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Walgreens Boots Alliance Inc. (WBA)


Analysis of Operating Leases

Advanced level

An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee balance sheet, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.


Accounting Policy on Operating Leases

Initial terms for leased premises in the U.S. are typically 15 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date Walgreens Boots Alliance becomes legally obligated to make rent payments or the date Walgreens Boots Alliance has the right to control the property. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

Capital leases are recognized within property, plant and equipment and as a capital lease liability within accrued expenses and other liabilities and other non-current liabilities. Operating leases are expensed on a straight line basis over the lease term.

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


Present Value of Future Operating Lease Payments (before Adoption of FASB Topic 842)

Walgreens Boots Alliance Inc., future operating lease payments (before adoption of FASB Topic 842)

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
Total undiscounted future operating lease payments 32,268  32,736  32,811  34,089  37,970  34,465 
Discount rate1 3.49% 3.55% 3.60% 3.28% 3.45% 3.14%
 
Total present value of future operating lease payments 26,628  26,624  26,194  27,480  29,803  27,399 

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).

1 Weighted-average interest rate for Walgreens Boots Alliance Inc.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.49%
2020 3,484  2020 3,484  3,367 
2021 3,323  2021 3,323  3,103 
2022 3,124  2022 3,124  2,818 
2023 2,943  2023 2,943  2,566 
2024 2,771  2024 2,771  2,334 
2025 and thereafter 16,623  2025 2,771  2,256 
2026 2,771  2,179 
2027 2,771  2,106 
2028 2,771  2,035 
2029 2,771  1,966 
2030 2,768  1,898 
Total: 32,268  32,268  26,628 

Based on: 10-K (filing date: 2019-10-28).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.55%
2019 3,528  2019 3,528  3,407 
2020 3,304  2020 3,304  3,081 
2021 3,028  2021 3,028  2,727 
2022 2,762  2022 2,762  2,402 
2023 2,522  2023 2,522  2,118 
2024 and thereafter 17,592  2024 2,522  2,046 
2025 2,522  1,976 
2026 2,522  1,908 
2027 2,522  1,842 
2028 2,522  1,779 
2029 2,522  1,718 
2030 2,460  1,619 
Total: 32,736  32,736  26,624 

Based on: 10-K (filing date: 2018-10-11).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.60%
2018 3,210  2018 3,210  3,098 
2019 3,045  2019 3,045  2,837 
2020 2,844  2020 2,844  2,558 
2021 2,605  2021 2,605  2,261 
2022 2,371  2022 2,371  1,987 
2023 and thereafter 18,736  2023 2,371  1,918 
2024 2,371  1,851 
2025 2,371  1,787 
2026 2,371  1,725 
2027 2,371  1,665 
2028 2,371  1,607 
2029 2,371  1,551 
2030 2,139  1,351 
Total: 32,811  32,811  26,194 

Based on: 10-K (filing date: 2017-10-25).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.28%
2017 3,066  2017 3,066  2,969 
2018 2,972  2018 2,972  2,786 
2019 2,826  2019 2,826  2,565 
2020 2,632  2020 2,632  2,313 
2021 2,403  2021 2,403  2,045 
2022 and thereafter 20,190  2022 2,403  1,980 
2023 2,403  1,917 
2024 2,403  1,856 
2025 2,403  1,797 
2026 2,403  1,740 
2027 2,403  1,685 
2028 2,403  1,631 
2029 2,403  1,580 
2030 966  615 
Total: 34,089  34,089  27,480 

Based on: 10-K (filing date: 2016-10-20).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.45%
2016 3,141  2016 3,141  3,036 
2017 3,008  2017 3,008  2,811 
2018 2,944  2018 2,944  2,659 
2019 2,734  2019 2,734  2,387 
2020 2,518  2020 2,518  2,125 
2021 and thereafter 23,625  2021 2,518  2,054 
2022 2,518  1,986 
2023 2,518  1,920 
2024 2,518  1,856 
2025 2,518  1,794 
2026 2,518  1,734 
2027 2,518  1,676 
2028 2,518  1,620 
2029 2,518  1,566 
2030 963  579 
Total: 37,970  37,970  29,803 

Based on: 10-K (filing date: 2015-10-28).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.14%
2015 2,569  2015 2,569  2,491 
2016 2,533  2016 2,533  2,381 
2017 2,493  2017 2,493  2,272 
2018 2,407  2018 2,407  2,127 
2019 2,295  2019 2,295  1,966 
2020 and thereafter 22,168  2020 2,295  1,906 
2021 2,295  1,848 
2022 2,295  1,792 
2023 2,295  1,738 
2024 2,295  1,685 
2025 2,295  1,633 
2026 2,295  1,584 
2027 2,295  1,535 
2028 2,295  1,489 
2029 1,513  952 
Total: 34,465  34,465  27,399 

Based on: 10-K (filing date: 2014-10-20).


Adjustments to Financial Statements for Operating Leases

Walgreens Boots Alliance Inc., adjustments to financial statements

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
Adjustment to Total Assets
Total assets (as reported) 67,598  68,124  66,009  72,688  68,782  37,182 
Add: Operating lease right-of-use asset (before adoption of FASB Topic 842)1 26,628  26,624  26,194  27,480  29,803  27,399 
Total assets (adjusted) 94,226  94,748  92,203  100,168  98,585  64,581 
Adjustment to Total Debt
Total debt (as reported) 16,836  14,397  12,935  19,028  14,383  4,510 
Add: Operating lease liability (before adoption of FASB Topic 842)2 26,628  26,624  26,194  27,480  29,803  27,399 
Total debt (adjusted) 43,464  41,021  39,129  46,508  44,186  31,909 

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).

1, 2 Equal to total present value of future operating lease payments.


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


Adjusted Financial Ratios for Operating Leases (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
Total Asset Turnover1
Reported total asset turnover 2.02 1.93 1.79 1.61 1.50 2.05
Adjusted total asset turnover 1.45 1.39 1.28 1.17 1.05 1.18
Debt to Equity2
Reported debt to equity 0.72 0.55 0.47 0.64 0.47 0.22
Adjusted debt to equity 1.85 1.58 1.42 1.56 1.43 1.56
Return on Assets3 (ROA)
Reported ROA 5.89% 7.37% 6.18% 5.74% 6.14% 5.20%
Adjusted ROA 4.23% 5.30% 4.42% 4.17% 4.28% 2.99%

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 total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.
Adjusted debt to equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. Walgreens Boots Alliance Inc.’s adjusted debt to equity ratio deteriorated from 2017 to 2018 and from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

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


Adjusted Total Asset Turnover

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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)
Sales 136,866  131,537  118,214  117,351  103,444  76,392 
Total assets 67,598  68,124  66,009  72,688  68,782  37,182 
Activity Ratio
Total asset turnover1 2.02 1.93 1.79 1.61 1.50 2.05
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Sales 136,866  131,537  118,214  117,351  103,444  76,392 
Adjusted total assets 94,226  94,748  92,203  100,168  98,585  64,581 
Activity Ratio
Adjusted total asset turnover2 1.45 1.39 1.28 1.17 1.05 1.18

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 Total asset turnover = Sales ÷ Total assets
= 136,866 ÷ 67,598 = 2.02

2 Adjusted total asset turnover = Sales ÷ Adjusted total assets
= 136,866 ÷ 94,226 = 1.45

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted total asset turnover ratio improved from 2017 to 2018 and from 2018 to 2019.

Adjusted Debt to Equity

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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 debt 16,836  14,397  12,935  19,028  14,383  4,510 
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512  26,007  27,466  29,880  30,861  20,457 
Solvency Ratio
Debt to equity1 0.72 0.55 0.47 0.64 0.47 0.22
Adjusted for Operating Leases
Selected Financial Data (US$ in millions)
Adjusted total debt 43,464  41,021  39,129  46,508  44,186  31,909 
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512  26,007  27,466  29,880  30,861  20,457 
Solvency Ratio
Adjusted debt to equity2 1.85 1.58 1.42 1.56 1.43 1.56

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 Debt to equity = Total debt ÷ Total Walgreens Boots Alliance, Inc. shareholders’ equity
= 16,836 ÷ 23,512 = 0.72

2 Adjusted debt to equity = Adjusted total debt ÷ Total Walgreens Boots Alliance, Inc. shareholders’ equity
= 43,464 ÷ 23,512 = 1.85

Solvency ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. Walgreens Boots Alliance Inc.’s adjusted debt-to-equity ratio deteriorated from 2017 to 2018 and from 2018 to 2019.

Adjusted Return on Assets (ROA)

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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)
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 Operating Leases
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 
Adjusted total assets 94,226  94,748  92,203  100,168  98,585  64,581 
Profitability Ratio
Adjusted ROA2 4.23% 5.30% 4.42% 4.17% 4.28% 2.99%

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 × Net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Adjusted total assets
= 100 × 3,982 ÷ 94,226 = 4.23%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. Walgreens Boots Alliance Inc.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.