WALGREENS BOOTS ALLIANCE, INC. of operations The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein and the Consolidated Condensed Financial Statements, accompanying notes and management's discussion and analysis of financial condition and results of operations and other disclosures contained in theWalgreens Boots Alliance, Inc. Annual Report on Form 10-K for the fiscal year endedAugust 31, 2021 , as amended by Form 10-K/A for the fiscal year endedAugust 31, 2021 filed onNovember 24, 2021 (the "2021 10-K"). This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under "Cautionary note regarding forward-looking statements", and in Item 1A, Risk factors, in our 2021 10-K. References herein to the "Company", "we", "us", or "our" refer toWalgreens Boots Alliance, Inc. and its subsidiaries, and in each case do not include unconsolidated partially-owned entities, except as otherwise indicated or the context otherwise requires.
Certain amounts in the management's discussion and analysis of financial condition and results of operations may not add due to rounding. All percentages have been calculated using unrounded amounts for each of the periods presented.
INTRODUCTION AND SEGMENTS
Walgreens Boots Alliance, Inc. and its subsidiaries ("Walgreens Boots Alliance " or the "Company") is a global leader in retail pharmacy and is positioning to become a leading provider of healthcare services. Its operations are conducted through three reportable segments: •United States, •International, and •Walgreens Health
See Note 15. Segment reporting and Note 16. Sales, to the Consolidated Condensed Financial Statements for further information.
FACTORS, TRENDS AND UNCERTAINTIES AFFECTING OUR RESULTS AND COMPARABILITYThe Company has been, and we expect it to continue to be, affected by a number of factors that may cause actual results to differ from our historical results or current expectations. These factors include: the impact of the COVID-19 pandemic ("COVID-19") on our operations and financial results; the financial performance of our equity method investees, including AmerisourceBergen Corporation ("AmerisourceBergen"); the influence of certain holidays; seasonality; foreign currency rates; changes in vendor, payor and customer relationships and terms and associated reimbursement pressure; strategic transactions and acquisitions, dispositions, joint ventures and other strategic collaborations; changes in laws, includingU.S. tax law changes; the outcome of legal and regulatory matters; changes in trade, tariffs, including trade relations between theU.S. andChina , and international relations, including theUK's withdrawal from theEuropean Union and current geopolitical instability; the timing and magnitude of cost reduction initiatives, including under our Transformational Cost Management Program (as defined below); the timing and severity of the cough, cold and flu season; fluctuations in variable costs; the impacts of looting, natural disasters, war, terrorism and other catastrophic events; and changes in general economic conditions in the markets in which the Company operates. Specialty pharmacy represents a significant and growing proportion of prescription drug spending in theU.S. , a significant portion of which is dispensed outside of traditional retail pharmacies. To better serve the evolving specialty pharmacy market, inMarch 2017 , we andPrime Therapeutics LLC ("Prime"), a pharmacy benefit management company ("PBM"), closed a transaction to form a combined central specialty pharmacy and mail services company, AllianceRxWalgreens , using an innovative model that seeks to align pharmacy, PBM, and health plans to coordinate patient care, improve health outcomes and deliver cost of care opportunities. OnDecember 31, 2021 , we purchased Prime's portion of the joint venture and now wholly own AllianceRxWalgreens . Certain clients of AllianceRxWalgreens are not obligated to contract through AllianceRxWalgreens , and have in the past, and may in the future, enter into specialty pharmacy and other agreements without involving AllianceRxWalgreens . Certain clients have chosen not to renew their contracts through AllianceRxWalgreens which impacts gross sales. However, considering the relatively low margin nature of this business, the Company does not anticipate this will have a material impact on operating income. InJanuary 2022 , the Company announced a strategic review of its Boots business, including the No7 beauty company. This review is in line with the Company's renewed priorities and strategic direction, including its increased focus on healthcare services in theU.S. The review is currently in progress.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS These and other factors can affect the Company's operations and net earnings for any period and may cause such results not to be comparable to the same period in previous years. The results presented in this report are not necessarily indicative of future operating results.
COVID-19
COVID-19 has severely impacted, and may continue to impact, the economies of theU.S. , theUK and other countries around the world. COVID-19 has created significant public health concerns as well as significant volatility, uncertainty and economic disruption in every region in which we operate, which has adversely affected, and may again adversely affect, our industries and our business operations. Further, financial and credit markets experienced, and may again experience, volatility. Policies and initiatives were put in place to reduce the transmission of COVID-19, among other things, temporary closure or reduced hours of operation of certain store locations inU.S. , theUK and other countries, reduced customer traffic and sales in our retail pharmacies and the adoption of work-from-home policies. In response to COVID-19 and emerging variants, various domestic and foreign, federal, state and local governmental legislation, regulations, orders, policies and initiatives have been implemented that are designed to reduce the transmission of COVID-19, as well as to help address economic and market volatility and instability resulting from COVID-19. The Company has assessed and will continue to assess the impact of these governmental actions on the Company. The Company has participated in certain of these programs, including for example availing itself to certain tax deferrals which were introduced by the CARES Act in theU.S. , and certain tax deferral and benefit and employee wage support in theUK , and if available, may continue to do so in the future. The Company continues to play a critical role in fighting the COVID-19 pandemic. The Company has worked with theCenters for Disease Control and Prevention ("CDC"),U.S. Department of Health and Human Services ("HHS") and theU.S. government to help administer COVID-19 vaccinations to the general public, high priority groups, including long-term care facility residents and staff.The United States segment also expanded vaccination models to ensure convenient access, including same-day and walk-in appointments, mobile clinics, employer partnerships and extended hours. As ofFebruary 28, 2022 , the Company has administered more than 62 million COVID-19 vaccinations, including 12 million booster vaccinations, and more than 26 million COVID-19 tests in theU.S. During the six months endedFebruary 28, 2022 , the Company has administered more than 27 million COVID-19 vaccinations and more than 13 million COVID-19 tests in theU.S. During the three months endedFebruary 28, 2022 , performance was driven by execution in COVID-19 vaccine and testing delivery, US retail sales growth, and continued rebound in the International segment. Inthe United States segment, comparable prescriptions filled increased 4.7%, including a positive impact of 275 basis points from COVID-19 vaccinations. The Company continued to be challenged by staffing shortages and temporary operating hour reductions as the Omicron surge drove an increase in COVID-19 related absences. Comparable retail sales increased reflecting broad based growth across all categories including health and wellness, which was aided by at-home COVID-19 tests. Gross profit increased compared with the year-ago period driven by improved pharmacy margin, aided by COVID-19 vaccinations. The International segment experienced an increase in retail sales in the BootsUK market as footfall improved compared to the year-ago period, however store foot traffic remained below pre-COVID-19 levels with restrictions to combat the Omicron surge in place for most of the quarter. The Company also incurred an increase in selling, general and administrative expenses ("SG&A") when compared to the prior year, from investments to support COVID-19 vaccinations and testing sales growth in theU.S. and COVID-19 related government support in theUK which occurred in the prior year. The situation surrounding COVID-19 remains fluid, and could result in additional mandates and directives, including revisions thereto, from foreign, federal, state, county and city authorities throughout the continuation of the COVID-19 pandemic and for sometime thereafter. The impact on theU.S. and global economies, including supply chains and the labor force, and consumer, customer and health care utilization pattern depends upon the evolving factors and future developments related to COVID-19. As a result, the financial and/or operational impact on the Company, operating results, cash flows and/or financial condition is uncertain, but the impact, singularly or collectively, could be material and adverse.
The Company's current expectations described above are forward-looking statements and our actual results may differ. Factors that might cause a difference include, but are not limited to, those discussed below under "Cautionary note regarding forward-looking statements" and in Item 1A, Risk factors, in our 2021 10-K.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSISWALGREENS HEALTH InOctober 2021 , the Company announced the launch of its new healthcare strategy. The Company plans to become a leading provider of local clinical care services by leveraging its consumer-centric technology and pharmacy network to deliver value-based care. The Company's goal is to provide better consumer experiences, improve health outcomes and lower costs. The Company'sWalgreens Health segment, created at the beginning of fiscal year 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey.Walgreens Health delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.The Walgreens Health segment currently consists of a majority position inVillage Practice Management Company, LLC ("VillageMD"), a leading, national provider of value-based primary care services; a majority position inShields Health Solutions Parent, LLC ("Shields"), a specialty pharmacy integrator and accelerator for hospitals; and theWalgreens Health organically-developed business that contracts with payors and providers to deliver clinical healthcare services to their members and members' caregivers through both digital and physical channels. The Company is now aligned into three reportable segments:United States , International andWalgreens Health . Fiscal year 2021 data related to theWalgreens Health segment, has been reclassified in the Consolidated Condensed Financial Statements and accompanying notes to conform to the current period presentation.
See Note 15. Segment reporting to the Consolidated Condensed Financial Statements for further information.
RECENT TRANSACTIONS
VillageMD acquisition OnNovember 24, 2021 , the Company completed the acquisition ofVillageMD . Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests ofVillageMD , increasing the Company's total beneficial ownership inVillageMD'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 comprises 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 onDecember 28, 2021 , and$1.1 billion paid in exchange for new preferred units issued byVillageMD . Subject to notice being served, the Company has an option to prepay, andVillageMD 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
See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Condensed Financial Statements for further information.
Shields acquisition OnOctober 29, 2021 , the Company completed the acquisition of 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%, on a fully diluted basis, for cash consideration of$969 million , subject to certain purchase price adjustments. The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within theWalgreens Health segment in its financial statements.
See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Condensed Financial Statements for further information.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSISCareCentrix acquisition OnSeptember 4, 2021 , the Company executed a Membership Interest Purchase Agreement to acquire a majority equity interest inCareCentrix , a leading player in the post-acute and home care management sectors, for a price that after the application of a net debt adjustment, is expected to be approximately$330 million . The investment will result in the Company owning approximately 55% controlling equity interest inCareCentrix . Under the terms of the Agreement, the Company has an option to acquire the remaining equity interests ofCareCentrix in the future.CareCentrix ' other equity holders will also have an option to require the Company to purchase the remaining equity interests. The transaction is subject to the receipt of required regulatory clearances and approvals and other customary closing conditions. Upon closing, the Company will account for this acquisition as a business combination and consolidateCareCentrix within theWalgreens Health segment in its financial statements. TRANSFORMATIONAL COST MANAGEMENT PROGRAM OnDecember 20, 2018 , the Company announced a transformational cost management program that was expected to deliver in excess of$2 billion of annual cost savings by fiscal year 2022 (the "Transformational Cost Management Program"). The Company achieved this goal at the end of fiscal year 2021. OnOctober 12, 2021 , the Company expanded and extended the Transformational Cost Management Program through the end of fiscal 2024. As a result, the Company increased its annual cost savings target to$3.3 billion by the end of fiscal 2024. The Company is 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 onthe United States 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. As a result of the expanded program, the Company plans to reduce its presence by up to 150 Boots stores in theUK and up to 150 stores inthe United States over the next three years which are incremental to the previously planned reductions of approximately 200 Boots stores in theUK and approximately 250 stores in theU.S. 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. The Company estimates that approximately 85% of the cumulative pre-tax charges relating to the Transformational Cost Management Program represent current or future cash expenditures, primarily related to employee severance and business transition costs, IT transformation and lease and other real estate payments. The Company currently estimates that it will recognize aggregate pre-tax charges to its GAAP financial results related to the Transformational Cost Management Program as follows: Transformational Cost Management Program Activities Range of Charges Lease obligations and other real estate costs 1$1,250 to$1,350 million Asset impairments 2$525 to$575 million Employee severance and business transition costs$1,150 to$1,200 million Information technology transformation and other exit costs$400 to$450 million Total cumulative pre-tax exit and disposal charges$3.3 to$3.6 billion Other IT transformation costs$275 to$325 million Total estimated pre-tax costs$3.6 to$3.9 billion
1 Includes impairments relating to operating lease right-of-use and finance lease assets. 2 Primarily related to store closures and other asset impairments.
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Since the inception of the Transformational Cost Management Program toFebruary 28, 2022 , the Company has recognized aggregate cumulative pre-tax charges to its financial results in accordance with GAAP of$1.8 billion , of which$1.5 billion are recorded as exit and disposal activities. See Note 4. Exit and disposal activities, to the Consolidated Condensed Financial Statements for additional information. These charges included$448 million related to lease obligations and other real estate costs,$296 million in asset impairments,$592 million in employee severance and business transition costs,$175 million of information technology transformation and other exit costs and$241 million other IT costs. 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) onSeptember 1, 2019 . Costs from continuing operations under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses for the three and six months endedFebruary 28, 2022 and 2021, were as follows (in millions): Walgreens Boots Three months ended February 28, 2022 United States International Corporate and Other Alliance, Inc. Lease obligations and other real estate costs $ 5 $ 1 $ - $ 5 Asset impairments 1 3 - 4 Employee severance and business transition costs 36 - 5 41 Information technology transformation and other exit costs 1 4 - 5 Total pre-tax exit and disposal charges $ 43 $ 8 $ 5 $ 56 Other IT transformation costs 9 5 - 14 Total pre-tax costs $ 52 $ 13 $ 5 $ 70 Corporate and Walgreens Boots Six months ended February 28, 2022 United States International Other Alliance, Inc. Lease obligations and other real estate costs $ 91 $ 3 $ - $ 95 Asset impairments 16 28 - 44 Employee severance and business transition costs 56 9 14 79 Information technology transformation and other exit costs 2 11 - 13
Total pre-tax exit and disposal charges $ 166 $
51 $ 14 $ 231 Other IT transformation costs
27 15 - 42
Total pre-tax costs $ 193 $ 66 $ 14 $ 273
Corporate and Walgreens Boots
Three months ended February 28, 2021 United States International Other Alliance, Inc.
Lease obligations and other real estate
costs $ 18 $ - $ - $ 18
Asset impairments 1 3 - 4
Employee severance and business transition
costs 99 6 17 122
Information technology transformation and
other exit costs 4 7 - 11
Total pre-tax exit and disposal charges $ 122 $
16 $ 17 $ 154 Other IT transformation costs
18 5 - 23
Total pre-tax costs $ 140 $ 21 $ 17 $ 178
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Corporate and Walgreens Boots
Six months ended February 28, 2021 United States International Other Alliance, Inc.
Lease obligations and other real estate
costs $ 40 $ - $ - $ 40
Asset impairments 5 - - 5
Employee severance and business transition
costs 111 34 29 174
Information technology transformation and
other exit costs 14 2 - 15
Total pre-tax exit and disposal charges $ 170 $
36 $ 29 $ 235 Other IT transformation costs
31 11 - 43
Total pre-tax costs $ 201 $ 47 $ 30 $ 278
The amounts and timing of all estimates are subject to change until finalized.
The actual amounts and timing may vary materially based on various factors. See
"Cautionary note regarding forward-looking statements" below.
INVESTMENT IN AMERISOURCEBERGEN
As of February 28, 2022 and August 31, 2021 , the Company owned 58,854,867 of
AmerisourceBergen common shares, representing approximately 28.2% of its
outstanding common stock based on the share count publicly reported by
AmerisourceBergen in its most recent quarterly report on Form 10-Q. The Company
has a shareholders agreement with AmerisourceBergen, which was most recently
amended and restated in connection with the Alliance Healthcare Sale (the "A&R
Shareholders Agreement"). Pursuant to the A&R Shareholders Agreement, the
Company has designated one member of AmerisourceBergen's board of directors. The
Company is also permitted to acquire up to an additional 8,398,752
AmerisourceBergen shares in the open market, and thereafter to designate another
member of AmerisourceBergen's board of directors. The amount of permitted open
market purchases is subject to increase or decrease in certain circumstances.
The Company accounts for its equity investment in AmerisourceBergen using the
equity method of accounting, subject to a two-month reporting lag, with the net
earnings (loss) attributable to the investment classified within the Operating
income of the Company's United States segment. During the six months ended
February 28, 2022 and 2021, the Company recognized equity income of $202 million
and equity losses of $1.3 billion , in AmerisourceBergen, respectively. The
equity losses for the period ended February 28, 2021 were primarily due to
AmerisourceBergen's recognition of loss of $5.6 billion , net of tax, related to
its ongoing opioid litigation in its financial statements for the three months
ended September 30, 2020 .
The financial performance of AmerisourceBergen will impact the Company's results
of operations. Additionally, a substantial and sustained decline in the price of
AmerisourceBergen's common stock could trigger an impairment evaluation of our
investment. These considerations may materially and adversely affect the
Company's financial condition and results of operations.
For more information, see Note 2. Discontinued operations and Note 6. Equity method investments, to the Consolidated Condensed Financial Statements.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS EXECUTIVE SUMMARY The following table presents certain key financial statistics.
(in millions, except per share amounts)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales $ 33,756 $ 32,779 $ 67,656 $ 64,217
Gross profit 7,708 6,781 15,283 13,411
Selling, general and administrative expenses 6,565 6,029 12,956 11,820
Equity earnings (loss) in AmerisourceBergen 103 80 202 (1,293)
Operating income 1,246 832 2,529 298
Adjusted operating income (Non-GAAP measure) 1 1,657 1,225 3,434 2,422
Earnings before interest and income tax provision 1,047 1,083 4,947 611
Net earnings attributable to
883 922 4,463 531
Adjusted net earnings attributable to
1,377 1,095 2,833 2,043
Diluted net earnings per common share - continuing operations (GAAP)
1.02 1.06 5.15 0.61
Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure) 1
1.59 1.26 3.27 2.36
Percentage increases (decreases)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales 3.0 4.6 5.4 4.8
Gross profit 13.7 (3.4) 14.0 (2.8)
Selling, general and administrative expenses 8.9 2.0 9.6 0.4
Operating income 49.7 (26.8) NM (85.5)
Adjusted operating income (Non-GAAP measure) 1 35.3 (22.5) 41.8 (17.2)
Earnings before interest and income tax provision (3.3) (7.0) NM (71.2)
Net earnings attributable to
(4.1) 6.3 NM (67.5)
Adjusted net earnings attributable to
25.8 (12.1) 38.7 (13.7)
Diluted net earnings per common share - continuing operations (GAAP)
(4.1) 8.7 NM (66.7)
Adjusted diluted net earnings per common share -
continuing operations (Non-GAAP measure) 1 25.9 (10.1) 38.6 (11.4)
Percent to sales
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Gross margin 22.8 20.7 22.6 20.9
Selling, general and administrative expenses 19.4 18.4 19.1 18.4
1See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
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NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.
Net earnings from continuing operations Net earnings attributable to the Company for the three months endedFebruary 28, 2022 were$883 million compared to net earnings of$922 million for the prior year quarter. Diluted net earnings per share was$1.02 compared to diluted net earnings per share of$1.06 for the prior year quarter. The decreases in net earnings and diluted net earnings per share reflect robust operating performance offset by impairment losses of certain equity investments in the current year, as well as the gain on the partial sale of the company's equity method investment in Option Care Health in the year-ago quarter. Net earnings attributable to the Company for the six months endedFebruary 28, 2022 were$4.5 billion , compared to net earnings of$531 million for the prior year period. Diluted net earnings per share was$5.15 compared to diluted net earnings per share of$0.61 for the prior year period. The increases in net earnings and diluted net earnings per share reflect a$2.5 billion after-tax gain in the first quarter due to the remeasurement of the Company's previously held minority equity and debt investments inVillageMD and Shields to fair value, and a$1.2 billion charge, net of tax, from the company's equity earnings in AmerisourceBergen in the year-ago period. Other expense for the three months endedFebruary 28, 2022 was$198 million compared to income of$251 million in the year ago quarter. The decrease is mainly due to current year impairment losses of certain equity investments and the gain on the partial sale of the company's equity method investment in Option Care Health in the year-ago quarter. Other income for the six months endedFebruary 28, 2022 was$2.4 billion compared to$313 million in the year ago period. The increase in other income is mainly due to the remeasurement of the Company's previously held equity and debt investments inVillageMD and Shields to fair value during the six months endedFebruary 28, 2022 . Net interest expense was$100 million and$186 million for the three and six months endedFebruary 28, 2022 , respectively, compared to$137 million and$272 million for the three and six months endedFebruary 28, 2021 , respectively. The decrease in interest expense was primarily the result of debt extinguishments completed during fiscal year 2021 and lower interest rates on remaining debt. The Company's effective tax rate for the three months endedFebruary 28, 2022 was 18.2 percent, compared to 4.4 percent for the three months endedFebruary 28, 2021 . The increase in the effective tax rate was primarily due to prior year discrete tax benefits recorded for the reduction of a valuation allowance on net deferred tax assets and tax benefits from internal restructuring. The effective tax rate for the six months endedFebruary 28, 2022 was an expense of 9.4 percent, primarily due to lower tax expense on gains from consolidation of the Company's investment inVillageMD and Shields. See Note 3. Acquisitions and other investments for further information. The effective tax rate for the six months endedFebruary 28, 2021 was a benefit of 48.6 percent due to the discrete tax effect of equity losses in AmerisourceBergen. See Note 6. Equity method investments for further information. Adjusted net earnings from continuing operations (Non-GAAP measure) Adjusted net earnings attributable to the Company for the three months endedFebruary 28, 2022 increased 25.8 percent to$1.4 billion compared with the prior year quarter. Adjusted diluted net earnings per share for the three months endedFebruary 28, 2022 increased 25.9 percent to$1.59 compared with the year-ago quarter. Adjusted diluted net earnings and adjusted diluted net earnings per share were both negatively impacted by 0.6 percentage points as a result of currency translation. Excluding the impact of currency translation, the increases in adjusted net earnings for the three months endedFebruary 28, 2022 primarily reflect strong adjusted gross profit growth across both pharmacy and retail inthe United States segment and a continued rebound in International segment sales and profitability, partly offset by growth investments inWalgreens Health . See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. WBA Q2 2022 Form 10-Q 44
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted net earnings attributable to the Company for the six months endedFebruary 28, 2022 increased 38.7 percent to$2.8 billion compared with the prior year period. Adjusted diluted net earnings per share for the six months endedFebruary 28, 2022 increased 38.6 percent to$3.27 compared with the year-ago period. Adjusted diluted net earnings and adjusted diluted net earnings per share were both negatively impacted by 0.3 percentage points as a result of currency translation. Excluding the impact of currency translation, the increases in adjusted net earnings for the six months endedFebruary 28, 2022 primarily reflect strong adjusted gross profit growth across both pharmacy and retail inthe United States segment and a continued rebound in International segment sales and profitability, partly offset by growth investments inWalgreens Health . See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
RESULTS OF OPERATIONS BY SEGMENT
United States The Company'sUnited States segment includes theWalgreens business which includes the operations of retail drugstores, health and wellness services, and mail and central specialty 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. FINANCIAL PERFORMANCE (in
millions, except location amounts)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales $ 27,667 $ 27,344 $ 55,699 $ 54,507
Gross profit 6,487 5,702 12,834 11,341
Selling, general and administrative expenses 5,199 4,954 10,290 9,723
Equity earnings (loss) in AmerisourceBergen 103 80 202 (1,293)
Operating income 1,390 828 2,746 324
Adjusted operating income (Non-GAAP measure)1 1,588 1,163 3,277 2,318
Number of prescriptions 2 203.3 195.3 421.3 399.8
30-day equivalent prescriptions 2,3 300.0 288.5 613.8 585.8
Number of locations at period end 8,906 8,993 8,906 8,993
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Percentage increases (decreases)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales 1.2 0.4 2.2 2.1
Gross profit 13.8 (2.2) 13.2 (1.7)
Selling, general and administrative expenses 4.9 3.3 5.8 1.2
Operating income 67.9 (21.8) NM (83.6)
Adjusted operating income (Non-GAAP measure) 1 36.5 (18.2) 41.4 (14.9)
Comparable sales 4 9.5 2.0 8.7 2.8
Pharmacy sales (3.3) 3.0 (1.1) 4.4
Comparable pharmacy sales 4 7.3 4.5 7.1 4.8
Retail sales 14.5 (6.6) 12.4 (4.6)
Comparable retail sales 4 14.7 (3.5) 12.8 (1.7)
Comparable number of prescriptions 2,4 4.6 (6.9) 5.9 (4.7)
Comparable 30-day equivalent prescriptions 2,3,4 4.7 (1.1) 5.4 0.7
Percent to sales
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Gross margin 23.4 20.9 23.0 20.8
Selling, general and administrative expenses 18.8 18.1 18.5 17.8
1See "Non-GAAP Measures" below for a reconciliation to the most directly
comparable financial measure calculated in accordance with GAAP and related
disclosures.
2Includes vaccinations, including COVID-19.
3Includes the adjustment to convert prescriptions greater than 84 days to the
equivalent of three 30-day prescriptions. This adjustment reflects the fact that
these prescriptions include approximately three times the amount of product days
supplied compared to a normal prescription.
4Comparable sales are defined as sales from stores that have been open for at
least twelve consecutive months without closure for seven or more consecutive
days, including due to looting or store damage, and without a major remodel or
being subject to a natural disaster, in the past twelve months as well as
e-commerce sales. E-commerce sales include digitally initiated sales online or
through mobile applications. Relocated stores are not included as comparable
sales for the first twelve months after the relocation. Acquired stores are not
included as comparable sales for the first twelve months after acquisition or
conversion, when applicable, whichever is later. Comparable sales, comparable
pharmacy sales, comparable retail sales, comparable number of prescriptions and
comparable number of 30-day equivalent prescriptions refer to total sales,
pharmacy sales, retail sales, number of prescriptions and number of 30-day
equivalent prescriptions, respectively. The method of calculating comparable
sales varies across the retail industry and our method of calculating comparable
sales may not be the same as other retailers' methods.
NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.
Sales for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Sales for the three months endedFebruary 28, 2022 increased by 1.2 percent to$27.7 billion , including 680 basis points impact of AllianceRxWalgreens sales decline. Comparable sales increased by 9.5 percent for the three months endedFebruary 28, 2022 . WBA Q2 2022 Form 10-Q 46
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Pharmacy sales decreased by 3.3 percent for the three months endedFebruary 28, 2022 and represented 71.6 percent of the segment's sales. Excluding AllianceRxWalgreens , pharmacy sales increased by 7.3 percent. The increase is due to brand inflation and COVID-19 vaccinations and testing, partially offset by reimbursement pressure. For the three months endedFebruary 28, 2021 , pharmacy sales increased 3.0 percent and represented 74.9 percent of the segment's sales. Comparable pharmacy sales increased 7.3 percent for the three months endedFebruary 28, 2022 compared to an increase of 4.5 percent in the year-ago quarter. Within comparable sales, prescriptions filled during the three months endedFebruary 28, 2022 increased by 4.7 percent from a year earlier, including a positive impact of approximately 2.7 percent from COVID-19 vaccinations. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 0.2 percent for the three months endedFebruary 28, 2022 compared to a reduction of 0.3 percent for the year-ago quarter. The effect of generics on segment sales was a reduction of 0.1 percent for the three months endedFebruary 28, 2022 compared to a reduction of 0.2 percent for the year-ago quarter. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.4 percent of prescription sales for the three months endedFebruary 28, 2022 compared to 97.5 percent in the year-ago quarter. The total number of prescriptions (including vaccinations) filled for the three months endedFebruary 28, 2022 was 203.3 million compared to 195.3 million in the year-ago quarter. Prescriptions (including vaccinations) adjusted to 30-day equivalents were 300.0 million in the three months endedFebruary 28, 2022 compared to 288.5 million in the year-ago quarter. Retail sales increased by 14.5 percent for the three months endedFebruary 28, 2022 and were 28.4 percent of the segment's sales. In comparison, in the year-ago quarter, retail sales decreased by 6.6 percent and comprised 25.1 percent of the segment's sales. Comparable retail sales increased 14.7 percent in the three months endedFebruary 28, 2022 and decreased 3.5 percent in the year-ago quarter. The increase in comparable retail sales in the current quarter was primarily driven by health & wellness, including favorable impact of at-home COVID-19 tests and cough cold flu, as well as personal care and beauty categories, partially offset by the continued de-emphasis of tobacco. Operating income for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Operating income for the three months endedFebruary 28, 2022 was$1.4 billion , including$103 million from the Company's share of equity earnings in AmerisourceBergen. This compared with an income of$828 million in the prior year quarter, including$80 million from Company's share of equity earnings in AmerisourceBergen. Excluding the impact of AmerisourceBergen, the increase was due to sales and gross profit growth across both pharmacy and retail. Gross margin was 23.4 percent for the three months endedFebruary 28, 2022 compared to 20.9 percent in the year-ago quarter. Gross margin was positively impacted in the current quarter by pharmacy margins and partially offset by retail margins. The increase in pharmacy margin was primarily due to COVID-19 vaccinations and testing and specialty, partially offset by brand procurement and reimbursement pressure. The decrease in retail margin was primarily due to shrink. Selling, general and administrative expenses as a percentage of sales were 18.8 percent for the three months endedFebruary 28, 2022 and 18.1 percent for the three months endedFebruary 28, 2021 . Costs related to COVID-19 vaccinations and testing sales growth and labor investment were partially offset by savings related to the Company's Transformational Cost Management Program. Adjusted operating income (Non-GAAP measure) for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Adjusted operating income for the three months endedFebruary 28, 2022 increased by 36.5 percent to$1.6 billion . The increase was primarily due to sales and adjusted gross profit growth across both pharmacy and retail.
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Sales for the six months endedFebruary 28, 2022 increased by 2.2 percent to$55.7 billion , including 474 basis points impact of AllianceRxWalgreens sales decline. Comparable sales increased by 8.7 percent for the six months endedFebruary 28, 2022 . WBA Q2 2022 Form 10-Q 47
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Pharmacy sales decreased by 1.1 percent for the six months endedFebruary 28, 2022 and represented 73.5 percent of the segment's sales. Excluding AllianceRxWalgreens , pharmacy sales increased by 6.5 percent. The increase is due to brand inflation and COVID-19 vaccinations and testing, partially offset by reimbursement pressure. For the six months endedFebruary 28, 2021 , pharmacy sales increased 4.4 percent and represented 75.9 percent of the segment's sales. Comparable pharmacy sales increased 7.1 percent for the six months endedFebruary 28, 2022 compared to an increase of 4.8 percent in the year-ago period. Within comparable sales, prescriptions filled during the six months endedFebruary 28, 2022 increased by 5.4 percent from a year earlier, including a positive impact of approximately 4.1 percent from COVID-19 vaccinations. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 0.2 percent for the six months endedFebruary 28, 2022 compared to a reduction of 0.3 percent for the year-ago period. The effect of generics on segment sales was a reduction of 0.1 percent for the six months endedFebruary 28, 2022 compared to a reduction of 0.2 percent for the year-ago period. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.3 percent of prescription sales for the six months endedFebruary 28, 2022 compared to 97.5 percent in the year-ago period. The total number of prescriptions (including vaccinations) filled for the six months endedFebruary 28, 2022 was 421.3 million compared to 399.8 million in the year-ago period. Prescriptions (including vaccinations) adjusted to 30-day equivalents were 613.8 million in the six months endedFebruary 28, 2022 compared to 585.8 million in the year-ago period. Retail sales increased by 12.4 percent for the six months endedFebruary 28, 2022 and were 26.5 percent of the segment's sales. In comparison, in the year-ago period, retail sales decreased by 4.6 percent and comprised 24.1 percent of the segment's sales. Comparable retail sales increased 12.8 percent in the six months endedFebruary 28, 2022 and decreased 1.7 percent in the year-ago period. The increase in comparable retail sales in the current period was primarily driven by health & wellness, including favorable impact of at-home COVID-19 tests and cough cold flu, as well as personal care and beauty categories, partially offset by the continued de-emphasis of tobacco. Operating income for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Operating income for the six months endedFebruary 28, 2022 was$2.7 billion , including$202 million from the Company's share of equity earnings in AmerisourceBergen. This compared with operating income of$324 million in the prior year period, including Company's equity loss in AmerisourceBergen of$1.3 billion . Excluding the impact of AmerisourceBergen, the increase was due to sales and gross profit growth across both pharmacy and retail. Gross margin was 23.0 percent for the six months endedFebruary 28, 2022 compared to 20.8 percent in the year-ago period. Gross margin was positively impacted in the current quarter by pharmacy margins and partially offset by retail margins. The increase in pharmacy margin was primarily due to COVID-19 vaccinations and testing and specialty, partially offset by brand procurement and reimbursement pressure. The decrease in retail margin was primarily due to shrink and increased import freight costs. Selling, general and administrative expenses as a percentage of sales were 18.5 percent for the six months endedFebruary 28, 2022 and 17.8 percent for the six months endedFebruary 28, 2021 . Costs related to COVID-19 vaccinations and testing and labor investments were partially offset by savings related to the Company's Transformational Cost Management Program. Adjusted operating income (Non-GAAP measure) for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Adjusted operating income for the six months endedFebruary 28, 2022 increased by 41.4 percent to$3.3 billion . The increase was primarily due to adjusted sales and gross profit growth across both pharmacy and retail.
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Q2 2022 Form 10-Q 48
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
International
The Company's International segment consists of pharmacy-led health and beauty retail businesses outside theU.S. and pharmaceutical wholesaling and distribution business inGermany . Pharmacy-led health and beauty retail businesses include Boots branded stores in theUK , theRepublic of Ireland andThailand , the Benavides brand inMexico and the Ahumada brand inChile . Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products. The International segment operates in currencies other than theU.S. dollar, including the British pound sterling, Euro, Chilean peso and Mexican peso and therefore the segment's results are impacted by movements in foreign currency exchange rates. See Item 3, "Quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk", for further information on currency risk. The Company presents certain information related to operating results in "constant currency," which is a non-GAAP financial measure. Comparable sales in constant currency, comparable pharmacy sales in constant currency and comparable retail sales in constant currency exclude the effects of fluctuations in foreign currency exchange rates. See "Non-GAAP Measures." FINANCIAL PERFORMANCE (in
millions, except location amounts)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales $ 5,563 $ 5,425 $ 11,381 $ 9,709
Gross profit 1,206 1,079 2,413 2,069
Selling, general and administrative expenses 1,033 973 2,186 1,925
Operating income 173 106 227 145
Adjusted operating income (Non-GAAP measure) 1 226 146 389 232
Number of retail locations at period end 4,017 4,123 4,017 4,123
Percentage increases (decreases)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales 2.6 32.6 17.2 23.4
Gross profit 11.8 (9.2) 16.6 (8.1)
Selling, general and administrative expenses 6.2 (7.2) 13.6 (6.6)
Operating income 62.8 (24.0) 56.6 (24.3)
Adjusted operating income (Non-GAAP measure) 1 55.0 (28.3) 67.7 (20.0)
Comparable sales in constant currency 2 13.5 (8.4) 12.8 (6.2)
Pharmacy sales 2.1 1.6 7.7 0.7
Comparable pharmacy sales in constant currency 2 4.4 4.6 6.8 4.2
Retail sales 15.2 (17.6) 16.6 (14.2)
Comparable retail sales in constant currency 2 19.0 (15.3) 16.4 (12.0)
Percent to sales
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Gross margin 21.7 19.9 21.2 21.3
Selling, general and administrative expenses 18.6 17.9 19.2 19.8
WBA Q2 2022 Form 10-Q 49
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 1See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. 2Comparable sales in constant currency are defined as sales from stores that have been open for at least twelve consecutive months without closure for seven or more consecutive days, including due to looting or store damage, and without a major remodel or being subject to a natural disaster, in the past twelve months as well as e-commerce sales. Comparable sales in constant currency exclude wholesale sales inGermany . E-commerce sales include digitally initiated sales online or through mobile applications. Relocated stores are not included as comparable stores for the first twelve months after the relocation. Acquired stores are not included as comparable sales for the first twelve months after acquisition or conversion, when applicable, whichever is later. Comparable sales in constant currency, comparable pharmacy sales in constant currency and comparable retail sales in constant currency refer to total sales, pharmacy sales and retail sales, respectively. The method of calculating comparable sales in constant currency varies across the retail industry and our method of calculating comparable sales in constant currency may not be the same as other retailers' methods. Sales for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Sales for the three months endedFebruary 28, 2022 increased 2.6 percent to$5.6 billion . The unfavorable impact of currency translation on sales was 4.9 percentage points. Comparable sales in constant currency, which exclude sales associated with the Company's pharmaceutical wholesale business inGermany , increased 13.5 percent, mainly due to higher sales in BootsUK . Sales in the comparable year ago-quarter include the adverse impact of strict COVID-19 restrictions on store footfall, as theUK entered a second national lockdown inNovember 2020 . Pharmacy sales increased 2.1 percent in the three months endedFebruary 28, 2022 and represented 17.2 percent of the segment's sales. The negative impact of currency translation on pharmacy sales was 2.4 percentage points. Comparable pharmacy sales in constant currency increased 4.4 percent, primarily in theUK , reflecting stronger demand for pharmacy services. Retail sales increased 15.2 percent for the three months endedFebruary 28, 2022 and represented 33.8 percent of the segment's sales. The negative impact of currency translation on retail sales was 2.7 percentage points. Comparable retail sales in constant currency increased 19.0 percent reflecting higher retail sales in theUK , including a recovery in store footfall compared to a year ago-quarter, as COVID-19 restrictions were less severe. Footfall on theUK high street remains below pre-COVID-19 levels. Operating income for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Operating income for the three months endedFebruary 28, 2022 increased 62.8 percent to$173 million . Operating income was negatively impacted by 7.4 percentage points ($8 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in operating income was primarily in theUK , reflecting recovery inUK footfall, as a result of less severe COVID-19 restrictions. This was partially offset by increased investments in selling, general and administrative expenses. Gross profit increased 11.8 percent for the three months endedFebruary 28, 2022 . Gross profit was adversely impacted by 3.4 percentage points ($36 million ) as a result of currency translation. The remaining increase was primarily due to higher retail sales and stronger demand for pharmacy services in theUK , together with higher gross profit associated with the Company's pharmaceutical wholesale business inGermany . This was partially offset by higher National Health Service ("NHS") reimbursement levels in the year ago quarter. Selling, general and administrative expenses increased 6.2 percent for the three months endedFebruary 28, 2022 . Expenses were favorably impacted by 2.9 percentage points ($29 million ) as a result of currency translation. Excluding the impact of currency translation, the increase reflects increased investments in labor, marketing and IT compared to the year-ago quarter. As a percentage of sales, selling, general and administrative expenses were 18.6 percent in the three months endedFebruary 28, 2022 compared to 17.9 percent in the year-ago quarter. WBA Q2 2022 Form 10-Q 50
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted operating income (Non-GAAP measure) for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Adjusted operating income for the three months endedFebruary 28, 2022 increased 55.0 percent to$226 million . Adjusted operating income was negatively impacted by 5.7 percentage points ($8 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily in theUK , reflecting higher retail sales. This was partially offset by increased investments in selling, general and administrative expenses.
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Sales for the six months endedFebruary 28, 2022 increased 17.2 percent to$11.4 billion , which includes incremental sales associated with the Company's pharmaceutical wholesale business inGermany , formed on1 November 2020 . The unfavorable impact of currency translation on sales was 2.0 percentage points. Comparable sales in constant currency, which exclude sales associated withGermany , increased 12.8 percent, mainly due to higher sales in BootsUK . Sales in the comparable year ago-period include the adverse impact of strict COVID-19 restrictions on store footfall, as theUK entered a second national lockdown inNovember 2020 . Pharmacy sales increased 7.7 percent in the six months endedFebruary 28, 2022 and represented 17.4 percent of the segment's sales. The positive impact of currency translation on pharmacy sales was 1.0 percentage points. Comparable pharmacy sales in constant currency increased 6.8 percent, primarily in theUK , reflecting stronger demand for pharmacy services. Retail sales increased 16.6 percent for the six months endedFebruary 28, 2022 and represented 32.3 percent of the segment's sales. The positive impact of currency translation on retail sales was 0.7 percentage points. Comparable retail sales in constant currency increased 16.4 percent reflecting higher retail sales in theUK , including a recovery in store footfall compared to a year ago-period, as COVID-19 restrictions were less severe. Footfall on theUK high street remains below pre-COVID-19 levels. Operating income for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Operating income for the six months endedFebruary 28, 2022 increased 56.6 percent to$227 million . Operating income was negatively impacted by 6.4 percentage points ($9 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in operating income was primarily in theUK , reflecting recovery inUK footfall, following the easing of COVID-19 restrictions and stronger demand for services. This was partially offset by increased investment in labor, higherNHS reimbursement levels in the year ago period in theUK and acquisition-related activity inGermany . Gross profit increased 16.6 percent for the six months endedFebruary 28, 2022 . Gross profit was not significantly impacted by currency translation. Excluding the impact of currency translation, the increase was primarily due to higher retail sales and stronger demand for pharmacy services in theUK , together with the incremental gross profit associated with the Company's pharmaceutical wholesale business inGermany . This was partially offset by higherNHS reimbursement levels in the year ago period. Selling, general and administrative expenses increased 13.6 percent for the six months endedFebruary 28, 2022 . Expenses were negatively impacted by 0.5 percentage points ($10 million ) as a result of currency translation. Excluding the impact of currency translation, the increase reflects increased investments in acquisition-related activity compared to the year-ago period, incremental expenses associated with the Company's wholesale business inGermany , increased investments in labor and marketing, and the non-recurring COVID-19 related government support in the year ago period. As a percentage of sales, selling, general and administrative expenses were 19.2 percent in the six months endedFebruary 28, 2022 compared to 19.8 percent in the year-ago period. Adjusted operating income (Non-GAAP measure) for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Adjusted operating income for the six months endedFebruary 28, 2022 increased 67.7 percent to$389 million . Adjusted operating income in the period was adversely impacted 3.4 percent ($8 million ) by currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily in theUK , reflecting higher retail sales and stronger demand for pharmacy services. This was partially offset by increased investments in selling, general and administrative expenses and higherNHS reimbursement levels in the year ago period. WBA Q2 2022 Form 10-Q 51
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Walgreens Health The Company'sWalgreens Health segment, created at the beginning of fiscal year 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey.Walgreens Health delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.The Walgreens Health segment currently consists of a majority position inVillageMD , a leading, national provider of value-based primary care services; a majority position in Shields, a specialty pharmacy integrator and accelerator for hospitals; and theWalgreens Health organically-developed business that contracts with payors and providers to deliver clinical healthcare services to their members and members' caregivers through both digital and physical channels. FINANCIAL PERFORMANCE (in millions,
except payor, location and clinic amounts)
Three months ended February 28, Six months ended February 28,
2022 2021 2022 2021
Sales $ 527 $ - $ 577 $ -
Gross profit 15 - 36 -
Selling, general and administrative expenses 227 11 292 14
Operating loss (212) (11) (257) (14)
Adjusted operating loss (Non-GAAP measure) 1 (77) (11) (90) (14)
Number of payor/provider partnerships at period
end 2 - 2 -
Number of locations with Walgreens Health Corners
at period end 47 - 47 -
Number of VillageMD co-located clinics at period
end 94 - 94 -
1See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales for the three months ended
Operating loss for the three months endedFebruary 28, 2022 compared to three months endedFebruary 28, 2021 Operating loss for the three months endedFebruary 28, 2022 was$212 million , compared to a loss of$11 million in the year-ago quarter.
Gross profit for the three months ended
Selling, general and administrative expenses were$227 million for the three months endedFebruary 28, 2022 compared to$11 million for the three months endedFebruary 28, 2021 . Selling, general and administrative expenses reflect the two acquisitions and acceleration of investments in theWalgreens Health organically-developed business for the three months endedFebruary 28, 2022 .
Adjusted operating loss (Non-GAAP measure) for the three months ended
WBA Q2 2022 Form 10-Q 52
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted operating loss was$77 million for the three months endedFebruary 28, 2022 , reflecting the two acquisitions and accelerating of investments inWalgreens Health organically-developed business compared to a loss of$11 million in the year-ago quarter. See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales for the six months ended
Operating loss for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Operating loss for the six months endedFebruary 28, 2022 was$257 million , compared to a loss of$14 million in the year-ago period. Gross profit for the six months endedFebruary 28, 2022 was$36 million , reflecting results from Shields andVillageMD . Gross profit was driven by Shields key contract wins partly offset by growth investments atVillageMD . Selling, general and administrative expenses were$292 million for the six months endedFebruary 28, 2022 compared to$14 million for the six months endedFebruary 28, 2021 . Selling, general and administrative expenses reflect the two acquisitions and accelerating of investments inWalgreens Health organically-developed business for the six months endedFebruary 28, 2022 . Adjusted operating loss (Non-GAAP measure) for the six months endedFebruary 28, 2022 compared to six months endedFebruary 28, 2021 Adjusted operating loss was$90 million for the six months endedFebruary 28, 2022 , reflecting the two acquisitions and accelerating of investments inWalgreens Health compared to a loss of$14 million in the year-ago period. See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. NON-GAAP MEASURES The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under theSEC rules, presented herein to the most directly comparable financial measures calculated and presented in accordance with GAAP. The Company has provided the non-GAAP financial measures herein, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. See notes to the "Net Earnings (loss) From Continuing Operations (GAAP)" to "Adjusted diluted net earnings per common share (Non-GAAP measure)" reconciliation table for definitions of non-GAAP financial measures and related adjustments presented below. These supplemental non-GAAP financial measures are presented because management has evaluated the Company's financial results both including and excluding the adjusted items or the effects of foreign currency translation, as applicable, and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in the Company's historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. The Company does not provide a reconciliation for non-GAAP estimates on a forward-looking basis where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the timing or amount of various items that have not yet occurred, are out of the Company's control or cannot be reasonably predicted, and that would impact the most directly comparable forward-looking GAAP financial measure. These items may include but are not limited to merger integration expenses, restructuring charges, acquisition-related costs, asset impairments and other significant items that currently cannot be predicted without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures may vary materially from the corresponding GAAP financial measures. WBA Q2 2022 Form 10-Q 53
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS The Company also presents certain information related to current period operating results in "constant currency", which is a non-GAAP financial measure. These amounts are calculated by translating current period results at the foreign currency exchange rates used in the comparable period in the prior year. The Company presents such constant currency financial information because it has significant operations outside of theU.S. reporting in currencies other than theU.S. dollar and such presentation provides a framework to assess how its business performed excluding the impact of foreign currency exchange rate fluctuations.
Operating income (loss) to Adjusted operating income (loss) by segments
(in millions)
Three months ended February 28, 2022
United States International Walgreens Corporate and Walgreens Boots
Health Other Alliance, Inc.
Operating income (loss) (GAAP) $ 1,390 $
173
52 13 - 5 70
Acquisition-related amortization 99 17 135 - 250
Acquisition-related costs - 23 - 21 44
Adjustments to equity earnings in
AmerisourceBergen 51 - - - 51
LIFO provision (5) - - - (5)
Adjusted operating income (loss)
(Non-GAAP measure) $ 1,588 $ 226 (77) $ (79) $ 1,657
(in millions)
Three months ended February 28, 2021
United States International Walgreens Health Corporate and Walgreens Boots
Other Alliance, Inc.
Operating income (loss) (GAAP)$ 828 $ 106 $ (11)$ (91) $
832
Transformational cost management 140 21 - 17
178
Acquisition-related amortization 96 17 - - 114 Acquisition-related costs (9) 2 - 2 (5) Adjustments to equity earnings (loss) in AmerisourceBergen 45 - - - 45 LIFO provision 2 - - - 2 Certain legal and regulatory accruals and settlements 60 - - -
60
Adjusted operating income (loss) (Non-GAAP measure)$ 1,163 $ 146 $ (11)$ (72) $ 1,225 WBA Q2 2022 Form 10-Q 54
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in millions)
Six months ended February 28, 2022
United States International Walgreens Corporate and Walgreens Boots
Health Other Alliance, Inc.
Operating income (loss) (GAAP) $ 2,746 $
227
193 66 - 14 273
Acquisition-related amortization 238 34 143 - 415
Acquisition-related costs (3) 62 24 32 115
Adjustments to equity earnings in
AmerisourceBergen 94 - - - 94
LIFO provision 9 - - - 9
Adjusted operating income (loss)
(Non-GAAP measure) $ 3,277 $ 389 (90) $ (143) $ 3,434
(in millions)
Six months ended February 28, 2021
United States International Walgreens Health Corporate and Walgreens Boots
Other Alliance, Inc.
Operating income (loss) (GAAP)$ 324 $ 145 $ (14)$ (157) $
298
Transformational cost management 201 47 - 29
278
Acquisition-related amortization 173 36 - - 209 Acquisition-related costs (1) 4 - 13 16 Adjustments to equity earnings (loss) in AmerisourceBergen 1,526 - - - 1,526 LIFO provision 35 - - - 35 Certain legal and regulatory accruals and settlements 60 - - -
60
Adjusted operating income (loss) (Non-GAAP measure)$ 2,318 $ 232 $ (14)$ (114) $ 2,422 Net Earnings to Adjusted net earnings & Earnings per share to Adjusted Earnings per share (in millions) Three months ended February 28, Six months ended February 28, 2022 2021 2022 2021 Net earnings from continuing operations (GAAP) $
883
Adjustments to operating income: Transformational cost management 1 70 178 273 278 Acquisition-related amortization 2 250 114 415 209 Acquisition-related costs 3 44 (5) 115 16
Adjustments to equity earnings (loss) in AmerisourceBergen 5
51 45 94 1,526
Certain legal and regulatory accruals and settlements 4 - 60 - 60
LIFO provision 6 (5) 2 9 35
Total adjustments to operating income 411 393 906 2,124
WBA Q2 2022 Form 10-Q 55
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjustments to other (expense) income: Net investment hedging (gain) loss 7 - (7) 1 1 Adjustment to gain on disposal of discontinued operations 8 38 - 38 -
Impairment of equity method investment and investment in equity securities 9
190 - 190 -
Gain on previously held investments 10 - - (2,576) -
Gain on sale of equity method investment 11 - (191) (191)
Total adjustments to other (expense) income 228 (199) (2,347) (190)
Adjustments to income tax provision (benefit):
Equity method non-cash tax 12 12 20 30 (326) Tax impact of adjustments 12 (109) (52) (135) (113) Total adjustments to income tax provision (benefit) (97) (33) (105) (439) Adjustments to post tax earnings in other equity method investments: Adjustments to equity earnings in other equity method investments 13 10 24 24 37 Total adjustments to post tax earnings from other equity method investments 10 24 24 37 Adjustments to net earnings attributable to non-controlling interests: Transformational cost management 1 - 3 (1) 2 Acquisition-related amortization 2 (56) (12) (88) (16) Acquisition-related costs 3 (3) - (20) - LIFO provision 6 - (3) - (6) Total adjustments to net earnings attributable to non-controlling interests (59) (13) (109) (20) Adjusted net earnings attributable to Continuing Operations (Non-GAAP measure)$ 1,377 $ 1,095 $ 2,833 $ 2,043 Net earnings attributable toWalgreens Boots Alliance, Inc. - discontinued operations (GAAP) - 104 - 187 Transformational cost management 1 - 4 - 9 Acquisition-related amortization 2 - 7 - 28 Acquisition-related costs 3 - 8 - 10 Tax impact of adjustments 12 - (6) - (11)
Total adjustments to net earnings (loss) attributable
to
$ -
Adjusted net earnings attributable to
$ -
Adjusted net earnings attributable to
$ 1,377
Diluted net earnings per common share - continuing operations (GAAP)
$ 1.02 $ 1.06 $ 5.15 $ 0.61 Adjustments to operating income 0.48 0.45 1.05 2.45 Adjustments to other (expense) income 0.26 (0.23) (2.71) (0.22) Adjustments to income tax provision (benefit) (0.11) (0.04) (0.12) (0.51) WBA Q2 2022 Form 10-Q 56
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjustments to post tax earnings from other equity method investments 13 0.01 0.03 0.03 0.04 Adjustments to net (loss) earnings attributable to non-controlling interests (0.07) (0.01) (0.13) (0.02) Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure)$ 1.59 $
1.26
Diluted net earnings per common share - discontinued operations (GAAP) $ -$ 0.12 $ -$ 0.22 Total adjustments to net earnings attributable toWalgreens Boots Alliance, Inc. - discontinued operations - 0.02 - 0.04 Adjusted diluted net earnings per common share - discontinued operations (Non-GAAP measure) $ -$ 0.14 $ -$ 0.26 Adjusted diluted net earnings per common share (Non-GAAP measure)$ 1.59 $ 1.40 $ 3.27 $ 2.62 Weighted average common shares outstanding, diluted (in millions) 865.2 865.6 866.4 865.7
1 Transformational Cost Management Program charges are costs associated with a formal
restructuring plan. These charges are primarily recorded within selling, general and
administrative expenses. These costs do not reflect current operating performance and are
impacted by the timing of restructuring activity. 2 Acquisition-related amortization includes amortization of acquisition-related intangible
assets, inventory valuation adjustments and stock-based compensation fair valuation
adjustments. Amortization of acquisition-related intangible assets includes amortization
of intangible assets such as customer relationships, trade names, trademarks and contract
intangibles. Intangible asset amortization excluded from the related non-GAAP measure
represents the entire amount recorded within the Company's GAAP financial statements. The
revenue generated by the associated intangible assets has not been excluded from the
related non-GAAP measures. Amortization expense, unlike the related revenue, is not
affected by operations of any particular period unless an intangible asset becomes
impaired, or the estimated useful life of an intangible asset is revised. These charges
are primarily recorded within selling, general and administrative expenses. Business
combination accounting principles require us to measure acquired inventory at fair value.
The fair value of the inventory reflects cost of acquired inventory and a portion of the
expected profit margin. The acquisition-related inventory valuation adjustments excludes
the expected profit margin component from cost of sales recorded under the business
combination accounting principles. Stock based compensation fair valuation adjustment
reflects difference between fair value based remeasurement of awards and the grant date
fair valuation. Post-acquisition compensation expense recognized in excess of the original
grant date fair value of acquiree awards are excluded from the related non-GAAP measures
as these arise from acquisition-related accounting requirements or agreements, and are not
reflective of normal operating activities. 3 Acquisition-related costs are transaction and integration costs associated with certain
merger, acquisition and divestitures related activities. These costs include all charges
incurred on certain mergers, acquisition and divestitures related activities, for example,
including costs related to integration efforts for successful merger, acquisition and
divestitures activities. Examples of such costs include deal costs, severance and stock
compensation. These charges are primarily recorded within selling, general and
administrative expenses. These costs are significantly impacted by the timing and
complexity of the underlying merger, acquisition and divestitures related activities and
do not reflect the Company's current operating performance. 4 Certain legal and regulatory accruals and settlements relate to significant charges
associated with certain legal proceedings. The Company excludes these charges when
evaluating operating performance because it does not incur such charges on a predictable
basis and exclusion of such charges enables more consistent evaluation of the Company's
operating performance. These charges are recorded within selling, general and
administrative expenses. 5 Adjustments to equity earnings (loss) in AmerisourceBergen consist of the Company's
proportionate share of non-GAAP adjustments reported by AmerisourceBergen consistent with
the Company's non-GAAP measures. The Company recognized equity losses in AmerisourceBergen
of
primarily due to AmerisourceBergen's recognition of
related to its ongoing opioid litigation in its financial statements for the three months
period ended
("LIFO") method. This adjustment represents the impact on cost of sales as if the United
States segment inventory is accounted for using first-in first-out ("FIFO") method. The
LIFO provision is affected by changes in inventory quantities, product mix, and
manufacturer pricing practices, which may be impacted by market and other external
influences. Therefore, the Company cannot control the amounts recognized or timing of
these items. 7 Gain or loss on certain derivative instruments used as economic hedges of the Company's
net investments in foreign subsidiaries. These charges are recorded within other income
(loss). We do not believe this volatility related to mark-to-market adjustment on the
underlying derivative instruments reflects the Company's operational performance.
WBA Q2 2022 Form 10-Q 57
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
8 During the three months ended
capital adjustments with AmerisourceBergen related to the sale of the Alliance Healthcare
business, resulting in a
Consolidated Condensed Statement of Earnings. 9 Impairment of equity method investment and investment in equity securities includes
impairment of certain investments. The Company excludes these charges when evaluating
operating performance because these do not relate to the ordinary course of the Company's
business and it does not incur such charges on a predictable basis. Exclusion of such
charges enables more consistent evaluation of the Company's operating performance. These
charges are recorded within Other (expense) income. 10 Includes significant gains on business combinations due to the remeasurement of
previously held minority equity interests and debt securities to fair value. During the
three months ended
billion and
ended
income due to a partial sale of its equity method investment in Option Care Health. 12 Adjustments to income tax provision (benefit) include adjustments to the GAAP basis tax
provision (benefit) commensurate with non-GAAP adjustments and certain discrete tax items
including
within income tax provision (benefit). 13 Adjustments to post tax earnings from other equity method investments consist of the
proportionate share of certain equity method investees' non-cash items or unusual or
infrequent items consistent with the Company's non-GAAP adjustments. These charges are
recorded within post tax (loss) earnings from other equity method investments. Although
the Company may have shareholder rights and board representation commensurate with its
ownership interests in these equity method investees, adjustments relating to equity
method investments are not intended to imply that the Company has direct control over
their operations and resulting revenue and expenses. Moreover, these non-GAAP financial
measures have limitations in that they do not reflect all revenue and expenses of these
equity method investees.
The Company considers certain metrics presented in this report, such as comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions, and comparable 30-day equivalent prescriptions, to be key performance indicators because the Company's management has evaluated its results of operations using these metrics and believes that these key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in its historical operating results. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. These measures, which are described in more detail in this report, may not be comparable to similarly-titled performance indicators used by other companies. LIQUIDITY AND CAPITAL RESOURCES The Company's long-term capital policy is to: maintain a strong balance sheet and financial flexibility; reinvest in its core strategies; invest in strategic opportunities that reinforce its core strategies and meet return requirements; and return surplus cash flow to stockholders in the form of dividends and share repurchases over the long term. InJune 2018 , the Company's Board of Directors reviewed and refined the Company's dividend policy to set forth the Company's current intention to increase its dividend each year. The Company's cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that the Company may complete may also impact its cash requirements. Additionally, the Company's cash requirements, and its ability to generate cash flow, have been and may continue to be adversely affected by COVID-19 and the resulting market volatility and instability. For further information regarding the impact of COVID-19 on the Company, including on its liquidity and capital resources, please see Item 1A, Risk factors in the 2021 10-K. The Company expects to fund its working capital needs, capital expenditures, pending acquisitions, continuing obligations for recently announced or completed acquisitions, dividend payments and debt service obligations from liquidity sources including cash flow from operations, availability under existing credit facilities, commercial paper programs, working capital financing arrangements, debt offerings and current cash and investment balances. The Company believes that these sources, and the ability to obtain other financing will provide adequate cash funds for the Company's foreseeable working capital needs, capital expenditures, pending acquisitions, dividend payments and debt service obligations for at least the next 12 months. See Part II. Item 3, Qualitative and quantitative disclosures about market risk, below for a discussion of certain financing and market risks.
WBA Q2 2022 Form 10-Q 58
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Cash, cash equivalents and restricted cash were$2.0 billion (including$263 million in non-U.S. jurisdictions) as ofFebruary 28, 2022 compared to$1.3 billion (including$204 million in non-U.S. jurisdictions) as ofAugust 31, 2021 . Short-term investment objectives are primarily to minimize risk and maintain liquidity. To attain these objectives, investment limits are placed on the amount, type and issuer of securities. Investments are principally inU.S. Treasury money market funds. OnDecember 28, 2021 , the Company paid$1.9 billion to existing shareholders ofVillageMD , for the fully subscribed tender offer. The tender offer was funded by cash proceeds provided toVillageMD pursuant to the Unit Purchase Agreement. The Company has also previously announced its intention to make further cash investments for the acquisition ofCareCentrix . Additionally, certain acquisitions include put options which may be exercised in the future. The Company currently expects that the incremental investment resulting from the exercise of the put options in the future could be between approximately$1.3 billion and$1.6 billion . As ofFebruary 28, 2022 , the Company had an aggregate borrowing capacity of$7.8 billion , including funds already drawn. AtFebruary 28, 2022 , the Company had no guarantees outstanding and the letters of credit issued were not material. See Note 8. Debt, to the Consolidated Condensed Financial Statements for further information on the Company's debt instruments and its recent financing actions. Cash flows from operating activities Cash provided by operations and the incurrence of debt are the principal sources of funds for expansion, investments, acquisitions, remodeling programs, dividends to stockholders and stock repurchases. Net cash provided by operating activities for the six months endedFebruary 28, 2022 was$2.2 billion , compared to$2.6 billion for the prior year period. The decrease in cash provided by operating activities reflects lower cash inflows from accounts payable, accrued expenses and other liabilities and higher cash outflows from inventory, partially offset by an increase in operating performance and higher cash inflows from accounts receivable. Changes in accrued expenses and other liabilities are mainly driven by timing of COVID-19 related government support and other payments. Changes in accounts payable are mainly driven by AllianceRxWalgreens sales decline and timing. Changes in accounts receivable and inventory are mainly driven by timing. Cash flows from investing activities Net cash used for investing activities was$2.2 billion for the six months endedFebruary 28, 2022 compared to$1.4 billion for the prior-year period. Net cash used for investing activities for the six months endedFebruary 28, 2022 includes business acquisitions, net of cash acquired ofVillageMD and Shields for$0.8 billion and$0.9 billion , respectively. See Note 3. Acquisitions and other investments, to the Consolidated Condensed Financial Statement for further information. Capital Expenditure Capital expenditure includes information technology projects and other growth initiatives. Additions to property, plant and equipment were as follows (in millions): WBA Q2 2022 Form 10-Q 59
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Six months ended February 28,
2022 2021
United States $ 632 $ 532
International 155 109
Walgreens Health 83 15
Discontinued operations - 37
Total $ 870 $ 692
Cash flows from financing activities
Net cash provided by financing activities for the six months ended February 28,
2022 was $769 million compared to $647 million of net cash used for financing
activities, in the prior-year period. In the six months ended February 28,
2022 there were $11.2 billion in proceeds from debt, primarily from revolving
credit facilities, commercial paper and the issuance of notes, compared to $6.9
billion in proceeds from debt in six months ended February 28, 2021 . In the six
months ended February 28, 2022 there were $7.3 billion in payments of debt made
primarily for revolving credit facilities and commercial paper compared to $6.5
billion in six months ended February 28, 2021 . See Note 8. Debt, to the
Consolidated Condensed Financial Statements for further information. The Company
acquired $2.1 billion of non-controlling interests during the six months ended
February 28, 2022 . See Note 3. Acquisitions and other investments to the
Consolidated Condensed Financial Statements for further information. The Company
repurchased shares totaling $187 million in the six months ended February 28,
2022 to support the needs of its employee stock plans compared to $110 million
in the prior year period. Cash dividends paid were $833 million during the six
months ended February 28, 2022 compared to $808 million for the prior year
period.
See Item 3, Qualitative and quantitative disclosures about market risk, below for a discussion of certain financing and market risks.
Stock repurchase program InJune 2018 , the Company'sBoard of Director's approved a stock repurchase program (the "June 2018 stock repurchase program"), which authorized the repurchase of up to$10.0 billion of the Company's common stock of which the Company had repurchased$8 billion as ofFebruary 28, 2022 . TheJune 2018 stock repurchase program has no specified expiration date. InJuly 2020 , the Company suspended repurchases under this program. The Company may continue to repurchase stock to offset anticipated dilution from equity incentive plans. The Company determines the timing and amount of repurchases, including repurchases to offset anticipated dilution from equity incentive plans, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. The Company has repurchased, and may from time to time in the future repurchase, shares on the open market through Rule 10b5-1 plans, which enable the Company to repurchase shares at times when we otherwise might be precluded from doing so under federal securities laws. Debt covenants Each of the Company's credit facilities described in Note 8. Debt, to the Consolidated Condensed Financial Statements, 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 also contain various other customary covenants. As ofFebruary 28, 2022 , the Company was in compliance with all such applicable covenants. Credit ratings As ofMarch 30, 2022 , the credit ratings ofWalgreens Boots Alliance were: Rating agency Long-term debt rating Commercial paper rating Outlook Moody's Baa2 P-2 Negative Standard & Poor's BBB A-2 Stable WBA Q2 2022 Form 10-Q 60
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS In assessing the Company's credit strength, each rating agency considers various factors including the Company's business model, capital structure, financial policies and financial performance. There can be no assurance that any particular rating will be assigned or maintained. The Company's credit ratings impact its borrowing costs, access to capital markets and operating lease costs. The rating agency ratings are not recommendations to buy, sell or hold the Company's debt securities or commercial paper. Each rating may be subject to revision or withdrawal at any time by the assigning rating agency and should be evaluated independently of any other rating. CRITICAL ACCOUNTING ESTIMATES The Consolidated Condensed Financial Statements are prepared in accordance with GAAP and include amounts based on management's prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the Consolidated Condensed Statements of Earnings and corresponding Consolidated Condensed Balance Sheets accounts would be necessary. These adjustments would be made in future periods. For a discussion of our significant accounting policies, please see the Company's 2021 10-K. Some of the more significant estimates include business combinations, leases, goodwill and indefinite-lived intangible asset impairment, cost of sales and inventory, equity method investments, pension and postretirement benefits, legal contingencies and income taxes. NEW ACCOUNTING PRONOUNCEMENTS A discussion of new accounting pronouncements is described in Note 18. New accounting pronouncements, to the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q and is incorporated herein by reference. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This report and other documents that we file or furnish with theSEC contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include, without limitation, any statements regarding the Company's future operations, financial or operating results, capital allocation, anticipated debt levels and ratios, future earnings, planned activities, anticipated growth, market opportunities, strategies, competition, and other expectations and targets for future periods. Words such as "expect," "likely," "outlook," "forecast," "preliminary," "pilot," "project," "intend," "plan," "goal," "target," "aim," "continue," "believe," "seek," "anticipate," "upcoming," "may," "possible," and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated. These risks, assumptions and uncertainties include those described in Item 1A, Risk factors, which are incorporated herein by reference, and in other documents that we file or furnish with theSEC . If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. All forward-looking statements we make or that are made on our behalf are qualified by these cautionary statements. Accordingly, you should not place undue reliance on these forward-looking statements, which speak only as of the date they are made. We do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this report, whether as a result of new information, future events, changes in assumptions or otherwise. WBA Q2 2022 Form 10-Q 61
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
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