recorded as Equity earnings in Alliance Boots in
the Consolidated Statements of Earnings. The Company’s investment was recorded as Equity investment in
Alliance Boots in the Consolidated Balance Sheets.
The Company’s initial investment in Alliance Boots exceeded its proportionate share of the net assets of Alliance
Boots by $2.4 billion. This premium of $2.4 billion was recognized as part of the carrying value in the
Company’s equity investment in Alliance Boots. The difference was primarily related to the fair value of
Alliance Boots indefinite-lived intangible assets and goodwill. The Company’s equity method income from the
investment in Alliance Boots was adjusted to reflect the amortization of fair value adjustments in certain definite
lived assets of Alliance Boots. The Company’s incremental amortization expense associated with the Alliance
Boots investment was $14 million, $41 million and $68 million for fiscal 2015, 2014 and 2013, respectively. The
incremental amortization expense was recorded as a reduction in equity earnings from Alliance Boots for all
periods prior to closing of the Second Step Transaction on December 31, 2014.
The Second Step Transaction closed on December 31, 2014. (See Note 1, Organization, and Note 2, Summary of
Major Accounting Policies). In connection with this transaction as required by ASC Topic 805, Business
Combinations, the Company recorded a non-cash gain of $563 million resulting from the remeasurement of the
previously held equity interest in Alliance Boots at its acquisition date fair value. The non-cash gain includes
$310 million of other comprehensive losses and foreign currency translation losses reclassified from accumulated
other comprehensive income. This gain is preliminary and may be subject to change as the Company finalizes
purchase accounting.
Other Equity Method Investments
Other equity method investments primarily relate to equity method investments in Guangzhou Pharmaceuticals
Corporation and Nanjing Pharmaceutical Corporation Limited, the Company’s pharmaceutical wholesale
investments in China and the equity method investment in Option Care Inc. retained through the sale of
Walgreens Infusion Services in April 2015. Also included are additional investments in pharmaceutical
wholesaling and distribution, retail pharmacy and the Company’s hearing care operator and the equity method
investment retained through the sale of Take Care Employer in fiscal 2014. Equity investments of the Company
are recorded within other non-current assets in the Consolidated Balance Sheets. The Company reported $24
million of post-tax equity earnings in other equity method investments for fiscal 2015, in the Consolidated
Statements of Earnings. Post-tax equity earnings from the historical Walgreens other equity method investments
in fiscal 2014 and fiscal 2013 were immaterial.
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