Microsoft Excel LibreOffice Calc

Walgreens Boots Alliance Inc. (WBA)

Analysis of Income Taxes

Advanced level

Accounting Policy on Income Taxes

Walgreens Boots Alliance accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based upon the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.

In determining the provision for income taxes, Walgreens Boots Alliance uses income, permanent differences between book and tax income, the relative proportion of foreign and domestic income, enacted statutory income tax rates, projections of income subject to Subpart F rules and unrecognized tax benefits related to current year results. Discrete events such as the assessment of the ultimate outcome of tax audits, audit settlements, recognizing previously unrecognized tax benefits due to lapsing of the applicable statute of limitations, recognizing or de-recognizing benefits of deferred tax assets due to future year financial statement projections and changes in tax laws are recognized in the period in which they occur.

Walgreens Boots Alliance is subject to routine income tax audits that occur periodically in the normal course of business. U.S. federal, state, local and foreign tax authorities raise questions regarding Walgreens Boots Alliance’s tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the tax benefits associated with the various tax filing positions, Walgreens Boots Alliance records a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to the liability for unrecognized tax benefits in the period in which Walgreens Boots Alliance determines the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when more information becomes available.

Source: 10-K (filing date: 2019-10-28).

Income Tax Expense (Benefit)

Walgreens Boots Alliance Inc., income tax expense (benefit), continuing operations

US$ in millions

Microsoft Excel LibreOffice Calc
12 months ended Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Federal 201  866  759  999  846  1,207 
State 46  103  45  56  121  109 
Non–U.S. 241  353  390  371  128  35 
Current provision 488  1,322  1,194  1,426  1,095  1,351 
Federal, tax law change —  (648) —  —  —  — 
Federal, excluding tax law change 151  304  (306) (183) (23) 183 
State 4  78  (24) 6  (16) (3)
Non–U.S., tax law change —  —  (80) (182) —  — 
Non–U.S., excluding tax law change (55) (58) (24) (70) —  (5)
Deferred provision 100  (324) (434) (429) (39) 175 
Income tax provision 588  998  760  997  1,056  1,526 

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

Item Description The company
Current provision Amount of current income tax expense (benefit) pertaining to taxable income (loss) from continuing operations. Walgreens Boots Alliance Inc.’s current provision increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.
Deferred provision Amount of deferred income tax expense (benefit) pertaining to income (loss) from continuing operations. Walgreens Boots Alliance Inc.’s deferred provision increased from 2017 to 2018 and from 2018 to 2019.
Income tax provision Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Walgreens Boots Alliance Inc.’s income tax provision increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Effective Income Tax Rate (EITR)

Walgreens Boots Alliance Inc., effective income tax rate (EITR) reconciliation

Microsoft Excel LibreOffice Calc
Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Federal statutory tax rate 21.00% 25.70% 35.00% 35.00% 35.00% 35.00%
State income taxes, net of federal benefit 0.90% 2.30% 0.30% 0.80% 1.30% 1.90%
Loss on Alliance Boots call option 0.00% 0.00% 0.00% 0.00% 0.00% 8.50%
Deferred tax asset recognition 0.00% 0.00% 0.00% 0.00% -4.10% 0.00%
Gain on previously held equity interest 0.00% 0.00% 0.00% 0.00% -5.80% 0.00%
Foreign income taxed at non-U.S. rates -2.10% -12.20% -11.80% -7.80% -6.20% -3.10%
Non-taxable income -3.50% -5.20% -5.30% -4.40% -2.60% 0.00%
Non-deductible expenses 0.50% 2.10% 1.50% 1.10% 2.30% 0.30%
Transition tax 0.00% 12.40% 0.00% 0.00% 0.00% 0.00%
Tax law changes -0.40% -10.90% -1.60% -3.50% 0.00% 0.00%
Change in valuation allowance 1.90% 8.70% 0.70% 1.70% 0.00% 0.00%
Tax credits -4.80% -6.90% -2.90% -1.50% 0.00% 0.00%
Other -0.50% 0.70% -0.20% -2.00% 0.00% 0.30%
Effective income tax rate 13.00% 16.70% 15.70% 19.40% 19.90% 42.90%

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

Item Description The company
Effective income tax rate Percentage of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations. Walgreens Boots Alliance Inc.’s effective income tax rate increased from 2017 to 2018 but then decreased significantly from 2018 to 2019.

Components of Deferred Tax Assets and Liabilities

Walgreens Boots Alliance Inc., components of deferred tax assets and liabilities

US$ in millions

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Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Postretirement benefits —  —  134  190  130  247 
Compensation and benefits 133  152  207  205  224  166 
Insurance 90  74  109  75  68  98 
Accrued rent 219  271  174  169  167  166 
Outside basis difference —  —  55  134  73  — 
Allowance for doubtful accounts 13  27  55  65  67  65 
Tax attributes 6,687  2,351  555  373  341  430 
Stock compensation 45  44  73  97  119  131 
Deferred income 115  110  220  150  —  — 
Other 78  44  88  195  93  75 
Deferred tax assets, gross 7,380  3,073  1,670  1,653  1,282  1,378 
Valuation allowance (6,638) (2,226) (408) (305) (125) (223)
Deferred tax assets 742  847  1,262  1,348  1,157  1,155 
Accelerated depreciation (475) (603) (841) (1,205) (1,234) (1,244)
Inventory (394) (301) (416) (388) (420) (407)
Intangible assets (1,116) (1,234) (1,277) (1,418) (1,822) (64)
Equity method investment (481) (459) (1,002) (978) (333) (355)
Deferred income —  —  —  —  (889) (208)
Deferred tax liabilities (2,466) (2,597) (3,536) (3,989) (4,698) (2,278)
Net deferred tax assets (liabilities) (1,724) (1,750) (2,274) (2,641) (3,541) (1,123)

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

Item Description The company
Deferred tax assets, gross Amount before allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Walgreens Boots Alliance Inc.’s deferred tax assets, gross increased from 2017 to 2018 and from 2018 to 2019.
Deferred tax assets Amount after allocation of valuation allowances of deferred tax asset attributable to deductible temporary differences and carryforwards. Walgreens Boots Alliance Inc.’s deferred tax assets decreased from 2017 to 2018 and from 2018 to 2019.
Net deferred tax assets (liabilities) Amount, after allocation of valuation allowances and deferred tax liability, of deferred tax asset attributable to deductible differences and carryforwards, without jurisdictional netting. Walgreens Boots Alliance Inc.’s net deferred tax assets (liabilities) increased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Deferred Taxes

Walgreens Boots Alliance Inc., adjustments to financial statements

US$ in millions

Microsoft Excel LibreOffice Calc
Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Adjustment to Total Liabilities
Total liabilities (as reported) 43,447  41,435  37,735  42,407  37,482  16,621 
Less: Noncurrent deferred tax liabilities, net 1,785  1,815  2,281  2,644  3,538  1,048 
Total liabilities (adjusted) 41,662  39,620  35,454  39,763  33,944  15,573 
Adjustment to Total Walgreens Boots Alliance, Inc. Shareholders’ Equity
Total Walgreens Boots Alliance, Inc. shareholders’ equity (as reported) 23,512  26,007  27,466  29,880  30,861  20,457 
Less: Net deferred tax assets (liabilities) (1,724) (1,750) (2,274) (2,641) (3,541) (1,123)
Total Walgreens Boots Alliance, Inc. shareholders’ equity (adjusted) 25,236  27,757  29,740  32,521  34,402  21,580 
Adjustment to Net Earnings Attributable To Walgreens Boots Alliance, Inc.
Net earnings attributable to Walgreens Boots Alliance, Inc. (as reported) 3,982  5,024  4,078  4,173  4,220  1,932 
Add: Deferred income tax expense (benefit) 100  (324) (434) (429) (39) 175 
Net earnings attributable to Walgreens Boots Alliance, Inc. (adjusted) 4,082  4,700  3,644  3,744  4,181  2,107 

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

Walgreens Boots Alliance Inc., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Deferred Taxes (Summary)

Walgreens Boots Alliance Inc., adjusted financial ratios

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Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Net Profit Margin
Reported net profit margin 2.91% 3.82% 3.45% 3.56% 4.08% 2.53%
Adjusted net profit margin 2.98% 3.57% 3.08% 3.19% 4.04% 2.76%
Financial Leverage
Reported financial leverage 2.88 2.62 2.40 2.43 2.23 1.82
Adjusted financial leverage 2.68 2.45 2.22 2.24 2.00 1.72
Return on Equity (ROE)
Reported ROE 16.94% 19.32% 14.85% 13.97% 13.67% 9.44%
Adjusted ROE 16.18% 16.93% 12.25% 11.51% 12.15% 9.76%
Return on Assets (ROA)
Reported ROA 5.89% 7.37% 6.18% 5.74% 6.14% 5.20%
Adjusted ROA 6.04% 6.90% 5.52% 5.15% 6.08% 5.67%

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Walgreens Boots Alliance Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Walgreens Boots Alliance Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Walgreens Boots Alliance Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.

Walgreens Boots Alliance Inc., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

Microsoft Excel LibreOffice Calc
Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to Walgreens Boots Alliance, Inc. 3,982  5,024  4,078  4,173  4,220  1,932 
Sales 136,866  131,537  118,214  117,351  103,444  76,392 
Profitability Ratio
Net profit margin1 2.91% 3.82% 3.45% 3.56% 4.08% 2.53%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. 4,082  4,700  3,644  3,744  4,181  2,107 
Sales 136,866  131,537  118,214  117,351  103,444  76,392 
Profitability Ratio
Adjusted net profit margin2 2.98% 3.57% 3.08% 3.19% 4.04% 2.76%

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

2019 Calculations

1 Net profit margin = 100 × Net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Sales
= 100 × 3,982 ÷ 136,866 = 2.91%

2 Adjusted net profit margin = 100 × Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Sales
= 100 × 4,082 ÷ 136,866 = 2.98%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. Walgreens Boots Alliance Inc.’s adjusted net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Financial Leverage

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Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets 67,598  68,124  66,009  72,688  68,782  37,182 
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512  26,007  27,466  29,880  30,861  20,457 
Solvency Ratio
Financial leverage1 2.88 2.62 2.40 2.43 2.23 1.82
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Total assets 67,598  68,124  66,009  72,688  68,782  37,182 
Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity 25,236  27,757  29,740  32,521  34,402  21,580 
Solvency Ratio
Adjusted financial leverage2 2.68 2.45 2.22 2.24 2.00 1.72

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

2019 Calculations

1 Financial leverage = Total assets ÷ Total Walgreens Boots Alliance, Inc. shareholders’ equity
= 67,598 ÷ 23,512 = 2.88

2 Adjusted financial leverage = Total assets ÷ Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity
= 67,598 ÷ 25,236 = 2.68

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 Walgreens Boots Alliance Inc.’s adjusted financial leverage ratio increased from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to Walgreens Boots Alliance, Inc. 3,982  5,024  4,078  4,173  4,220  1,932 
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512  26,007  27,466  29,880  30,861  20,457 
Profitability Ratio
ROE1 16.94% 19.32% 14.85% 13.97% 13.67% 9.44%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. 4,082  4,700  3,644  3,744  4,181  2,107 
Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity 25,236  27,757  29,740  32,521  34,402  21,580 
Profitability Ratio
Adjusted ROE2 16.18% 16.93% 12.25% 11.51% 12.15% 9.76%

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

2019 Calculations

1 ROE = 100 × Net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Total Walgreens Boots Alliance, Inc. shareholders’ equity
= 100 × 3,982 ÷ 23,512 = 16.94%

2 Adjusted ROE = 100 × Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Adjusted total Walgreens Boots Alliance, Inc. shareholders’ equity
= 100 × 4,082 ÷ 25,236 = 16.18%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. Walgreens Boots Alliance Inc.’s adjusted ROE improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net earnings attributable to Walgreens Boots Alliance, Inc. 3,982  5,024  4,078  4,173  4,220  1,932 
Total assets 67,598  68,124  66,009  72,688  68,782  37,182 
Profitability Ratio
ROA1 5.89% 7.37% 6.18% 5.74% 6.14% 5.20%
Adjusted for Deferred Taxes
Selected Financial Data (US$ in millions)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. 4,082  4,700  3,644  3,744  4,181  2,107 
Total assets 67,598  68,124  66,009  72,688  68,782  37,182 
Profitability Ratio
Adjusted ROA2 6.04% 6.90% 5.52% 5.15% 6.08% 5.67%

Based on: 10-K (filing date: 2019-10-28), 10-K (filing date: 2018-10-11), 10-K (filing date: 2017-10-25), 10-K (filing date: 2016-10-20), 10-K (filing date: 2015-10-28), 10-K (filing date: 2014-10-20).

2019 Calculations

1 ROA = 100 × Net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Total assets
= 100 × 3,982 ÷ 67,598 = 5.89%

2 Adjusted ROA = 100 × Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Total assets
= 100 × 4,082 ÷ 67,598 = 6.04%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted ROA improved from 2017 to 2018 but then slightly deteriorated from 2018 to 2019 not reaching 2017 level.