Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended November 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _______to _______

Commission File Number

001-36759

WALGREENS BOOTS ALLIANCE, INC.

(Exact name of registrant as specified in its charter)


Delaware			47-1758322
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

108 Wilmot Road, Deerfield, Illinois			60015
(Address of principal executive offices)			(Zip Code)

(847) 315-3700

(Registrant’s telephone number, including area code)

__________________________________________

Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	WBA	The NASDAQ Stock Market LLC

3.600% Walgreens Boots Alliance, Inc. notes due 2025	WBA25	The NASDAQ Stock Market LLC
2.125% Walgreens Boots Alliance, Inc. notes due 2026	WBA26	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ			Accelerated filer ☐
Non-accelerated filer ☐			Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ

The number of shares outstanding of the registrant’s Common Stock, $0.01 par value, as of December 30, 2022 was 862,503,554.


WBA Q1 2023 Form 10-Q

Table of Contents

WALGREENS BOOTS ALLIANCE, INC.

FORM 10-Q FOR THE THREE MONTHS ENDED NOVEMBER 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Condensed Financial Statements (Unaudited)

Balance Sheets

Statements of Equity

Statements of Earnings

Statements of Comprehensive Income

Statements of Cash Flows

Notes to Financial Statements

Item 2.

Management’s discussion and analysis of financial condition and results of operations

Introduction and Segments

Factors Affecting Our Results and Comparability

Recent Transactions

Transformational Cost Management Program

Executive Summary

Results of Operations by Segments

Non-GAAP Measures

Liquidity and Capital Resources

Critical Accounting Estimates

New Accounting Pronouncements

Cautionary Note Regarding Forward-looking Statements

Item 3.

Quantitative and qualitative disclosure about market risk

Item 4.

Controls and procedures

PART II. OTHER INFORMATION


Item 1.	Legal proceedings	54
Item 1A.	Risk factors	54
Item 2.	Unregistered sales of equity securities and use of proceeds	54
Item 5.	Other information	54
Item 6.	Exhibits	55

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements (Unaudited)

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(in millions, except shares and per share amounts)


	November 30, 2022		August 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	2,349	$	1,358
Marketable securities	1,883		1,114
Accounts receivable, net	4,853		5,017
Inventories	9,322		8,353
Other current assets	1,115		1,059
Total current assets	19,523		16,902
Non-current assets:
Property, plant and equipment, net	11,450		11,729
Operating lease right-of-use assets	21,240		21,259
Goodwill	22,582		22,280
Intangible assets, net	10,612		10,730
Equity method investments (see Note 5)	4,426		5,495
Other non-current assets	3,042		1,730
Total non-current assets	73,352		73,222
Total assets	$	92,875	$	90,124

Liabilities, redeemable non-controlling interests and equity
Current liabilities:
Short-term debt	$	3,938	$	1,059
Trade accounts payable (see Note 16)	12,184		11,255
Operating lease obligations	2,271		2,286
Accrued expenses and other liabilities	9,534		7,899
Income taxes	109		84
Total current liabilities	28,036		22,583
Non-current liabilities:
Long-term debt	7,789		10,615
Operating lease obligations	21,514		21,517
Deferred income taxes	1,319		1,442
Accrued litigation obligations	6,427		551
Other non-current liabilities	3,052		3,009
Total non-current liabilities	40,101		37,134
Commitments and contingencies (see Note 10)
Total liabilities	68,137		59,717
Redeemable non-controlling interests	157		1,042
Equity:
Preferred stock $.01 par value; authorized 32 million shares, none issued	—		—
Common stock $.01 par value; authorized 3.2 billion shares; issued 1,172,513,618 at November 30, 2022 and August 31, 2022	12		12
Paid-in capital	10,477		10,950
Retained earnings	33,664		37,801
Accumulated other comprehensive loss	(2,815)		(2,805)
Treasury stock, at cost; 310,171,383 shares at November 30, 2022 and 307,874,161 shares at August 31, 2022	(20,762)		(20,683)
Total Walgreens Boots Alliance, Inc. shareholders’ equity	20,576		25,275
Non-controlling interests	4,006		4,091
Total equity	24,582		29,366
Total liabilities, redeemable non-controlling interests and equity	$	92,875	$	90,124

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.


WBA Q1 2023 Form 10-Q			1

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(UNAUDITED)

(in millions, except shares)


Three months ended November 30, 2022
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
August 31, 2022	864,639,457	$	12	$	(20,683)	$	10,950	$	(2,805)	$	37,801	$	4,091	$	29,366
Net loss	—	—		—		—		—		(3,721)		(72)		(3,793)
Other comprehensive loss, net of tax	—	—		—		—		(11)		—		—		(10)
Dividends declared and distributions	—	—		—		—		—		(415)		(44)		(459)
Treasury stock purchases	(4,438,228)	—		(150)		—		—		—		—		(150)
Employee stock purchase and option plans	2,141,006	—		71		(64)		—		—		—		6
Stock-based compensation	—	—		—		24		—		—		31		55
Redeemable non-controlling interests redemption price adjustments and other	—	—		—		(433)		—		—		—		(433)
November 30, 2022	862,342,235	$	12	$	(20,762)	$	10,477	$	(2,815)	$	33,664	$	4,006	$	24,582


Three months ended November 30, 2021
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
August 31, 2021	865,373,636	$	12	$	(20,593)	$	10,988	$	(2,109)	$	35,121	$	402	$	23,822
Net earnings (loss)	—	—		—		—		—		3,580		(27)		3,552
Other comprehensive loss, net of tax	—	—		—		—		(193)		—		(3)		(196)
Dividends declared and distributions	—	—		—		—		—		(415)		—		(415)
Treasury stock purchases	(3,179,750)	—		(154)		—		—		—		—		(154)
Employee stock purchase and option plans	1,648,490	—		47		(59)		—		—		—		(11)
Stock-based compensation	—	—		—		35		—		—		—		35
Business combination	—	—		—		—		—		—		3,944		3,944
Non-controlling interests contribution and other	—	—		—		2		—		—		—		2
November 30, 2021	863,842,376	$	12	$	(20,700)	$	10,966	$	(2,301)	$	38,286	$	4,316	$	30,579

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.


WBA Q1 2023 Form 10-Q			2

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(UNAUDITED)

(in millions, except per share amounts)


	Three months ended November 30,
	2022		2021
Sales	$	33,382	$	33,901
Cost of sales	26,429		26,326
Gross profit	6,953		7,574
Selling, general and administrative expenses	13,158		6,391
Equity earnings in AmerisourceBergen	53		100
Operating (loss) income	(6,151)		1,283
Other income, net	992		2,617
(Loss) earnings before interest and income tax (benefit) provision	(5,159)		3,900
Interest expense, net	110		86
(Loss) earnings before income tax (benefit) provision	(5,270)		3,814
Income tax (benefit) provision	(1,447)		275
Post-tax earnings (loss) from other equity method investments	7		(7)
Net (loss) earnings	(3,816)		3,531
Net loss attributable to non-controlling interests	(94)		(48)
Net (loss) earnings attributable to Walgreens Boots Alliance, Inc.	$	(3,721)	$	3,580

Net (loss) earnings per common share:
Basic	$	(4.31)	$	4.13
Diluted	$	(4.31)	$	4.13

Weighted average common shares outstanding:
Basic	863.6		865.8
Diluted	863.6		867.6

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.


WBA Q1 2023 Form 10-Q			3

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in millions)


	Three months ended November 30,
	2022		2021
Comprehensive income:
Net (loss) earnings	$	(3,816)	$	3,531

Other comprehensive loss, net of tax:
Pension/post-retirement obligations	(5)		(5)
Unrealized (loss) gain on cash flow hedges	(2)		1
Net investment hedges (loss) gain	(29)		44
Movement on available for sale debt securities	—		(96)
Share of other comprehensive income (loss) of equity method investments	4		(46)
Currency translation adjustments	23		(94)
Total other comprehensive loss	(10)		(196)

Total comprehensive (loss) income	(3,826)		3,336

Comprehensive loss attributable to non-controlling interests	(94)		(51)

Comprehensive (loss) income attributable to Walgreens Boots Alliance, Inc.	$	(3,732)	$	3,387

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.


WBA Q1 2023 Form 10-Q			4

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)


	Three months ended November 30,
	2022		2021
Cash flows from operating activities:
Net (loss) earnings	$	(3,816)	$	3,531
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization	495		500
Deferred income taxes	(1,602)		164
Stock compensation expense	222		35
Earnings from equity method investments	(61)		(93)
Gain on previously held investment interests	—		(2,576)
Gain on sale of equity method investments	(969)		—
Other	(129)		95
Changes in operating assets and liabilities:
Accounts receivable, net	151		(127)
Inventories	(918)		(1,352)
Other current assets	(68)		(58)
Trade accounts payable	867		1,335
Accrued expenses and other liabilities	(269)		(399)
Income taxes	153		79
Accrued litigation obligations	6,494		—
Other non-current assets and liabilities	(58)		(36)
Net cash provided by operating activities	493		1,099
Cash flows from investing activities:
Additions to property, plant and equipment	(610)		(454)
Proceeds from sale-leaseback transactions	409		202
Proceeds from sale of other assets	2,068		—
Business, investment and asset acquisitions, net of cash acquired	(80)		(1,800)
Other	70		95
Net cash provided by (used for) investing activities	1,858		(1,958)
Cash flows from financing activities:
Net change in short-term debt with maturities of 3 months or less	22		937
Proceeds from debt	17		7,940
Payments of debt	(11)		(4,444)
Stock purchases	(150)		(154)
Proceeds related to employee stock plans, net	6		19
Cash dividends paid	(415)		(413)
Other	(69)		(7)
Net cash (used for) provided by financing activities	(599)		3,877
Effect of exchange rate changes on cash, cash equivalents, marketable securities and restricted cash	4		(20)
Changes in cash, cash equivalents, marketable securities and restricted cash:
Net increase in cash, cash equivalents, marketable securities and restricted cash	1,756		2,998
Cash, cash equivalents, marketable securities and restricted cash at beginning of period	2,558		1,270
Cash, cash equivalents, marketable securities and restricted cash at end of period	$	4,314	$	4,268

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these statements.


WBA Q1 2023 Form 10-Q			5

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Accounting policies

Basis of presentation

The Consolidated Condensed Financial Statements of Walgreens Boots Alliance, Inc. (“Walgreens Boots Alliance” or the “Company”) included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The Consolidated Condensed Financial Statements include all subsidiaries in which the Company holds a controlling interest and certain variable interest entities (“VIEs”) for which the Company is the primary beneficiary. The Company uses the equity method of accounting for equity investments in less than majority-owned companies if the investment provides the ability to exercise significant influence. All intercompany transactions have been eliminated.

The Consolidated Condensed Financial Statements included herein are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited Consolidated Condensed Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Walgreens Boots Alliance Annual Report on Form 10-K for the fiscal year ended August 31, 2022, as amended by Form 10-K/A for the fiscal year ended August 31, 2022 filed on November 23, 2022.

The preparation of financial statements in accordance with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company bases its estimates on the information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances. Adjustments may be made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Actual results may differ.

In the opinion of management, the unaudited Consolidated Condensed Financial Statements for the interim periods presented include all adjustments necessary to present a fair statement of the results for such interim periods. The impact of COVID-19, the influence of certain holidays, seasonality, foreign currency rates, changes in vendor, payor and customer relationships and terms, strategic transactions including acquisitions, dispositions, changes in laws and general economic conditions in the markets in which the Company operates and other factors on the Company’s operations and net earnings for any period may not be comparable to the same period in previous years.

Certain amounts in the Consolidated Condensed Financial Statements and associated notes may not add due to rounding. Percentages have been calculated using unrounded amounts for all periods presented.

Note 2. Acquisitions and other investments

VillageMD acquisition

On November 24, 2021, the Company completed the acquisition of Village Practice Management Company, LLC (“VillageMD”). Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests of VillageMD, increasing the Company’s total beneficial ownership in VillageMD’s outstanding equity interests from approximately 30% to approximately 63%, on a fully diluted basis, for a purchase price of $5.2 billion. The total purchase price was comprised of cash consideration of $4.0 billion and a promissory note of $1.2 billion. The cash consideration of $4.0 billion consisted of $2.9 billion paid to existing shareholders, including $1.9 billion paid to existing shareholders as part of the fully subscribed tender offer concluded on December 28, 2021, and $1.1 billion paid in exchange for new preferred units issued by VillageMD. Subject to notice being served, the Company has an option to prepay, and VillageMD has an option to require redemption of, the promissory note at any time. The promissory note is eliminated in consolidation within the Consolidated Condensed Balance Sheets.

The Company accounted for this acquisition as a business combination resulting in consolidation of VillageMD within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value.


WBA Q1 2023 Form 10-Q			6

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

As a result of this acquisition, in the three months ended November 30, 2021, the Company recognized a pre-tax gain in Other income, net in the Consolidated Condensed Statements of Earnings of $1,597 million related to the fair valuation of the Company’s previously held minority equity interest. The Company also recorded a pre-tax gain of $577 million in Other income, net in the Consolidated Condensed Statements of Earnings related to the conversion to equity of the Company’s previously held investment in convertible debt securities of VillageMD, reclassified from within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets. A majority of the gains did not generate a tax expense.

In the three months ended November 30, 2022, the Company completed the purchase price allocation and recorded certain deferred income tax related measurement period adjustments based on additional information, resulting in an increase to goodwill of $125 million.

The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions):


Purchase price allocation:
Total purchase price	$	5,200
Less: purchase price for issuance of new preferred units at fair value 1	(2,300)
Net consideration	2,900
Fair value of share-based compensation awards attributable to pre-combination services 2	683
Fair value of previously held equity and debt	3,211
Fair value of non-controlling interest	3,257
Total	$	10,051

Identifiable assets acquired and liabilities assumed:
Tangible assets 1	$	634
Intangible assets 3	1,621
Liabilities	(370)
Total identifiable net assets	$	1,885

Goodwill	$	8,166

1.Comprised of cash consideration of $1.1 billion and a promissory note of $1.2 billion. This consideration was provided in exchange for the issuance of new preferred units by VillageMD. VillageMD’s tangible assets acquired exclude this $1.1 billion of cash and $1.2 billion promissory note receivable.

2.Primarily related to vested share-based compensation awards.

3.Intangibles acquired include primary care provider network, trade names and developed technology, with a fair value of $1.2 billion, $295 million and $76 million, respectively. Estimated useful lives are 15, 13 and 5 years, respectively.

The goodwill represents anticipated future growth and expansion opportunities into new markets.

Shields acquisition

On October 29, 2021, the Company completed the acquisition of Shields Health Solutions Parent, LLC (“Shields”). Pursuant to the terms and subject to the conditions set forth in the Securities Purchase Agreement, the Company purchased additional outstanding equity interests of Shields, increasing the Company’s total beneficial ownership in Shields’ outstanding equity interests from 25% to approximately 70%, for cash consideration of $969 million.

The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value. Under the terms of the transaction agreements, the Company had an option to acquire the remaining equity interests of Shields in the future. Shields’ other equity holders also had an option to require the Company to purchase the remaining equity interests. Considering the contractual terms related to the non-controlling interests, it was classified as redeemable non-controlling interests in the Consolidated Condensed Balance Sheets upon acquisition.


WBA Q1 2023 Form 10-Q			7

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

As a result of this acquisition, in the three months ended November 30, 2021, the Company remeasured its previously held minority equity interest in Shields at fair value resulting in a pre-tax gain of $402 million recognized in Other income, net in the Consolidated Condensed Statements of Earnings. A majority of the gain did not generate a tax expense.

The following table summarizes the consideration for the acquisition and the amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions):


Purchase price allocation:
Cash consideration	$	969
Fair value of share-based compensation awards attributable to pre-combination services	13
Fair value of previously held equity interests	502
Fair value of non-controlling interests	589
Total	$	2,074

Identifiable assets acquired and liabilities assumed:
Tangible assets	$	84
Intangible assets 1	1,060
Liabilities	(600)
Total identifiable net assets	$	544

Goodwill	$	1,529

1.Intangibles acquired include customer relationships, trade names and developed technology, with a fair value of $896 million, $47 million and $117 million, respectively. Estimated useful lives are 13, 13 and 5 years, respectively.

The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings.

On September 20, 2022, the Company announced the acceleration of its plans for full ownership of Shields. The Company entered into a definitive agreement to acquire the remaining 30% equity interest for approximately $1.4 billion of cash consideration. As a result, as of November 30, 2022, the redeemable non-controlling interest to be acquired was reclassified to Accrued expenses and other liabilities in the Consolidated Condensed Balance Sheets. On December 28, 2022, the Company completed the acquisition of the remaining 30% equity interest in Shields.

CareCentrix acquisition

On August 31, 2022, the Company completed the acquisition of CCX Next, LLC (“CareCentrix”). Pursuant to the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, the Company acquired approximately 55% controlling equity interest in CareCentrix, a leading player in the post-acute and home care management sectors, for cash consideration of $339 million. The cash consideration includes $12 million paid to employees, which was recognized as compensation expense by the Company.

The Company accounted for this acquisition as a business combination resulting in consolidation of CareCentrix within the U.S. Healthcare segment in its financial statements. A non-controlling interest was recognized at fair value. Under the terms of the transaction agreements, the Company had an option to acquire the remaining equity interests of CareCentrix in the future. CareCentrix’s other equity holders also had an option to require the Company to purchase the remaining equity interests. Considering the contractual terms related to the non-controlling interests, it was classified as redeemable non-controlling interests in the Consolidated Condensed Balance Sheets.


WBA Q1 2023 Form 10-Q			8

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

In the three months ended November 30, 2022, the Company recorded certain measurement period adjustments based on additional information, primarily related to acquired intangible assets and certain liabilities assumed, resulting in an increase to goodwill of $62 million. As of November 30, 2022, the Company had not completed the analysis to assign fair values to all tangible and intangible assets acquired and liabilities assumed. As such, the preliminary purchase price allocation will be subject to further refinement and may change. These changes may relate to finalization of the fair value of the purchase consideration and the allocation of purchase consideration to all tangible and intangible assets acquired and identified and liabilities assumed.

The following table summarizes the consideration for the acquisition and the preliminary amounts of identified assets acquired and liabilities assumed at the date of the transaction (in millions):


Purchase price allocation:
Cash consideration 1	$	327
Contingent consideration	4
Fair value of share-based compensation awards attributable to pre-combination services	66
Fair value of non-controlling interests	217
Total	$	614

Identifiable assets acquired and liabilities assumed:
Tangible assets	$	358
Intangible assets 2	426
Liabilities	(685)
Total identifiable net assets	$	98

Goodwill	$	515

1.Excludes $12 million of cash paid to employees, which was recognized as compensation expense by the Company.

2.Intangibles acquired include customer relationships, trade names and developed technology, with a fair value of $247 million, $93 million and $86 million, respectively. Estimated useful lives are 13, 13 and 5 years, respectively.

The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings.

On October 11, 2022, the Company announced the acceleration of its plans for full ownership of CareCentrix. The Company entered into a definitive agreement to acquire the remaining 45% equity interest for approximately $392 million of cash consideration, less transaction expenses. As a result, as of November 30, 2022, the redeemable non-controlling interest to be acquired was reclassified to Accrued expenses and other liabilities in the Consolidated Condensed Balance Sheets. The acquisition is expected to close in the third quarter of fiscal 2023.

Supplemental pro forma information

The following table represents unaudited supplemental pro forma consolidated sales for the three months ended November 30, 2021, as if the acquisitions of VillageMD, Shields and CareCentrix had occurred at the beginning of the period. The unaudited pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisitions occurred at the beginning of the period presented or results which may occur in the future.


	Three months ended November 30,
(Unaudited, in millions)	2021
Sales	$	34,564


WBA Q1 2023 Form 10-Q			9

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Actual sales of the acquired companies for the three months ended November 30, 2021, included in the Consolidated Condensed Statements of Earnings are as follows:


	Three months ended November 30,
(in millions)	2021
Sales	$	51

Pro forma net earnings of the Company, assuming the acquisitions had occurred at the beginning of each period presented, would not be materially different from the results reported.

See Note 14. Segment reporting for further information.

Other acquisitions and investments

The Company acquired certain prescription files and related pharmacy inventory primarily in the United States (“U.S.”) for the aggregate purchase price of $55 million and $74 million during the three months ended November 30, 2022 and 2021, respectively.

Note 3. Exit and disposal activities

Transformational Cost Management Program

On December 20, 2018, the Company announced a transformational cost management program that was expected to deliver in excess of $2.0 billion of annual cost savings by fiscal 2022 (the “Transformational Cost Management Program”). The Company achieved this goal at the end of fiscal 2021.

On October 12, 2021, the Company expanded and extended the Transformational Cost Management Program through the end of fiscal 2024 and increased its annual cost savings target to $3.3 billion by the end of fiscal 2024. In fiscal 2022, the Company increased its annual cost savings target from $3.3 billion to $3.5 billion, by the end of fiscal 2024. The Company is currently on track to achieve the savings target.

The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company’s information technology (IT) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program which focus on the U.S. Retail Pharmacy and International reportable segments along with the Company's global functions. Divisional optimization within the Company’s segments includes activities such as optimization of stores, including plans to close approximately 350 Boots stores in the UK and approximately 450 to 500 stores in the U.S. As of November 30, 2022, the Company has closed 244 and 363 stores in the UK and U.S., respectively.

The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $3.6 billion to $3.9 billion, of which $3.3 billion to $3.6 billion are expected to be recorded as exit and disposal activities. In addition to the impacts discussed above, as a result of the actions related to store closures taken under the Transformational Cost Management Program, the Company recorded $508 million of transition adjustments to decrease retained earnings due to the adoption of the new lease accounting standard (Topic 842) that became effective on September 1, 2019.

From the inception of the Transformational Cost Management Program to November 30, 2022, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $2.1 billion , which were primarily recorded within Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings. These charges included $681 million related to lease obligations and other real estate costs, $461 million in asset impairments, $739 million in employee severance and business transition costs and $219 million of information technology transformation and other exit costs.


WBA Q1 2023 Form 10-Q			10

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Costs related to exit and disposal activities under the Transformational Cost Management Program for the three months ended November 30, 2022 and 2021, respectively, were as follows (in millions):


Three months ended November 30, 2022	U.S. Retail Pharmacy		International		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	79	$	—	$	—	$	79
Asset impairments	18		—		—		18
Employee severance and business transition costs	11		1		4		16
Information technology transformation and other exit costs	11		5		—		17
Total pre-tax exit and disposal charges	$	119	$	6	$	4	$	130


Three months ended November 30, 2021	U.S. Retail Pharmacy		International		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	87	$	2	$	—	$	89
Asset impairments	15		25		—		40
Employee severance and business transition costs	20		10		7		37
Information technology transformation and other exit costs	1		7		1		9
Total pre-tax exit and disposal charges	$	123	$	44	$	9	$	175

The changes in liabilities and assets related to the exit and disposal activities under Transformational Cost Management Program include the following (in millions):


	Lease obligations and other real estate costs		Asset Impairments		Employee severance and business transition costs		Information technology transformation and other exit costs		Total
Balance at August 31, 2022	$	10	$	—	$	76	$	27	$	113
Costs	79		18		16		17		130
Payments	(19)		—		(24)		(10)		(53)
Other	(59)		(18)		—		—		(78)
Balance at November 30, 2022	$	10	$	—	$	68	$	35	$	113

Note 4. Leases

The Company leases certain retail stores, clinics, warehouses, distribution centers, office space, land, and equipment. 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. Lease commencement is the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight line basis over the lease term. In addition to minimum fixed rentals, some leases provide for contingent rentals based on sales volume.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Supplemental balance sheet information related to leases were as follows (in millions):


Balance Sheet supplemental information:	November 30, 2022		August 31, 2022
Operating leases:
Operating lease right-of-use assets	$	21,240	$	21,259

Operating lease obligations - current	2,271		2,286
Operating lease obligations - non-current	21,514		21,517
Total operating lease obligations	$	23,785	$	23,803

Finance leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	641	$	645

Lease obligations included in:
Accrued expenses and other liabilities	38		37
Other non-current liabilities	895		899
Total finance lease obligations	$	933	$	936

Supplemental income statement information related to leases were as follows (in millions):


	Three months ended November 30,
Statement of Earnings supplemental information:	2022		2021
Operating lease cost
Fixed	$	813	$	805
Variable 1	192		205
Finance lease cost
Amortization	$	11	$	11
Interest	12		13

Sublease income	$	29	$	25
Impairment of right-of-use assets	67		68
Gain on sale and leaseback 2	189		87

1Includes real estate property taxes, common area maintenance, insurance and rental payments based on sales volume.

2Recorded within Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Other supplemental information was as follows (in millions):


	Three months ended November 30,
Other supplemental information:		2022		2021

Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases		$	828	$	846
Operating cash flows from finance leases		11		12
Financing cash flows from finance leases		10		11
Total		$	849	$	869

Right-of-use assets obtained in exchange for new lease obligations
Operating leases		$	602	$	544
Finance leases		1		5
Total		$	603	$	549

Weighted average lease term and discount rate for real estate leases were as follows:


Weighted average lease terms and discount rates:	November 30, 2022		August 31, 2022
Weighted average remaining lease term in years
Operating leases	9.9		10.0
Finance leases	18.8		19.0

Weighted average discount rate
Operating leases	4.90	%	4.83	%
Finance leases	5.20	%	5.19	%

The aggregate future lease payments for operating and finance leases as of November 30, 2022 were as follows (in millions):


Future lease payments (fiscal years):	Finance lease		Operating lease
2023 (Remaining period)	$	67	$	2,606
2024	87		3,389
2025	86		3,285
2026	86		3,193
2027	86		3,104
2028	86		2,944
Later	956		11,824
Total undiscounted minimum lease payments	$	1,453	$	30,345
Less: Present value discount	520		6,560
Lease liability	$	933	$	23,785


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Equity method investments

Equity method investments were as follows (in millions, except percentages):


	November 30, 2022			August 31, 2022
	Carrying value		Ownership percentage	Carrying value		Ownership percentage
AmerisourceBergen	$	2,877	20%	$	3,916	25%
Others	1,548		4% - 50%	1,579		8% - 50%
Total	$	4,426		$	5,495

AmerisourceBergen investment

As of November 30, 2022 and August 31, 2022, the Company owned approximately 19.6% and 25.4%, respectively, of AmerisourceBergen common stock based on the share count publicly reported by AmerisourceBergen in its filings with the SEC.

On November 10, 2022, the Company sold 13.2 million shares of AmerisourceBergen common stock through a registered public offering and a concurrent share repurchase by AmerisourceBergen for total consideration of approximately $2.0 billion, decreasing the Company's ownership of AmerisourceBergen’s common stock from approximately 52.9 million shares, held at August 31, 2022, to approximately 39.6 million shares held as of November 30, 2022. The transaction resulted in the Company recording a pre-tax gain of $969 million in Other income, net in the Consolidated Condensed Statements of Earnings, including a $110 million loss reclassified from within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets.

On December 13, 2022, the Company sold 6.0 million shares of AmerisourceBergen common stock pursuant to Rule 144 and a concurrent share repurchase by AmerisourceBergen, for total consideration of approximately $984 million, decreasing the Company's ownership of AmerisourceBergen’s common stock from approximately 39.6 million shares, held at November 30, 2022, to approximately 33.7 million shares held as of January 5, 2023 reflecting approximately 16.7% of AmerisourceBergen outstanding common stock.

The Company accounts for its equity investment in AmerisourceBergen using the equity method of accounting, with the net earnings attributable to the Company’s investment being classified within the operating income of its U.S. Retail Pharmacy segment. Due to the timing and availability of financial information of AmerisourceBergen, the Company accounts for this equity method investment on a financial reporting lag of two months. Equity earnings from AmerisourceBergen are reported as a separate line in the Consolidated Condensed Statements of Earnings. During the three months ended November 30, 2022 and 2021, the Company recognized equity earnings in AmerisourceBergen of $53 million and $100 million, respectively.

The Level 1 fair market value of the Company’s equity investment in AmerisourceBergen common stock at November 30, 2022 and August 31, 2022 was $6.8 billion and $7.7 billion, respectively. As of November 30, 2022 the carrying value of the Company’s investment in AmerisourceBergen exceeded its proportionate share of the net assets of AmerisourceBergen by $2.9 billion. This premium of $2.9 billion was recognized as part of the carrying value in the Company’s equity investment in AmerisourceBergen. The difference was primarily related to goodwill and the fair value of AmerisourceBergen intangible assets.

Other investments

The Company’s other equity method investments primarily include its U.S. investments in Option Care Health, through its subsidiary HC Group Holdings I, LLC (“HC Group Holdings”), and BrightSpring Health Services, and the Company’s investments in China in Sinopharm Medicine Holding Guoda Drugstores Co., Ltd, Guangzhou Pharmaceuticals Corporation, and Nanjing Pharmaceutical Company Limited. On December 15, 2022, the Company sold its ownership interest in Guangzhou Pharmaceuticals Corporation for total consideration of approximately $150 million.

The Company reported $7 million of post-tax equity earnings and $7 million of post-tax equity losses from other equity method investments for the three months ended November 30, 2022 and 2021, respectively.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

During the three months ended November 30, 2021, the Company acquired majority equity interests in VillageMD and Shields, both formerly accounted for as equity method investments. The Company accounted for these acquisitions as business combinations resulting in the remeasurement of its previously held minority equity interests and convertible debt securities at fair value resulting in pre-tax gains of $2.2 billion and $402 million for VillageMD and Shields, respectively, recognized in Other income, net in the Consolidated Condensed Statements of Earnings. As a result of these transactions, the Company consolidated VillageMD and Shields within the U.S. Healthcare segment in its financial statements.

Note 6. Goodwill and other intangible assets

Goodwill and indefinite-lived intangible assets are evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or intangible asset below its carrying value.

Based on the analysis completed during fiscal 2022, as of the June 1, 2022 valuation date, the fair values of the Company’s reporting units exceeded their carrying amounts ranging from approximately 7% to approximately 198%. The Boots reporting unit's fair value was in excess of its carrying value by approximately 7%, compared to 18% as of June 1, 2021. As of November 30, 2022, the carrying value of goodwill within the Boots reporting unit was $919 million.

The fair values of indefinite-lived intangibles within the Boots reporting unit approximate their carrying values. As of November 30, 2022 and August 31, 2022, the carrying value of the indefinite-lived intangibles within the Boots reporting unit was $5.5 billion.

Indefinite-lived intangible assets fair values are estimated using the relief from royalty method and excess earnings method of the income approach. The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions with respect to the business and financial performance of the Company’s reporting units. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions, could have a significant impact on either the fair value of the reporting units and indefinite-lived intangibles, the amount of any goodwill and indefinite-lived intangible impairment charges, or both. These estimates can be affected by a number of factors including, but not limited to, the impact of COVID-19, its severity, duration and its impact on global economies, general economic conditions, as well as our profitability. The Company will continue to monitor these potential impacts and economic, industry and market trends, and the impact these may have on the reporting units.

Changes in the carrying amount of goodwill by reportable segment consist of the following (in millions):


Goodwill roll forward:	U.S. Retail Pharmacy		International		U.S. Healthcare		Walgreens Boots Alliance, Inc.
August 31, 2022	$	10,947	$	1,293	$	10,040	$	22,280
Acquisitions	—		—		25		25
Adjustments 1	—		—		258		258
Currency translation adjustments	—		19		—		19
November 30, 2022	$	10,947	$	1,312	$	10,323	$	22,582

1Includes measurement period adjustments related to acquisition of VillageMD, Shields and CareCentrix. See Note 2. Acquisitions and other investments for further information.


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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

The carrying amount and accumulated amortization of intangible assets consist of the following (in millions):


Intangible assets:	November 30, 2022		August 31, 2022
Gross amortizable intangible assets
Customer relationships and loyalty card holders 1	$	4,470	$	4,619
Primary care provider network	1,247		1,247
Trade names and trademarks	768		760
Developed technology	435		436
Purchasing and payor contracts	15		15
Others	80		78
Total gross amortizable intangible assets	$	7,015	$	7,155

Accumulated amortization
Customer relationships and loyalty card holders 1	$	1,497	$	1,548
Primary care provider network	84		64
Trade names and trademarks	263		246
Developed technology	74		56
Purchasing and payor contracts	4		4
Others	37		35
Total accumulated amortization	1,960		1,953
Total amortizable intangible assets, net	$	5,055	$	5,202

Indefinite-lived intangible assets
Trade names and trademarks	$	4,342	$	4,319
Pharmacy licenses	1,215		1,209
Total indefinite-lived intangible assets	$	5,557	$	5,528

Total intangible assets, net	$	10,612	$	10,730

1Includes purchased prescription files.

Amortization expense for intangible assets was $159 million and $165 million for the three months ended November 30, 2022, and 2021, respectively. Estimated future annual amortization expense for the next five fiscal years for intangible assets recorded at November 30, 2022 is as follows (in millions):


	2023 (Remaining period)		2024		2025		2026		2027		2028
Estimated annual amortization expense	$	466	$	603	$	571	$	553	$	491	$	441


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 7. Debt

Debt carrying values are presented net of unamortized discount and debt issuance costs, where applicable, and foreign currency denominated debt is translated using the spot rates as of the balance sheet date. Debt consists of the following (all amounts are presented in millions of U.S. dollars and debt issuances are denominated in U.S. dollars, unless otherwise noted):


	November 30, 2022		August 31, 2022
Short-term debt

Credit facilities
Unsecured 364-day credit facility due 2023	1,000		1,000
Unsecured two-year credit facility due 2023	1,998		—
$850 million note issuance 1
0.9500% unsecured notes due 2023	848		—
Other 2	91		59
Total short-term debt	$	3,938	$	1,059

Long-term debt
Credit facilities
Unsecured two-year credit facility due 2023	$	—	$	1,998
Unsecured three-year credit facility due 2024	999		999
$850 million note issuance 1
0.9500% unsecured notes due 2023	—		848
$1.5 billion note issuance 1
3.200% unsecured notes due 2030	498		498
4.100% unsecured notes due 2050	792		792
$6 billion note issuance 1
3.450% unsecured notes due 2026	1,443		1,443
4.650% unsecured notes due 2046	318		318
$8 billion note issuance 1
3.800% unsecured notes due 2024	1,155		1,155
4.500% unsecured notes due 2034	301		301
4.800% unsecured notes due 2044	869		869
£700 million note issuance 1
3.600% unsecured pound sterling notes due 2025	356		354
€750 million note issuance 1
2.125% unsecured euro notes due 2026	772		752
$4 billion note issuance 3
4.400% unsecured notes due 2042	263		263
Other 2	23		26
Total long-term debt, less current portion	$	7,789	$	10,615

1Notes are unsecured and unsubordinated debt obligations of the Company and rank equally in right of payment with all other unsecured and unsubordinated indebtedness of the Company from time to time outstanding.

2Other debt represents a mix of fixed and variable rate debt with various maturities and working capital facilities denominated in various currencies.

3Notes are senior debt obligations of Walgreen Co. and rank equally with all other unsecured and unsubordinated indebtedness of Walgreen Co. On December 31, 2014, the Company fully and unconditionally guaranteed the outstanding notes on an unsecured and unsubordinated basis. The guarantee, for so long as it is in place, is an unsecured, unsubordinated debt obligation of the Company and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of the Company.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

$850 million Note Issuance

On November 17, 2021, the Company issued, in an underwritten public offering, $850 million of 0.95% Notes due 2023. The Notes contain a call option which allow for the Notes to be repaid, in full or in part, at 100% of the principal amount of the Notes to be redeemed, in each case plus accrued and unpaid interest.

Credit facilities

June 17, 2022, Revolving Credit Agreements

On June 17, 2022, the Company entered into a $3.5 billion unsecured five-year revolving credit facility and a $1.5 billion unsecured 18-month revolving credit facility, with designated borrowers from time to time party thereto and lenders from time to time party thereto (the “2022 Revolving Credit Agreements”). Interest on borrowings under the revolving credit facilities accrues at applicable margins based on the Company's Index Debt Rating and ranges from 80 basis points to 150 basis points over specified benchmark rates for eurocurrency rate and Secured Overnight Financing Rate (“SOFR”) loans, as applicable. Additionally, the Company pays commitment fees to maintain the availability under the revolving credit facility at applicable fee rates based upon certain criteria at an annual rate on the unutilized portion of the total credit commitment. The five-year facility’s termination date is June 17, 2027, or earlier, subject to the Company's discretion to terminate the agreement. The 18-month facility’s termination date is December 15, 2023, or earlier, subject to the Company's discretion to terminate the agreement. As of November 30, 2022, there were no borrowings outstanding under the 2022 Revolving Credit Agreements.

November 15, 2021, Delayed Draw Term Loan

On November 15, 2021, the Company entered into a $5.0 billion senior unsecured multi-tranche delayed draw term loan credit facility, (the “November 2021 DDTL”) consisting of (i) a 364-day senior unsecured delayed draw term loan facility in an aggregate principal amount of $2.0 billion (the “364-day loan”), (ii) a two-year senior unsecured delayed draw term loan facility in an aggregate principal amount of $2.0 billion (the “two-year loan”) and (iii) a three-year senior unsecured delayed draw term loan facility in an aggregate principal amount of $1.0 billion (the “three-year loan”). An aggregate amount of $3.0 billion or more of the November 2021 DDTL was drawn for the purpose of funding the consideration due for the purchase of the increased equity interest in VillageMD, and paying fees and expenses related to the foregoing, and the remainder can be used for general corporate purposes. The maturity dates on the 364 days loan, the two-year loan and the three-year loan are February 15, 2023, November 24, 2023 and November 24, 2024, respectively. As of November 30, 2022, there were $4.0 billion in borrowings outstanding under the November 2021 DDTL. Amounts borrowed under the November 2021 DDTL and repaid or prepaid may not be reborrowed.

Borrowings under the November 2021 DDTL bear interest at a fluctuating rate per annum equal to, at the Company’s option, the alternate base rate, eurocurrency rate or, from and after the date that daily SOFR becomes available under the November 2021 DDTL, the daily SOFR, in each case, plus an applicable margin. For the 364-day tranche, the applicable margin is (i) prior to the six month anniversary of the Margin Trigger Date, as defined in the November 2021 DDTL (the “Margin Trigger Date”), 0.70% in the case of eurocurrency rate loans and daily SOFR loans, and 0.00% in the case of alternate base rate loans and (ii) on and after the six month anniversary of the Margin Trigger Date, 0.75% in the case of eurocurrency rate loans and daily SOFR loans, and 0.00% in the case of alternate base rate loans. For the 2-year and 3-year tranche, the applicable margin is 0.85% and 1.00%, respectively, in the case of eurocurrency rate loans and daily SOFR loans, and 0.00% in the case of alternate base rate loans.

Debt covenants

Each of the Company’s credit facilities described above contain a covenant to maintain, as of the last day of each fiscal quarter, a ratio of consolidated debt to total capitalization not to exceed 0.60:1.00, subject to increase in certain circumstances set forth in the applicable credit agreement. The credit facilities contain various other customary covenants. As of November 30, 2022, the Company was in compliance with all such applicable covenants.

Commercial paper

The Company periodically borrows under its commercial paper program and may borrow under it in future periods. The Company had average daily commercial paper outstanding of $69 million and $712 million at a weighted average interest rate of 3.75% and 0.25% for the three months ended November 30, 2022 and 2021, respectively.

Interest

Interest paid by the Company was $160 million and $153 million for the three months ended November 30, 2022 and 2021, respectively.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 8. Financial instruments

The Company uses derivative instruments to hedge its exposure to market risks, including interest rate and currency risks, arising from operating and financing risks. The Company has non-U.S. dollar denominated net investments and uses foreign currency denominated financial instruments, specifically foreign currency derivatives and foreign currency denominated debt, to hedge its foreign currency risk.

The notional amounts and fair value of derivative instruments outstanding were as follows (in millions):


November 30, 2022	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	168	$	3	Other current assets
Foreign currency forwards	5		—		Other non-current assets
Cross currency interest rate swaps	750		70		Other non-current assets
Foreign currency forwards	727		15		Other current liabilities
Foreign currency forwards	5		—		Other non-current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	1,476	$	22	Other current assets
Total return swap	178		5		Other current assets
Foreign currency forwards	2,520		41		Other current liabilities


August 31, 2022	Notional		Fair Value		Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards	$	448	$	19	Other current assets
Cross currency interest rate swaps	150		12		Other current assets
Cross currency interest rate swaps	750		83		Other non-current assets
Foreign currency forwards	3		—		Other non-current assets
Foreign currency forwards	221		1		Other current liabilities
Derivatives not designated as hedges:
Foreign currency forwards	$	2,874	$	49	Other current assets
Foreign currency forwards	1,098		6		Other current liabilities
Total return swap	183		6		Other current liabilities

Net investment hedges

The Company uses cross currency interest rate swaps and foreign currency forward contracts to hedge net investments in subsidiaries with non-U.S. dollar functional currencies. For qualifying net investment hedges, changes in the fair value of the derivatives are recorded in Currency translation adjustments within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets.

Cash flow hedges

The Company may use foreign currency forwards and interest rate swaps to hedge the variability in forecasted transactions and cash flows of certain floating-rate debt. For qualifying cash flow hedges, changes in the fair value of the derivatives are recorded in Unrealized gain (loss) on cash flow hedges within Accumulated other comprehensive loss in the Consolidated Condensed Balance Sheets, and released to the Consolidated Condensed Statements of Earnings when the hedged cash flows affect earnings.

Derivatives not designated as hedges

The Company enters into derivative transactions that are not designated as accounting hedges. These derivative instruments are economic hedges of foreign currency risks. The Company also utilizes total return swaps to economically hedge variability in compensation charges related to certain deferred compensation obligations.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

The income (expenses) due to changes in fair value of these derivative instruments were recognized in earnings as follows (in millions):


		Three months ended November 30,
	Location in Consolidated Condensed Statements of Earnings	2022		2021
Foreign currency forwards	Selling, general and administrative expenses 1	$	—	$	55
Total return swap	Selling, general and administrative expenses	4		(2)
Foreign currency forwards	Other income, net 1,2	(18)		(1)

1.In fiscal 2023, certain expenses related to derivative instruments used as economic hedges, were presented as Other income, net within the Consolidated Condensed Statements of Earnings, whereas these expenses were recorded within Selling, general, and administrative expenses within the Consolidated Condensed Statements of Earnings in prior periods.

2.Excludes remeasurement gains and losses on economically hedged assets and liabilities.

Derivatives credit risk

Counterparties to derivative financial instruments expose the Company to credit-related losses in the event of counterparty nonperformance, and the Company regularly monitors the credit worthiness of each counterparty.

Derivatives offsetting

The Company does not offset the fair value amounts of derivative instruments subject to master netting agreements in the Consolidated Condensed Balance Sheets.

Note 9. Fair value measurements

The Company measures certain assets and liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, which defines fair value as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. In addition, it establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2 - Observable inputs other than quoted prices in active markets.

Level 3 - Unobservable inputs for which there is little or no market data available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

Assets and liabilities measured at fair value on a recurring basis were as follows (in millions):


	November 30, 2022		Level 1		Level 2		Level 3
Assets:
Money market funds 1	$	1,883	$	1,883	$	—	$	—
Cross currency interest rate swaps 2	70		—		70		—
Foreign currency forwards 3	25		—		25		—

Investments in debt securities 4	45		—		45		—

Total return swaps	5		—		5		—

Liabilities:

Foreign currency forwards 3	$	55	$	—	$	55	$	—


WBA Q1 2023 Form 10-Q			20

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)


	August 31, 2022		Level 1		Level 2		Level 3
Assets:
Money market funds 1	$	1,114	$	1,114	$	—	$	—
Investments in debt securities 4	130		—		130		—
Cross currency interest rate swaps 2	96		—		96		—
Foreign currency forwards 3	69		—		69		—
Investments in equity securities 5	1		1		—		—
Liabilities:
Foreign currency forwards 3	$	7	$	—	$	7	$	—
Total return swaps	6		—		6		—

1Money market funds are valued at the closing price reported by the fund sponsor and classified as marketable securities on the Consolidated Condensed Balance Sheets.

2The fair value of cross currency interest rate swaps is calculated by discounting the estimated future cash flows based on the applicable observable yield curves. See Note 8. Financial instruments, for additional information.

3The fair value of forward currency contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using observable market rates. See Note 8. Financial instruments, for additional information.

4Includes investments in Treasury debt securities.

5Fair values of quoted investments are based on current bid prices.

There were no transfers between Levels for the three months ended November 30, 2022.

The carrying value of the Company's commercial paper and credit facilities approximated their respective fair values due to their short-term nature.

The Company reports its debt instruments under the guidance of ASC Topic 825, Financial Instruments, which requires disclosure of the fair value of the Company’s debt in the footnotes to the Consolidated Condensed Financial Statements. As of November 30, 2022 the carrying amounts and estimated fair values of long term notes outstanding including the current portion were $7.6 billion and $7.0 billion, respectively.

The fair values of the notes outstanding are Level 1 fair value measures and determined based on quoted market price and translated at the November 30, 2022 rate, as applicable. The fair values and carrying values of these issuances do not include notes that have been redeemed or repaid as of November 30, 2022. See Note 7. Debt, for further information. The carrying values of accounts receivable and trade accounts payable approximated their respective fair values due to their short-term nature.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 10. Commitments and contingencies

The Company is involved in legal proceedings arising in the normal course of its business, including litigation, arbitration and other claims, and investigations, inspections, subpoenas, audits, claims, inquiries and similar actions by governmental authorities in pharmacy, healthcare, tax and other areas. Some of these proceedings may be class actions, and some involve claims for large or indeterminate amounts, including punitive or exemplary damages, and they may remain unresolved for several years. Legal proceedings in general, and securities, class action and multi-district litigation, in particular, can be expensive and disruptive.

From time to time, the Company is also involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property and other matters. Gain contingencies, if any, are recognized when they are realized.

The Company is subject to extensive regulation by national, state and local government agencies in the U.S. and other countries in which it operates. The Company’s business, compliance and reporting practices are subject to intensive scrutiny under applicable regulation, including review or audit by regulatory authorities. As a result, the Company regularly is the subject of government actions of the types described herein. The Company also may be named from time to time in qui tam actions initiated by private parties. In such an action, a private party purports to act on behalf of federal or state governments, alleges that false claims have been submitted for payment by the government and may receive an award if its claims are successful. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination. If the government declines to intervene, the private party may nonetheless continue to pursue the litigation on its own purporting to act on behalf of the government.

The results of legal proceedings, including government investigations, are often uncertain and difficult to predict, and the costs incurred in these matters can be substantial, regardless of the outcome. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and suspension or exclusion from participation in government programs.

We describe below certain proceedings against the Company in which the amount of loss could be material. We accrue for legal claims when, and to the extent that, the amount or range of probable loss can be reasonably estimated. We believe we have meritorious defenses in each of these proceedings, and we intend to defend each case vigorously, but there can be no assurance as to the ultimate outcome. With respect to litigation and other legal proceedings where the Company has determined a material loss is reasonably possible, except as otherwise disclosed, we are not able to make a reasonable estimate of the amount or range of loss that is reasonably possible above any accrued amounts in these proceedings, due to various reasons, including: we have factual and legal arguments that, if successful, will eliminate or sharply reduce the possibility of loss; we do not have sufficient information about the arguments and the evidence plaintiffs will advance with respect to their damages; some of the cases have been stayed; certain proceedings present novel and complex questions of public policy; legal and factual determinations and judicial and governmental procedure; the large number of parties involved; and the inherent uncertainties related to such litigations.

Litigation Relating to 2016 Goals

On December 29, 2014, a putative shareholder filed a derivative action in federal court in the Northern District of Illinois against certain current and former directors and officers of Walgreen Co. and Walgreen Co., as a nominal defendant, arising out of certain public statements the Company made regarding its former fiscal 2016 goals. (Cutler v. Wasson et al., No. 1:14-cv-10408 (N.D. Ill.)) The action asserts claims for breach of fiduciary duty, waste and unjust enrichment. On May 18, 2015, the case was stayed in light of a securities class action that was filed on April 10, 2015, described below. On November 3, 2016, the Court entered a stipulation and order extending the stay until the resolution of the securities class action. The securities class action was resolved on October 13, 2022, as described below. On November 8, 2022, the Court extended the stay in the derivative action until February 2023.


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(UNAUDITED)

On April 10, 2015, a putative shareholder filed a securities class action in federal court in the Northern District of Illinois against Walgreen Co. and certain former officers of Walgreen Co. (Washtenaw County Employees’ Retirement System v. Walgreen Co. et al., No. 1:15-cv-3187 (N.D. Ill.)) The action asserts claims for violation of the federal securities laws arising out of certain public statements the Company made regarding its former fiscal 2016 goals. The Company’s motion to dismiss the consolidated class action complaint filed on August 17, 2015 was granted in part and denied in part on September 30, 2016. The court granted plaintiff’s motion for class certification on March 29, 2018, and plaintiff filed a first amended complaint on December 19, 2018. A motion to dismiss the first amended complaint was granted in part and denied in part on September 23, 2019. Fact discovery and expert discovery have concluded. On November 2, 2021, the Court denied plaintiffs’ motion for summary judgment and granted in part and denied in part defendants’ cross motion. On March 2, 2022 the Court granted the Company’s motion to reconsider a portion of that ruling. On June 29, 2022 the Court granted preliminary approval of a settlement in the amount of $105 million and issued a final judgment order approving the settlement on October 13, 2022.

Securities Claims Relating to Rite-Aid Merger

On December 11, 2017, purported Rite Aid shareholders filed an amended complaint in a putative class action lawsuit in the U.S. District Court for the Middle District of Pennsylvania (the “M.D. Pa. class action”) arising out of transactions contemplated by the merger agreement between the Company and Rite Aid. The amended complaint alleges that the Company and certain of its officers made false or misleading statements regarding the transactions. The Court denied the Company’s motion to dismiss the amended complaint on April 15, 2019. The Company filed an answer and affirmative defenses, and the Court granted plaintiffs' motion for class certification. Fact and expert discovery have concluded and summary judgement briefing is complete. In October and December 2020, two separate purported Rite Aid Shareholders filed actions in the same court opting out of the class in the M.D. Pa. class action and making nearly identical allegations as those in the M.D. Pa. class action (the “Opt-out Actions”). The Opt-out Actions have been stayed until the earlier of (a) 30 days after the entry of an order resolving any pre-trial dispositive motions in the M.D. Pa. class action, or (b) 30 days after the entry of an order of final approval of any settlement of the M.D. Pa. class action.

Claims Relating to Opioid Abuse

The Company is among an array of defendants in multiple actions in federal courts alleging claims generally concerning the impacts of widespread opioid abuse, which have been commenced by various plaintiffs such as counties, cities, hospitals, Indian tribes, and others. In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated many of these cases in a consolidated multidistrict litigation, captioned In re National Prescription Opiate Litigation (MDL No. 2804, Case No. 17-md-2804), which is pending in the U.S. District Court for the Northern District of Ohio (“N.D. Ohio”). The Company is a defendant in the following multidistrict litigation (MDL) bellwether cases:

•One case remanded to the U.S. District Court for the Northern District of California (City and Cnty. of San Francisco, et al. v. Purdue Pharma L.P., et al., Case No. 3:18-cv-07591-CRB). Following a bench trial, the court entered a liability finding against Walgreens in August 2022. The court scheduled a second trial regarding remedies for November 2022 to determine how much is to be paid, but that proceeding has been continued indefinitely. The Company has the right to appeal any judgment but is unable to predict the outcome relative to remedies or apportionment as well as the outcome of any appeal as the trial is ongoing.

•Two cases in N.D. Ohio (Cnty. of Lake, Ohio v. Purdue Pharma L.P., et al., Case No. 18-op-45032; Cnty. of Trumbull, Ohio v. Purdue Pharma L.P., et al., Case No. 18-op-45079). In November 2021, the jury in that case returned a verdict after trial in favor of the plaintiffs as to liability, and a second trial regarding remedies took place in May 2022. In August 2022, the court entered orders providing for injunctive relief and requiring the defendants to pay $650.6 million over a 15-year period to fund abatement programs. The court found that the damages are subject to joint and several liability and as such made no determination as to apportionment. These decisions are currently on appeal.

•One case remanded to the U. S. District Court for the Eastern District of Oklahoma (The Cherokee Nation v. McKesson Corp., et al., Case No. 18-CV-00056-RAW-SPS), which has since been remanded to the District Court of Sequoyah County, Oklahoma, in a decision that is on appeal. The court has indicated that trial will commence in March 2023, although the parties have jointly requested a stay.

•Five additional bellwether cases designated in April 2021: (1) Cobb Cnty. v. Purdue Pharma L.P., et al., Case No. 18-op-45817 (N.D. Georgia); (2) Durham Cnty. v. AmerisourceBergen Drug Corp., et al., Case No. 19-op-45346 (M.D. North Carolina); (3) Montgomery Cnty. Bd. of Cnty. Commrs., et al. v. Cardinal Health, Inc., et al., Case No. 18-op-46326 (S.D. Ohio); (4) Board of Cnty. Commrs. of the Cnty. of Santa Fe v. Purdue Pharma L.P., et al., Case No. 18-op-45776 (D. New Mexico); and (5) Cnty. of Tarrant v. Purdue Pharma L.P., et al., Case No. 18-op-45274 (N.D. Texas).


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(UNAUDITED)

•Two consolidated cases in N.D. Ohio (Cnty. of Summit, Ohio, et al v. Purdue Pharma L.P., et al., Case No. 18-op-45090; Cnty. of Cuyahoga, Ohio, et al. v. Purdue Pharma L.P., Case No. 18-op-45004), previously scheduled for trial in November 2020 but postponed indefinitely.

The Company also has been named as a defendant in numerous actions brought in state courts relating to opioid matters. Trial dates have been set in cases pending in state courts in the following states:

•New Mexico (State of New Mexico, ex rel. Hector Balderas, Attorney General v. Purdue Pharma L.P., et al., Case No. D-101-cv-2017-02541, First Judicial District Court, Santa Fe County, New Mexico - concluded in October 2022 and awaiting court ruling).

•West Virginia (State of West Virginia, ex rel. Patrick Morrisey, Attorney General v. Walgreens Boots Alliance, Inc., et al., Civil Action No.20-C-82 PNM, Circuit Court of Kanawha County, West Virginia, - June 2023).

•Michigan (State of Michigan, ex rel. Dana Nessel, Attorney General v. Cardinal Health, Inc., et al., Case No. 19-016896-NZ, Circuit Court for Wayne County, Michigan - February 2023).

•Alabama (Mobile County Board of Health, et al. v. Fisher, et al., Case No. CV-2019-902806.00, Circuit Court of Mobile County, Alabama - scheduled for trial in January 2023, but currently stayed pending a petition to the Alabama Supreme Court).

•Nevada (State of Nevada v. McKesson Corporation, et al., Case No. A-19-796755-B, Eighth Judicial District Court, Clark County, Nevada - May 2023).

•Missouri (Jefferson County, Missouri v. Dannie E. Williams, M.D., et al., Case No. 20JE-CC00029, Twenty-Third Judicial Circuit, Jefferson County, Missouri - April 2024).

•Florida (Florida Health Sciences Center, Inc., et al. v. Richard Sackler, et al., Case No. CACE 19-018882, Seventeenth Judicial Circuit Court, Broward County, Florida - October 2024).

Two consolidated cases in New York state court (County of Suffolk v. Purdue Pharma L.P., et al., Index No. 400001/2017; County of Nassau v. Purdue Pharma L.P., et al., Index No. 400008/2017, Supreme Court of the State of New York, Suffolk County, New York) were resolved as to the Company in June 2021.

The relief sought by various plaintiffs in these matters includes compensatory, abatement, restitution and punitive damages, as well as injunctive relief. Additionally, the Company has received from the U.S. Department of Justice (“DOJ”) and the Attorneys General of numerous states subpoenas, civil investigative demands, and other requests concerning opioid-related matters. The Company continues to communicate with the DOJ regarding purported violations of the federal Controlled Substances Act and the federal False Claims Act in dispensing prescriptions for opioids and other controlled substances at its pharmacies nationwide.

On May 5, 2022, the Company announced that it had entered into a settlement agreement with the State of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the Company’s pharmacies in the State of Florida. This settlement agreement is not an admission of liability or wrong-doing and would resolve opioid lawsuits filed and future claims by the state and government subdivisions in the State of Florida. The estimated settlement amount of $683 million includes $620 million in remediation payments, which will be paid to the State of Florida in equal installments over 18 years, and will be applied as opioid remediation, as well as a one-time payment of $63 million for attorneys’ fees. In fiscal 2022, the Company recorded a $683 million liability associated with this settlement.

On November 2, 2022, the Company announced that it had agreed to financial amounts and payment terms as part of settlement frameworks (the “Settlement Frameworks”) that have the potential to resolve a substantial majority of opioid-related lawsuits filed against the Company by the attorneys general of participating states and political subdivisions (the “Settling States”) and litigation brought by counsel for tribes. Under the Settlement Frameworks with the Settling States and counsel for tribes, the Company announced that it expected to settle all opioid claims against it by such Settling States, their participating political subdivisions, and participating tribes for up to approximately $4.8 billion and $155 million, respectively in remediation payments to be paid out over 15 years. The Settlement Frameworks provide for the payment of up to approximately $754 million in attorneys’ fees and costs over 6 years beginning in year two of the Settlement Frameworks. The Settlement Frameworks include no admission of wrongdoing or liability by the Company.


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(UNAUDITED)

As of November 30, 2022, the Company concluded that Settlement Framework discussions had advanced to a stage where a broad settlement of opioid claims by Settling States was probable, and for which the related loss was reasonably estimable. As a result of those conclusions and the Company’s ongoing assessment of other opioid-related claims, the Company recorded a $6.5 billion liability associated with the Settlement Frameworks and other opioid-related claims and litigation during the three months ended November 30, 2022. The settlement accrual is reflected in the Consolidated Condensed Statement of Earnings within Selling, general and administrative expenses as part of the U.S. Retail Pharmacy segment. The Company recorded $619 million and $5.9 billion of the estimated settlement liability in Accrued expenses and other current liabilities, and Accrued litigation obligations, respectively, in the Consolidated Condensed Balance Sheet. Loss contingencies are highly subjective, the Company cannot predict if any agreement will become effective, and unpredictable or unfavorable developments can occur. The amount of the actual loss may differ materially from the accrual estimate.

On December 9, 2022, the Company committed the Settlement Frameworks to a proposed settlement agreement (the “Proposed Settlement Agreement”) that is contingent on (1) a sufficient number of Settling States, including those that have not sued, agreeing to the Proposed Settlement Agreement following a sign-on period, and (2) following a notice period, a sufficient number of political subdivisions within Settling States, including those that have not sued, agreeing to the Proposed Settlement Agreement (or otherwise having their claims foreclosed).

Should some States or their political subdivisions decline to participate in the Proposed Settlement Agreement, but the Company nonetheless concludes that sufficient participation exists to warrant going forward with the settlement, during both of the two sign-on periods, there will be a corresponding reduction in the amount due from the Company to account for the entities that do not participate. Those non-participating Settling States or political subdivisions would be entitled to pursue their claims against the Company.

The Company cannot predict if or when the Proposed Settlement Agreement will become effective. The Company will continue to vigorously defend against any litigation not covered by the Proposed Settlement Agreement, including private plaintiff litigation. The Company continues to believe it has strong legal defenses and appellate arguments in all of these cases.

Note 11. Income taxes

The effective tax rate for the three months ended November 30, 2022 was a benefit of 27.5%, primarily due to a reduction in the valuation allowance and impact of the opioid-related claims and litigation. The Company recognized a tax benefit due to the reduction of a valuation allowance previously recorded against deferred tax assets related to capital loss carryforwards. The reduction is primarily due to capital loss carryforwards utilized in the current period against capital gains recognized on the sale of shares in AmerisourceBergen and based on forecasted capital gains. See Note 5. Equity method investments for further information. This benefit was partially offset by the impact of certain nondeductible opioid-related claims recorded in the three months ended November 30, 2022. See Note 10. Commitments and contingencies for further information.

The effective tax rate for the three months ended November 30, 2021 was an expense of 7.2%, primarily due to lower tax expense on gains from consolidation of the Company’s investment in VillageMD and Shields, as a portion of these gains were not subject to tax. See Note 2. Acquisitions and other investments for further information.

Income taxes paid for the three months ended November 30, 2022 and 2021 were $5 million and $34 million, respectively.

Note 12. Retirement benefits

The Company sponsors several retirement plans, including defined benefit plans, defined contribution plans and a postretirement health plan.

Defined benefit pension plans (non-U.S. plans)

The Company has various defined benefit pension plans outside the U.S. The principal defined benefit pension plan is the Boots Pension Plan (the “Boots Plan”), which covers certain employees in the UK. The Boots Plan is a funded final salary defined benefit plan providing pensions and death benefits to members. The Boots Plan was closed to future accrual effective July 1, 2010, with pensions calculated based on salaries up until that date. The Boots Plan is governed by a trustee board, which is independent of the Company. The plan is subject to a full funding actuarial valuation on a triennial basis.


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(UNAUDITED)

Components of net periodic pension income for the defined benefit pension plans (in millions):


		Three months ended November 30,
	Location in Consolidated Condensed Statements of Earnings	2022		2021
Service costs	Selling, general and administrative expenses	$	1	$	1
Interest costs	Other income, net	59		39
Expected returns on plan assets/other	Other income, net	(75)		(74)
Total net periodic pension income		$	(15)	$	(33)

The Company made cash contributions to its defined benefit pension plans of $1 million for the three months ended November 30, 2022, which primarily related to committed payments. The Company plans to contribute an additional $35 million to its defined benefit pension plans during the remainder of fiscal 2023.

Defined contribution plans

The principal retirement plan for U.S. employees is the Walgreen Profit-Sharing Retirement Trust, to which both the Company and participating employees contribute. The Company’s contribution is in the form of a guaranteed match which is made pursuant to the applicable plan document approved by the Walgreen Co. Board of Directors. Plan activity is reviewed periodically by certain Committees of the Walgreens Boots Alliance Board of Directors. The profit-sharing provision is an expense of $65 million and $69 million for the three months ended November 30, 2022 and 2021, respectively.

The Company also has certain contract based defined contribution arrangements. The principal one is UK based to which both the Company and participating employees contribute. The cost recognized in the Consolidated Condensed Statement of Earnings was $20 million and $25 million for the three months ended November 30, 2022 and 2021, respectively.

Note 13. Accumulated other comprehensive income (loss)

The following is a summary of net changes in accumulated other comprehensive income (loss) (“AOCI”) by component and net of tax for the three months ended November 30, 2022 and 2021 (in millions):


	Pension/ post-retirement obligations		Unrealized loss on cash flow hedges		Net investment hedges		Unrealized gain (loss) on available for sale securities		Share of OCI of equity method investments		Currency translation adjustments		Total
Balance at August 31, 2022	$	(157)	$	(3)	$	213	$	1	$	(254)	$	(2,605)	$	(2,805)
Other comprehensive (loss) income before reclassification adjustments	—		(2)		(39)		(1)		(103)		22		(123)
Amounts reclassified from AOCI	(7)		—		—		—		110		—		103
Tax benefit (provision)	2		—		9		—		(3)		—		9
Net change in other comprehensive (loss) income	(5)		(2)		(29)		—		4		22		(11)
Balance at November 30, 2022	$	(162)	$	(5)	$	183	$	1	$	(250)	$	(2,583)	$	(2,815)


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(UNAUDITED)


	Pension/ post-retirement obligations		Unrealized gain (loss) on cash flow hedges		Net investment hedges		Unrealized gain (loss) on available for sale securities		Share of AOCI of equity method investments		Currency translation adjustments		Total
Balance at August 31, 2021	$	(359)	$	(10)	$	(35)	$	96	$	(29)	$	(1,772)	$	(2,109)
Other comprehensive (loss) income before reclassification adjustments	(1)		1		53		450		(60)		(88)		356
Amounts reclassified from AOCI	(5)		1		—		(577)		—		(4)		(585)
Tax benefit (provision)	1		—		(9)		31		14		—		37
Net change in other comprehensive (loss) income	(5)		1		44		(96)		(46)		(91)		(193)
Balance at November 30, 2021	$	(364)	$	(9)	$	9	$	—	$	(74)	$	(1,863)	$	(2,301)

Note 14. Segment reporting

The Company is aligned into three reportable segments: U.S. Retail Pharmacy, International and U.S. Healthcare.

The operating segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker) to assess segment performance and allocate resources among the Company’s operating segments. The chief operating decision maker uses adjusted operating income to assess segment profitability. The chief operating decision maker does not use total assets by segment to make decisions regarding resources; therefore, the total asset disclosure by segment has not been included.

U.S. Retail Pharmacy

The Company's U.S. Retail Pharmacy segment includes the Walgreens business which is comprised of the operations of retail drugstores, health and wellness services, specialty and home delivery pharmacy services, and its equity method investment in AmerisourceBergen. Sales for the segment are principally derived from the sale of prescription drugs and a wide assortment of retail products, including health and wellness, beauty, personal care and consumables and general merchandise.

International

The Company's International segment consists of pharmacy-led health and beauty retail businesses outside the U.S. and a pharmaceutical wholesaling and distribution business in Germany. Pharmacy-led health and beauty retail businesses include Boots branded stores in the UK, the Republic of Ireland and Thailand, the Benavides brand in Mexico and the Ahumada brand in Chile. Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products.

U.S. Healthcare

The Company’s U.S. Healthcare segment is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey. The U.S. Healthcare segment delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.

The U.S. Healthcare segment currently consists of a majority position in VillageMD, a leading national provider of value-based primary care services; a majority position in Shields, a specialty pharmacy integrator and accelerator for hospitals; a majority position in CareCentrix, a leading player in the post-acute and home care management sectors, and the Walgreens Health organic business that contracts with payors and providers to deliver clinical healthcare services to their members and members’ caregivers through both digital and physical channels.


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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

The results of operations for reportable segments include procurement benefits. Corporate-related overhead costs are not allocated to reportable segments and are reported in “Corporate and Other”.

The following table reflects results of operations of the Company’s reportable segments (in millions):


	Three months ended November 30,
	2022		2021
Sales:
U.S. Retail Pharmacy	$	27,204	$	28,032
International	5,189		5,818
U.S. Healthcare	989		51

Walgreens Boots Alliance, Inc.	$	33,382	$	33,901

Adjusted operating income (Non-GAAP measure):
U.S. Retail Pharmacy	$	1,105	$	1,690
International	116		164
U.S. Healthcare	(152)		(13)
Corporate and Other	(56)		(63)
Walgreens Boots Alliance, Inc.	$	1,014	$	1,777

The following table reconciles adjusted operating income to operating income (in millions):


	Three months ended November 30,
	2022		2021
Adjusted operating income (Non-GAAP measure)	$	1,014	$	1,777
Certain legal and regulatory accruals and settlements	(6,554)		—
Acquisition-related amortization	(330)		(165)
Transformational cost management	(138)		(203)
Adjustments to equity earnings in AmerisourceBergen	(86)		(43)
Acquisition-related costs	(39)		(71)
LIFO provision	(18)		(14)

Operating (loss) income (GAAP measure)	$	(6,151)	$	1,283


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(UNAUDITED)

Note 15. Sales

The following table summarizes the Company’s sales by segment and by major source (in millions):


	Three months ended November 30,
	2022		2021
U.S. Retail Pharmacy
Pharmacy	$	20,218	$	21,105
Retail	6,986		6,927
Total	27,204		28,032

International
Pharmacy	867		1,017
Retail	1,650		1,796
Wholesale	2,672		3,005
Total	5,189		5,818

U.S. Healthcare	989		51


Walgreens Boots Alliance, Inc.	$	33,382	$	33,901

See Note 18. Supplemental information for further information on receivables from contracts with customers.

Note 16. Related parties

The Company has a long-term pharmaceutical distribution agreement with AmerisourceBergen pursuant to which the Company sources branded and generic pharmaceutical products from AmerisourceBergen. Additionally, AmerisourceBergen receives sourcing services for generic pharmaceutical products.

Related party transactions with AmerisourceBergen (in millions):


	Three months ended November 30,
	2022		2021
Purchases, net	$	15,440	$	15,791


	November 30, 2022		August 31, 2022
Trade accounts payable, net of Trade accounts receivable	$	6,961	$	6,915

Note 17. New accounting pronouncements

Adoption of new accounting pronouncements

Disclosures by business entities about government assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance. This ASU requires disclosures that are expected to increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The Company adopted the new standard effective September 1, 2022, and the adoption did not impact the Company's disclosures within these consolidated condensed financial statements.


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(UNAUDITED)

New accounting pronouncements not yet adopted

Acquired contract assets and contract liabilities in a business combination

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires an entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 (Revenue from Contracts with Customers). This ASU is expected to reduce diversity in practice and increase comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. This ASU is effective for fiscal years beginning after December 15, 2022 (fiscal 2024). The Company is evaluating the effect of adopting this new accounting guidance.

Liabilities—Supplier Finance Programs

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations. This ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. This ASU is expected to improve financial reporting by requiring new disclosures about the programs, thereby allowing financial statement users to better consider the effect of the programs on an entity’s working capital, liquidity, and cash flows. This ASU is effective for fiscal years beginning after December 15, 2022 (fiscal 2024), except for the amendment on roll forward information which is effective for fiscal years beginning after December 15, 2023 (fiscal 2025). The Company is evaluating the effect of adopting this new accounting guidance.

Note 18. Supplemental information

Accounts receivable

Accounts receivable are stated net of allowances for doubtful accounts. Accounts receivable balances primarily consist of trade receivables due from customers, including amounts due from third party payors (e.g., pharmacy benefit managers, insurance companies and governmental agencies). Trade receivables were $3.7 billion and $4.0 billion at November 30, 2022 and August 31, 2022, respectively. Other accounts receivable balances, which consist primarily of receivables from vendors and manufacturers, including receivables from AmerisourceBergen, were $1.2 billion and $1.1 billion at November 30, 2022 and August 31, 2022, respectively. See Note 16. Related parties for further information.

Depreciation and amortization

The Company has recorded the following depreciation and amortization expense in the Consolidated Condensed Statements of Earnings (in millions):


	Three months ended November 30,
	2022		2021
Depreciation expense	$	336	$	335
Intangible assets amortization	159		165
Total depreciation and amortization expense	$	495	$	500

Accumulated depreciation and amortization on property, plant and equipment was $12.9 billion at November 30, 2022 and $12.8 billion at August 31, 2022.


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(UNAUDITED)

Restricted cash

The Company is required to maintain cash deposits with certain banks which consist of deposits restricted under contractual agency agreements and cash restricted by law and other obligations. The following represents a reconciliation of Cash and cash equivalents in the Consolidated Condensed Balance Sheets to total Cash, cash equivalents, marketable securities and restricted cash in the Consolidated Condensed Statements of Cash Flows as of November 30, 2022 and August 31, 2022, respectively (in millions):


	November 30, 2022		August 31, 2022
Cash and cash equivalents	$	2,349	$	1,358
Marketable securities	1,883		1,114
Restricted cash - (included in other current assets)	82		86
Cash, cash equivalents, marketable securities and restricted cash	$	4,314	$	2,558

Redeemable non-controlling interest

The following represents a roll forward of the redeemable non-controlling interest in the Consolidated Condensed Balance Sheets (in millions):


	Three months ended November 30,
	2022		2021
Opening balance	$	1,042	$	319
Acquisition of non-controlling interests 1	—		2,489
Net loss attributable to Redeemable non-controlling interests	(22)		(21)
Redemption price adjustments 2	440		7
Reclassifications to Accrued expenses and other liabilities 3	(1,314)		—
Other	12		(8)
Ending balance	$	157	$	2,787

1.The three months ended November 30, 2021 includes $1.9 billion of redeemable non-controlling interest representing the maximum purchase price to redeem non-controlling units in VillageMD for cash. On November 24, 2021, VillageMD commenced a tender offer to purchase up to $1.9 billion of units in VillageMD for cash. As of November 24, 2021, the Company recorded the $1.9 billion as redeemable non-controlling interest. The tender offer was fully subscribed and settled on December 28, 2021. The tender offer was funded by cash proceeds provided to VillageMD pursuant to the Unit Purchase Agreement.

WBA