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 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. and other significant exporting countries, includingChina , and international relations, including the 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 Prime, 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 the joint venture, which was renamed 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. InJune 2022 , the Company announced the conclusion of the strategic review and decision to retain existing ownership in these businesses. WBA Q3 2022 Form 10-Q 38
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OnMay 5, 2022 , the Company entered into a agreement with theState of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the company's pharmacies in theState of Florida . The settlement amount of$683 million includes$620 million to be paid in equal installments to theState of Florida over 18 years and applied by it to remediation of past and future opioid damages, as well as a one-time payment of$63 million for attorneys' fees. The Company made the first annual settlement payment of$97.2 million into escrow onJune 17, 2022 . 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
Since the beginning of 2020, COVID-19 has severely impacted, and may continue to directly and indirectly 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 and supply chain disruption in every region in which we operate, which had adversely affected our industries and our business operations. Further, financial and credit markets have experienced volatility and could continue to experience volatility due to COVID-19 and other factors. 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 in theU.S. , theUK and other countries, reduced customer traffic and sales in our retail pharmacies and the adoption of work-from-home policies. As COVID-19 and its direct and indirect consequences continue to evolve, COVID-19 has impacted, and may again impact our business operations. In response to COVID-19 and emerging variants, various domestic and foreign, federal, state and local governmental legislation, regulations, orders, policies and initiatives had been implemented that were 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 had 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 COVID-19. 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 ofMay 31, 2022 , the Company has administered more than 67 million COVID-19 vaccinations, including 16 million booster vaccinations, and more than 30 million COVID-19 tests in theU.S. During the nine months endedMay 31, 2022 , the Company has administered more than 32 million COVID-19 vaccinations and more than 17 million COVID-19 tests in theU.S. During the three months endedMay 31, 2022 ,the United States segment comparable 30-day equivalent prescriptions filled decreased 1.8%, including a negative impact of 400 basis points from COVID-19 vaccinations. Comparable retail sales increase was aided by at-home COVID-19 test sales. The situation surrounding COVID-19 remains fluid, and could continue to impact the consumer, customer and healthcare utilization patterns as well as theU.S. and global economies, including supply chains and the labor force. 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
Sale of AmerisourceBergen common stock OnMay 11, 2022 , the Company sold 6.0 million shares of AmerisourceBergen common stock pursuant to Rule 144 at a price of$150 per share for a total consideration of$900 million , decreasing the Company's ownership of AmerisourceBergen's common stock from 58,854,867 shares, held atAugust 31, 2021 to 52,854,867 shares held as ofMay 31, 2022 . The transaction resulted in the Company recording a pre-tax gain of$424 million in Other income in the Consolidated Condensed Statements of Earnings, including a$25 million loss reclassified from within Accumulated other comprehensive income in the Consolidated Condensed Balance Sheets. As ofMay 31, 2022 , the Company holds approximately 25.2% of AmerisourceBergen outstanding common stock, based on the share count publicly reported by AmerisourceBergen in its most recent Quarterly Report on Form 10-Q.
See Note 6. Equity method investments, to the Consolidated Condensed Financial Statements for further information
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.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 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%, for cash consideration of$969 million . 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.
CareCentrix 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 and increased its annual cost savings target to$3.3 billion by the end of fiscal 2024. During the three months endedMay 31, 2022 , the Company increased its annual cost savings target from$3.3 billion to$3.5 billion by the end of fiscal 2024. The Company is currently on track to achieve the savings target. The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company's information technology (IT) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program which focus 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.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 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.
From the inception of the Transformational Cost Management Program toMay 31, 2022 , the Company has recognized aggregate cumulative pre-tax charges to its financial results in accordance with GAAP of$1.9 billion , of which$1.7 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$467 million related to lease obligations and other real estate costs,$357 million in asset impairments,$679 million in employee severance and business transition costs,$183 million of information technology transformation and other exit costs and$252 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 nine months ended
Corporate and Walgreens Boots Three months ended May 31, 2022 United States International Other Alliance, Inc. Lease obligations and other real estate costs $ 16 $ 3 $ - $ 18 Asset impairments 48 14 - 61 Employee severance and business transition costs 53 22 11 86 Information technology transformation and other exit costs 1 6 - 7
Total pre-tax exit and disposal charges $ 117 $
45 $ 11 $ 173 Other IT transformation costs
10 2 - 11 Total pre-tax costs $ 127 $ 47 $ 11 $ 185 Corporate and Walgreens Boots Nine months ended May 31, 2022 United States International Other Alliance, Inc.
Lease obligations and other real estate costs $ 107 $
6 $ - $ 113 Asset impairments 64 42 - 105 Employee severance and business transition costs 110 32 25 166 Information technology transformation and other exit costs 3 18 - 20
Total pre-tax exit and disposal charges $ 283 $
97 $ 25 $ 404 Other IT transformation costs
36 17 - 53 Total pre-tax costs $ 319 $ 114 $ 25 $ 458 WBA Q3 2022 Form 10-Q 42
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Table of ContentsWALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Corporate and Walgreens Boots Three months ended May 31, 2021 United States International Other Alliance, Inc. Lease obligations and other real estate costs $ 15 $ 6 $ - $ 21 Asset impairments 5 9 - 14 Employee severance and business transition costs (19) 2 14 (2) Information technology transformation and other exit costs 1 10 - 11 Total pre-tax exit and disposal charges $ 2 $ 27 $ 14 $ 44 Other IT transformation costs 10 6 - 16 Total pre-tax costs $ 13 $ 33 $ 14 $ 60 Corporate and Walgreens Boots Nine months ended May 31, 2021 United States International Other Alliance, Inc. Lease obligations and other real estate costs $ 56 $ 6 $ - $ 62 Asset impairments 9 10 - 19 Employee severance and business transition costs 92 36 44 172 Information technology transformation and other exit costs 14 11 1 26
Total pre-tax exit and disposal charges $ 172 $
63 $ 44 $ 279 Other IT transformation costs
42 17 - 59 Total pre-tax costs $ 213 $ 80 $ 44 $ 338 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 OnMay 11, 2022 , the Company sold 6.0 million shares of AmerisourceBergen common stock pursuant to Rule 144 at a price of$150 per share for a total consideration of$900 million , decreasing the Company's ownership of AmerisourceBergen's common stock from 58,854,867 shares, held atAugust 31, 2021 to 52,854,867 shares held as ofMay 31, 2022 . The transaction resulted in the Company recording a pre-tax gain of$424 million in Other income in the Consolidated Condensed Statements of Earnings, including a$25 million loss reclassified from within Accumulated other comprehensive income in the Consolidated Condensed Balance Sheets. As ofMay 31, 2022 , the Company holds approximately 25.2% of AmerisourceBergen 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 12,398,752 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 continues to account 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'sUnited States segment. During the nine months endedMay 31, 2022 and 2021, the Company recognized equity income of$330 million and equity losses of$1.2 billion , in AmerisourceBergen, respectively. The equity losses for the period endedMay 31, 2021 were primarily due to AmerisourceBergen's recognition of loss of$5.6 billion , net of tax, related to its ongoing opioid litigation in its financial statements for the three months endedSeptember 30, 2020 . WBA Q3 2022 Form 10-Q 43
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS The financial performance of AmerisourceBergen will impact the Company's results of operations. Additionally, a substantial and sustained decline in the price of AmerisourceBergen's common stock could trigger an impairment evaluation of our investment. These considerations may materially and adversely affect the Company's financial condition and results of operations.
For more information, see Note 2. Discontinued operations and Note 6. Equity method investments, to the Consolidated Condensed Financial Statements.
EXECUTIVE SUMMARY The following table presents certain key financial statistics for the Company for the three and nine months endedMay 31, 2022 and 2021.
(in millions, except per share amounts)
Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales$ 32,597 $ 34,030 $ 100,254 $ 98,247 Gross profit 6,572 7,153 21,855 20,564 Selling, general and administrative expenses 7,019 6,116 19,975 17,936 Equity earnings (loss) in AmerisourceBergen 127 97 330 (1,196) Operating (loss) income (320) 1,134 2,209 1,432 Adjusted operating income (Non-GAAP measure) 1 955 1,459 4,389 3,881 Earnings before interest and tax 90 1,294 5,038 1,905
Net earnings attributable to
289 1,105 4,752 1,636
Adjusted net earnings attributable to
1,194 3,667 3,237
Diluted net earnings per common share - continuing operations (GAAP)
0.33 1.27 5.49 1.89
Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure) 1
0.96 1.38 4.23 3.74 Percentage increases (decreases) Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales (4.2) 12.1 2.0 7.2 Gross profit (8.1) 20.0 6.3 4.1 Selling, general and administrative expenses 14.8 (22.4) 11.4 (8.8) Operating (loss) income (128.2) NM 54.3 NM Adjusted operating income (Non-GAAP measure) 1 (34.6) 82.9 13.1 4.2 Earnings before interest and income tax provision (93.0) NM 164.5 NM
Net earnings attributable to
(73.8) NM 190.5 NM
Adjusted net earnings attributable to
(30.2) 93.1 13.3 8.4
Diluted net earnings per common share - continuing operations (GAAP)
(73.8) NM 190.6 NM Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure) 1 (30.0) 95.1 13.3 10.7 WBA Q3 2022 Form 10-Q 44
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Table of ContentsWALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Percent to sales Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Gross margin 20.2 21.0 21.8 20.9 Selling, general and administrative expenses 21.5 18.0 19.9 18.3
1See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
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 endedMay 31, 2022 were$289 million compared to net earnings of$1.1 billion for the prior year quarter. Diluted net earnings per share was$0.33 compared to diluted net earnings per share of$1.27 for the prior year quarter. The decreases in net earnings and diluted net earnings per share reflect the opioid settlement with theState of Florida , a decrease inU.S. pharmacy operating results, negative impact from COVID-19 vaccinations, and growth investments inWalgreens Health , partly offset by a gain on the partial sale of the company's equity method investment in AmerisourceBergen, improved retail contributions in both theU.S. and International segments, and the favorable impact of a lower tax rate compared with the year-ago quarter. Net earnings attributable to the Company for the nine months endedMay 31, 2022 were$4.8 billion , compared to net earnings of$1.6 billion for the prior year period. Diluted net earnings per share was$5.49 compared to diluted net earnings per share of$1.89 for the prior year period. The increases in net earnings and diluted net earnings per share reflect a$2.5 billion after-tax gain during the three months endedNovember 30, 2021 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 prior fiscal year. The gain and prior year charge were partly offset by the charge related to the opioid settlement with theState of Florida in the current quarter. Other income for the three months endedMay 31, 2022 was$410 million compared to income of$159 million in the year ago quarter. The increase in Other income for three months endedMay 31, 2022 is mainly due to a gain on the partial sale of the company's equity method investment in AmerisourceBergen. Other income for the nine months endedMay 31, 2022 was$2.8 billion compared to$473 million in the year ago period. The increase for the nine months endedMay 31, 2022 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 and the partial sale of the company's equity method investment in AmerisourceBergen. Net interest expense was$108 million and$295 million for the three and nine months endedMay 31, 2022 , respectively, compared to$545 million and$817 million for the three and nine months endedMay 31, 2021 , respectively. The decrease in interest expense was primarily the result of early debt extinguishments completed during fiscal year 2021 and lower interest rates on remaining debt. The Company recognized a tax benefit from continuing operations for the three months endedMay 31, 2022 . The effective tax rate for the three months endedMay 31, 2022 was not meaningful. The tax benefit is primarily due to reduction of a valuation allowance on net deferred tax assets related to capital gains from the sale of AmerisourceBergen shares (see Note 6. Equity method investments), internal restructuring, other anticipated gains, and the tax benefits of the opioid settlement with theState of Florida (see Note 11. Commitments and contingencies). The tax rate for the three months endedMay 31, 2021 was an expense of 32.8% and includes a discrete tax expense on equity earnings of$576 million fromHC Group Holdings . See Note 3. Acquisitions and other investments for further information.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS The effective tax rate for the nine months endedMay 31, 2022 was 4.3%, compared to 7.4% for the nine months endedMay 31, 2021 . The tax rate for the nine months endedMay 31, 2022 includes the discrete tax effect of lower tax expense on gains from consolidation of the Company's investment inVillageMD and Shields (see Note 3. Acquisitions and other investments), discrete tax benefits recorded for the release of valuation allowance on net deferred tax assets resulting from capital gains derived from the partial sale of AmerisourceBergen shares (see Note 6. Equity method investments), internal restructuring, other anticipated gains and the tax benefit of the opioid settlement with theState of Florida (see Note 11. Commitments and contingencies). The effective tax rate for the prior period reflects the discrete tax effect of equity losses in AmerisourceBergen, partially offset by the tax effect on equity earnings of HC Group Holdings. Adjusted net earnings from continuing operations (Non-GAAP measure) Adjusted net earnings attributable to the Company for the three months endedMay 31, 2022 decreased 30.2 percent to$834 million compared with the prior year quarter. Adjusted diluted net earnings per share for the three months endedMay 31, 2022 decreased 30.0 percent to$0.96 compared with the year-ago quarter. Adjusted diluted net earnings and adjusted diluted net earnings per share were both negatively impacted by 1.1 percent as a result of currency translation. Excluding the impact of currency translation, the decreases in adjusted net earnings for the three months endedMay 31, 2022 primarily reflectU.S. pharmacy operating results, lower COVID-19 vaccination volume, and growth investments inWalgreens Health , partly offset by improved retail contributions in both ourUnited States and International segments. See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. Adjusted net earnings attributable to the Company for the nine months endedMay 31, 2022 increased 13.3 percent to$3.7 billion compared with the prior year period. Adjusted diluted net earnings per share for the nine months endedMay 31, 2022 increased 13.3 percent to$4.23 compared with the year-ago period. Adjusted diluted net earnings and adjusted diluted net earnings per share were both negatively impacted by 0.6 percentage points as a result of currency translation. Excluding the impact of currency translation, the increases in adjusted net earnings for the nine months endedMay 31, 2022 primarily reflect strong adjusted gross profit growth across both pharmacy and retail inthe United States and a continued rebound in International segment sales and profitability, partly offset by growth investments inWalgreens Health . See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
RESULTS OF OPERATIONS BY SEGMENT
United States The Company'sUnited States segment includes theWalgreens business which includes the operations of retail drugstores, health and wellness services, and mail and central specialty pharmacy services, and its equity method investment in AmerisourceBergen. Sales for the segment are principally derived from the sale of prescription drugs and a wide assortment of retail products, including health and wellness, beauty, personal care and consumables and general merchandise. WBA Q3 2022 Form 10-Q 46
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL PERFORMANCE (in
millions, except location amounts)
Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales$ 26,695 $ 28,743 $ 82,394 $ 83,250 Gross profit 5,499 6,093 18,332 17,434 Selling, general and administrative expenses 5,716 4,971 16,006 14,695 Equity earnings (loss) in AmerisourceBergen 127 97 330 (1,196) Operating (loss) income (90) 1,219 2,656 1,543 Adjusted operating income (Non-GAAP measure)1 966 1,471 4,243 3,789 Number of prescriptions 2 201.5 214.1 622.8 613.9 30-day equivalent prescriptions 2,3 304.3 312.1 918.1 898.1 Number of locations at period end 8,904 8,992 8,904 8,992 Percentage increases (decreases) Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales (7.1) 5.1 (1.0) 3.1 Gross profit (9.8) 15.5 5.2 3.7 Selling, general and administrative expenses 15.0 (0.4) 8.9 0.7 Operating (loss) income NM 130.8 72.1 (38.4) Adjusted operating income (Non-GAAP measure) 1 (34.4) 50.3 12.0 2.3 Comparable sales 4 1.8 6.4 6.3 4.1 Pharmacy sales (9.7) 6.3 (4.0) 5.1 Comparable pharmacy sales 4 2.0 8.4 5.3 6.0 Retail sales 1.0 1.4 8.4 (2.6) Comparable retail sales 4 1.4 1.7 8.8 (0.5) Comparable number of prescriptions 2,4 (5.3) 9.8 2.0 - Comparable 30-day equivalent prescriptions 2,3,4 (1.8) 9.8 2.9 3.8 Percent to sales Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Gross margin 20.6 21.2 22.2 20.9 Selling, general and administrative expenses 21.4 17.3 19.4 17.7 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.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 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 endedMay 31, 2022 compared to three months endedMay 31, 2021 Sales for the three months endedMay 31, 2022 decreased by 7.1 percent to$26.7 billion , including 850 basis points impact of AllianceRxWalgreens sales decline. Comparable sales increased by 1.8 percent for the three months endedMay 31, 2022 . Pharmacy sales decreased by 9.7 percent for the three months endedMay 31, 2022 , including 11 percentage point of AllianceRxWalgreens sales decline and represented 73.6 percent of the segment's sales. Excluding AllianceRxWalgreens , pharmacy sales increased by 1.9 percent. The increase is due to brand inflation, partly offset by COVID-19 vaccinations and reimbursement pressure. For the three months endedMay 31, 2021 , pharmacy sales increased 6.3 percent and represented 75.7 percent of the segment's sales. Comparable pharmacy sales increased 2.0 percent for the three months endedMay 31, 2022 compared to an increase of 8.4 percent in the year-ago quarter. Within comparable sales, prescriptions filled during the three months endedMay 31, 2022 decreased by 1.8 percent from a year earlier, including a negative impact of approximately 400 basis points from COVID-19 vaccinations. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 0.3 percent for the three months endedMay 31, 2022 compared to a reduction of 0.5 percent for the year-ago quarter. The effect of generics on segment sales was a reduction of 0.2 percent for the three months endedMay 31, 2022 compared to a reduction of 0.4 percent for the year-ago quarter. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.5 percent of prescription sales for the three months endedMay 31, 2022 compared to 97.5 percent in the year-ago quarter. The total number of prescriptions (including vaccinations) filled for the three months endedMay 31, 2022 was 201.5 million compared to 214.1 million in the year-ago quarter. Prescriptions (including vaccinations) adjusted to 30-day equivalents were 304.3 million in the three months endedMay 31, 2022 compared to 312.1 million in the year-ago quarter. Retail sales increased by 1.0 percent for the three months endedMay 31, 2022 and were 26.4 percent of the segment's sales. In comparison, in the year-ago quarter, retail sales increased by 1.4 percent and comprised 24.3 percent of the segment's sales. Comparable retail sales increased 1.4 percent in the three months endedMay 31, 2022 and increased 1.7 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, cough, cold and flu, and the personal care category, partially offset by lower sales in the consumables and general merchandise and beauty categories, and the planned decline in tobacco. Operating loss for the three months endedMay 31, 2022 compared to Operating income for three months endedMay 31, 2021 Operating loss for the three months endedMay 31, 2022 was$90 million , including income of$127 million from the Company's share of equity earnings in AmerisourceBergen. This compared with operating income of$1.2 billion in the prior year quarter, including$97 million from Company's share of equity earnings in AmerisourceBergen. Excluding the impact of equity earnings in AmerisourceBergen, the decrease was driven by higher selling, general and administrative expenses related to an accrual for the opioid settlement with theState of Florida and higher Transformational Cost Management Program costs. Gross margin was 20.6 percent for the three months endedMay 31, 2022 compared to 21.2 percent in the year-ago quarter. Gross margin was negatively impacted in the current quarter due to a decline in pharmacy results from the negative impact of COVID-19 vaccinations, partly offset by positive contributions from retail performance. Selling, general and administrative expenses as a percentage of sales were 21.4 percent for the three months endedMay 31, 2022 and 17.3 percent for the three months endedMay 31, 2021 . The increase reflects a$683 million charge related to an accrual for the aforementioned opioid settlement with theState of Florida and higher costs related to the Transformational Cost Management Program.
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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 endedMay 31, 2022 compared to three months endedMay 31, 2021 Adjusted operating income for the three months endedMay 31, 2022 decreased by 34.4 percent to$966 million . The decrease was primarily due to prior period results which included peak COVID-19 vaccination volumes, with positive current period contributions from growth in 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 nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Sales for the nine months endedMay 31, 2022 decreased by 1.0 percent to$82.4 billion , including 605 basis points impact of AllianceRxWalgreens sales decline. Comparable sales increased by 6.3 percent for the nine months endedMay 31, 2022 . Pharmacy sales decreased by 4.0 percent for the nine months endedMay 31, 2022 , including 8 percentage point of AllianceRxWalgreens sales decline and represented 73.5 percent of the segment's sales. Excluding AllianceRxWalgreens , pharmacy sales increased by 5.0 percent. The increase is due to brand inflation and COVID-19 vaccinations and testing, partially offset by reimbursement pressure. For the nine months endedMay 31, 2021 , pharmacy sales increased 5.1 percent and represented 75.8 percent of the segment's sales. Comparable pharmacy sales increased 5.3 percent for the nine months endedMay 31, 2022 compared to an increase of 6.0 percent in the year-ago period. Within comparable sales, prescriptions filled during the nine months endedMay 31, 2022 increased by 2.9 percent from a year earlier, including a positive impact of approximately 1.3 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 nine months endedMay 31, 2022 compared to a reduction of 0.4 percent for the year-ago period. The effect of generics on segment sales was a reduction of 0.2 percent for the nine months endedMay 31, 2022 compared to a reduction of 0.3 percent for the year-ago period. Third party sales, where reimbursement is received from managed care organizations, governmental agencies, employers or private insurers, were 97.2 percent of prescription sales for the nine months endedMay 31, 2022 compared to 97.5 percent in the year-ago period. The total number of prescriptions (including vaccinations) filled for the nine months endedMay 31, 2022 was 622.8 million compared to 613.9 million in the year-ago period. Prescriptions (including vaccinations) adjusted to 30-day equivalents were 918.1 million in the nine months endedMay 31, 2022 compared to 898.1 million in the year-ago period. Retail sales increased by 8.4 percent for the nine months endedMay 31, 2022 and were 26.5 percent of the segment's sales. In comparison, in the year-ago period, retail sales decreased by 2.6 percent and comprised 24.2 percent of the segment's sales. Comparable retail sales increased 8.8 percent in the nine months endedMay 31, 2022 and decreased 0.5 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, cough, cold and flu, as well as personal care and beauty categories, partially offset by the planned decline in tobacco. Operating income for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Operating income for the nine months endedMay 31, 2022 was$2.7 billion , including$330 million from the Company's share of equity earnings in AmerisourceBergen. This compared with operating income of$1.5 billion in the prior year period, including the Company's equity loss in AmerisourceBergen of$1.2 billion . Excluding the impact of AmerisourceBergen, the operating loss was driven by higher selling, general and administrative expenses related to an accrual for the opioid settlement with theState of Florida , offset by COVID-19 vaccination, testing, and retail gross profit growth. Gross margin was 22.2 percent for the nine months endedMay 31, 2022 compared to 20.9 percent in the year-ago period. Gross margin was positively impacted in the current period by pharmacy and retail margins. The increase in pharmacy margin was primarily due to COVID-19 vaccinations and testing and specialty, partially offset by reimbursement pressure. The increase in retail margin was primarily due to favorable rate and product mix. Selling, general and administrative expenses as a percentage of sales were 19.4 percent for the nine months endedMay 31, 2022 and 17.7 percent for the nine months endedMay 31, 2021 . Costs related to the opioid settlement with theState of Florida , COVID-19 vaccinations and testing and labor investments were partially offset by savings related to the Company's Transformational Cost Management Program. WBA Q3 2022 Form 10-Q 49
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Adjusted operating income (Non-GAAP measure) for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Adjusted operating income for the nine months endedMay 31, 2022 increased by 12.0 percent to$4.2 billion . The increase was primarily due to COVID-19 vaccinations and testing and retail gross profit growth, partially offset by pharmacy reimbursement pressure.
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
International
The Company's International segment consists of pharmacy-led health and beauty retail businesses outside theU.S. and pharmaceutical wholesaling and distribution business inGermany . Pharmacy-led health and beauty retail businesses include Boots branded stores in theUK , theRepublic of Ireland andThailand , the Benavides brand inMexico and the Ahumada brand inChile . Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products. The International segment operates in currencies other than theU.S. dollar, including the British pound sterling, Euro, Chilean peso and Mexican peso and therefore the segment's results are impacted by movements in foreign currency exchange rates. See Item 3, "Quantitative and qualitative disclosure about market risk, foreign currency exchange rate risk", for further information on currency risk. The Company presents certain information related to operating results in "constant currency," which is a non-GAAP financial measure. Comparable sales in constant currency, comparable pharmacy sales in constant currency and comparable retail sales in constant currency exclude the effects of fluctuations in foreign currency exchange rates. See "Non-GAAP Measures." FINANCIAL PERFORMANCE (in
millions, except location amounts)
Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales$ 5,305 $ 5,288 $ 16,686 $ 14,998 Gross profit 1,095 1,060 3,508 3,130 Selling, general and administrative expenses 995 1,025 3,182 2,949 Operating income 100 36 326 181 Adjusted operating income (Non-GAAP measure) 1 174 94 563 326 Number of retail locations at period end 4,021 4,062 4,021 4,062 WBA Q3 2022 Form 10-Q 50
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Table of ContentsWALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Percentage increases (decreases) Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales 0.3 75.8 11.3 37.9 Gross profit 3.2 55.0 12.1 6.6 Selling, general and administrative expenses (2.9) (63.9) 7.9 (39.8) Operating income 177.1 NM 80.6 NM Adjusted operating income (Non-GAAP measure) 1 85.8 NM 72.8 109.7 Comparable sales in constant currency 2 12.6 21.0 12.7 0.7 Pharmacy sales (5.9) 15.2 3.0 5.2 Comparable pharmacy sales in constant currency 2 1.5 6.0 5.0 4.8 Retail sales 11.2 55.9 14.6 (0.1) Comparable retail sales in constant currency 2 20.1 35.7 17.6 (1.9) Percent to sales Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Gross margin 20.6 20.1 21.0 20.9 Selling, general and administrative expenses 18.8 19.4 19.1 19.7 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 endedMay 31, 2022 compared to three months endedMay 31, 2021 Sales for the three months endedMay 31, 2022 increased 0.3 percent to$5.3 billion . The unfavorable impact of currency translation on sales was 9.0 percentage points. Comparable sales in constant currency, which exclude sales associated with the Company's pharmaceutical wholesale business inGermany , increased 12.6 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. Pharmacy sales decreased 5.9 percent in the three months endedMay 31, 2022 and represented 17.0 percent of the segment's sales. The negative impact of currency translation on pharmacy sales was 6.5 percentage points. Comparable pharmacy sales in constant currency increased 1.5 percent mainly due to growth inMexico andChile ; partially offset by a 0.4 percent decrease in theUK , where modest growth in pharmacy item volumes was offset by favorable timing ofUK reimbursement in the year-ago quarter.
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Retail sales increased 11.2 percent for the three months endedMay 31, 2022 and represented 30.5 percent of the segment's sales. The negative impact of currency translation on retail sales was 8.4 percentage points. Comparable retail sales in constant currency increased 20.1 percent reflecting higher retail sales in theUK , including an improvement in store footfall compared to a year ago-quarter, as COVID-19 restrictions have now been lifted. Footfall on theUK high street remains below pre-COVID-19 levels. Operating income for the three months endedMay 31, 2022 compared to three months endedMay 31, 2021 Operating income for the three months endedMay 31, 2022 increased to$100 million compared to$36 million in the year-ago quarter. Operating income was adversely impacted by 36.9 percentage points ($13 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in operating income was primarily in theUK , reflecting strong sales growth, following the lifting of COVID-19 restrictions. This was partially offset by increased selling, general and administrative expenses.
Gross profit increased 3.2 percent for the three months ended
Selling, general and administrative expenses decreased 2.9 percent for the three months endedMay 31, 2022 . Expenses were favorably impacted by 7.0 percentage points ($72 million ) as a result of currency translation. Excluding the impact of currency translation, the increase reflects increased investments in labor and marketing compared to the year-ago quarter, and COVID-19 related government support in the year ago quarter, partly offset by a gain inUK from a sale-leaseback transaction. As a percentage of sales, selling, general and administrative expenses were 18.8 percent in the three months endedMay 31, 2022 compared to 19.4 percent in the year-ago quarter. Adjusted operating income (Non-GAAP measure) for the three months endedMay 31, 2022 compared to three months endedMay 31, 2021 Adjusted operating income for the three months endedMay 31, 2022 increased 85.8 percent to$174 million . Adjusted operating income was negatively impacted by 17.5 percentage points ($16 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily in theUK , reflecting strong sales growth, following the lifting of COVID-19 restrictions. This was partially offset by increased 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 nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Sales for the nine months endedMay 31, 2022 increased 11.3 percent to$16.7 billion , which includes incremental sales associated with the Company's pharmaceutical wholesale business inGermany , formed onNovember 1, 2020 . The adverse impact of currency translation on sales was 4.5 percentage points. Comparable sales in constant currency, which exclude sales associated withGermany , increased 12.7 percent, mainly due to higher sales in BootsUK and growth inMexico ,Chile andIreland . Sales in the comparable year ago-period include the adverse impact of strict COVID-19 restrictions on store footfall. Pharmacy sales increased 3.0 percent in the nine months endedMay 31, 2022 and represented 17.2 percent of the segment's sales. The negative impact of currency translation on pharmacy sales was 1.6 percentage points. Comparable pharmacy sales in constant currency increased 5.0 percent, primarily in theUK , reflecting stronger demand for pharmacy services, and pharmacy volumes inMexico andChile . Retail sales increased 14.6 percent for the nine months endedMay 31, 2022 and represented 31.7 percent of the segment's sales. The negative impact of currency translation on retail sales was 2.2 percentage points. Comparable retail sales in constant currency increased 17.6 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, and higher retail sales inIreland . Footfall on theUK high street remains below pre-COVID-19 levels. WBA Q3 2022 Form 10-Q 52
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Operating income for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Operating income for the nine months endedMay 31, 2022 increased 80.6 percent to$326 million . Operating income was negatively impacted by 12.5 percentage points ($23 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in operating income was primarily in theUK , reflecting higher retail sales, following the easing of COVID-19 restrictions, and stronger demand for services. This was partially offset by increased selling, general and administrative expenses and higherNHS pharmacy reimbursement levels in the year ago period in theUK . Gross profit increased 12.1 percent for the nine months endedMay 31, 2022 . Gross profit was adversely impacted by 2.7 percentage points ($85 million ) as a result of 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 7.9 percent for the nine months endedMay 31, 2022 . Expenses were favorably impacted by 2.1 percentage points ($62 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. This was partially offset by a gain inUK from a sale-leaseback transaction. As a percentage of sales, selling, general and administrative expenses were 19.1 percent in the nine months endedMay 31, 2022 compared to 19.7 percent in the year-ago period. Adjusted operating income (Non-GAAP measure) for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Adjusted operating income for the nine months endedMay 31, 2022 increased 72.8 percent to$563 million . Adjusted operating income in the period was adversely impacted by 7.5 percent ($24 million ) as a result of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily in theUK , reflecting higher retail sales, following the easing of COVID-19 restrictions, and stronger demand for pharmacy services. This was partially offset by increased selling, general and administrative expenses and higherNHS pharmacy reimbursement levels in the year ago period in theUK .
See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Walgreens Health The Company'sWalgreens Health segment, created at the beginning of fiscal year 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey.Walgreens Health delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.The Walgreens Health segment currently consists of a majority position inVillageMD , a leading, national provider of value-based primary care services; a majority position in Shields, a specialty pharmacy integrator and accelerator for hospitals; and theWalgreens Health organically-developed business that contracts with payors and providers to deliver clinical healthcare services to their members and members' caregivers through both digital and physical channels. WBA Q3 2022 Form 10-Q 53
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL PERFORMANCE (in millions,
except payor, location and clinic amounts)
Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Sales$ 596 $ -$ 1,173 $ - Gross (loss) profit (21) - 15 - Selling, general and administrative expenses 213 17 505 31 Operating loss (234) (17) (491) (31) Adjusted operating loss (Non-GAAP measure) 1 (129) (17) (218) (31) Number of payor/provider partnerships at period end 3 - 3 - Number of locations withWalgreens Health Corners at period end 55 - 55 - Number of co-locatedVillageMD clinics at period end 120 25 120 25 Number of total VillageMD clinics at period end 2 315 218 315 218 1See "Non-GAAP Measures" below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures. 2The Company acquiredVillageMD in the three months endedNovember 30, 2021 . The number ofVillageMD clinics presented above for the prior periods is for comparative purposes only. Sales for the three months endedMay 31, 2022 Sales for the three months endedMay 31, 2022 were$596 million . This includesVillageMD sales of$511 million and Shields sales of$86 million . Operating loss for the three months endedMay 31, 2022 compared to three months endedMay 31, 2021 Operating loss for the three months endedMay 31, 2022 was$234 million , compared to a loss of$17 million in the year-ago quarter. Gross loss for the three months endedMay 31, 2022 was$21 million , reflecting results from Shields andVillageMD . Gross loss was driven by growth investments atVillageMD , partly offset by further growth in existing partnerships and expanding margins at Shields. Selling, general and administrative expenses were$213 million for the three months endedMay 31, 2022 compared to$17 million for the three months endedMay 31, 2021 . Selling, general and administrative expenses reflect the two acquisitions as well as continued investments in theWalgreens Health organically-developed business for the three months endedMay 31, 2022 . Adjusted operating loss (Non-GAAP measure) for the three months endedMay 31, 2022 compared to three months endedMay 31, 2021 Adjusted operating loss was$129 million for the three months endedMay 31, 2022 , reflecting the two acquisitions as well as continued investments inWalgreens Health organically-developed business compared to a loss of$17 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 nine months endedMay 31, 2022 Sales for the nine months endedMay 31, 2022 were$1.2 billion . This includesVillageMD sales of$983 million reflecting ownership since the acquisition date ofNovember 24, 2021 and Shields sales of$191 million reflecting ownership since the acquisition date ofOctober 29, 2021 . WBA Q3 2022 Form 10-Q 54
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Operating loss for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Operating loss for the nine months endedMay 31, 2022 was$491 million , compared to a loss of$31 million in the year-ago period. Gross profit for the nine months endedMay 31, 2022 was$15 million , reflecting results from Shields andVillageMD . Gross profit was driven by further growth at existing partnerships and expanding margins at Shields, partly offset by growth investments atVillageMD .
Selling, general and administrative expenses were
Adjusted operating loss (Non-GAAP measure) for the nine months endedMay 31, 2022 compared to nine months endedMay 31, 2021 Adjusted operating loss was$218 million for the nine months endedMay 31, 2022 , reflecting the two acquisitions as well as continued investments inWalgreens Health compared to a loss of$31 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. 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. WBA Q3 2022 Form 10-Q 55
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating income (loss) to Adjusted operating income (loss) by segments
(in millions) Three months ended May 31, 2022 United States International Walgreens Corporate and Walgreens Boots Health Other Alliance, Inc. Operating (loss) income (GAAP)$ (90) $
100
734 - - - 734 Acquisition-related amortization 79 16 106 - 201 Transformational cost management 127 47 - 11 185 Adjustments to equity earnings (loss) in AmerisourceBergen$ 60 $ - $ - $ - $ 60 Acquisition-related costs$ 1 $ 11 $ - $ 28 $ 40 LIFO provision 55 - - - 55 Adjusted operating income (loss) (Non-GAAP measure)$ 966 $ 174$ (129) $ (56) $ 955 (in millions) Three months ended May 31, 2021 United States InternationalWalgreens Health Corporate and Walgreens Boots Other Alliance, Inc. Operating income (loss) (GAAP)$ 1,219 $ 36 $ (17)$ (103) $
1,134
Acquisition-related amortization 138 20 - -
158
Transformational cost management 12 33 - 14
60
Adjustments to equity earnings (loss) in AmerisourceBergen 48 - - - 48 Acquisition-related costs 3 5 - 1 9 LIFO provision 51 - - - 51 Adjusted operating income (loss) (Non-GAAP measure)$ 1,471 $ 94 $ (17)$ (88) $ 1,459 WBA Q3 2022 Form 10-Q 56
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Table of ContentsWALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS (in millions) Nine months ended May 31, 2022 United States International Walgreens Corporate and Walgreens Boots Health Other Alliance,
Inc.
Operating income (loss) (GAAP)$ 2,656 $
326
734 - - - 734 Acquisition-related amortization 317 50 249 - 616 Transformational cost management 319 114 - 25 458 Adjustments to equity earnings (loss) in AmerisourceBergen 155 - - - 155 Acquisition-related costs (2) 73 24 60 155 LIFO provision 64 - - - 64 Adjusted operating income (loss) (Non-GAAP measure)$ 4,243 $ 563$ (218) $ (198) $ 4,389 (in millions) Nine months ended May 31, 2021 United States InternationalWalgreens Health Corporate and Walgreens Boots Other Alliance, Inc. Operating income (loss) (GAAP)$ 1,543 $ 181 $ (31)$ (261) $
1,432
Certain legal and regulatory accruals and settlements 60 - - -
60
Acquisition-related amortization 311 56 - -
367
Transformational cost management 213 80 - 44
338
Adjustments to equity earnings (loss) in AmerisourceBergen 1,575 - - - 1,575 Acquisition-related costs 2 8 - 14 25 LIFO provision 85 - - - 85 Adjusted operating income (loss) (Non-GAAP measure)$ 3,789 $ 326 $ (31)$ (202) $ 3,881 WBA Q3 2022 Form 10-Q 57
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Net Earnings to Adjusted net earnings & Earnings per share to Adjusted Earnings per share (in millions) Three months ended May 31, Nine months ended May 31, 2022 2021 2022 2021 Net earnings from continuing operations (GAAP) $
289
Adjustments to operating (loss) income: Certain legal and regulatory accruals and settlements 1 734 - 734 60 Acquisition-related amortization 2 201 158 616 367 Transformational cost management 3 185 60 458 338 Adjustments to equity earnings in AmerisourceBergen4 60 48 155 1,575 Acquisition-related costs5 40 9 155 25 LIFO provision 6 55 51 64 85 Total adjustments to operating (loss) income 1,275 325 2,181 2,449
Adjustments to other income: Impairment of equity method investment and investment in equity securities 7
- - 190 - Adjustment to gain on disposal of discontinued operations 8 - - 38 - Net investment hedging loss 9 - 5 1 6 Gain on sale of equity method investment 10 (421) (98) (421) (290) Gain on previously held investments 11 - - (2,576) - Total adjustments to other income (421) (94) (2,768) (284) Adjustments to interest expense, net: Early debt extinguishment 12 4 419 4 419 Total adjustments to interest expense, net 4 419 4 419 Adjustments to income tax (benefit) provision: Equity method non-cash tax 13 25 17 55 (309) Tax impact of adjustments 13 (331) 10 (466) (104) Total adjustments to income tax (benefit) provision (306) 27 (411) (412)
Adjustments to post tax earnings in other equity method investments: Adjustments to equity earnings in other equity method investments 14
24 (557) 49 (520)
Total adjustments to post tax earnings from other equity method investments
24 (557) 49 (520) Adjustments to net loss attributable to non-controlling interests: LIFO provision 6 - (1) - (7) Early debt extinguishment 12 (1) - (1) - Transformational cost management 3 - - (1) 2 Acquisition-related costs 5 2 - (18) - Acquisition-related amortization 2 (31) (30) (119) (46) Total adjustments to net loss attributable to non-controlling interests (31) (30) (140) (50) Adjusted net earnings attributable to Continuing Operations (Non-GAAP measure)$ 834 $ 1,194 $ 3,667 $ 3,237 WBA Q3 2022 Form 10-Q 58
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
Net earnings attributable to
- 92 - 279 Acquisition-related costs 5 - 39 - 49 Acquisition-related amortization 2 - - - 28 Transformational cost management 3 - (8) - 1 Tax impact of adjustments 13 - (5) - (15) Total adjustments to net earnings attributable toWalgreens Boots Alliance, Inc. - discontinued operations $ -
Adjusted net earnings attributable to
$ -
Adjusted net earnings attributable to
$ 834
Diluted net earnings per common share - continuing operations (GAAP)
$ 0.33 $ 1.27 $ 5.49 $ 1.89 Adjustments to operating (loss) income 1.47 0.38 2.52 2.83 Adjustments to other income (0.49) (0.11) (3.20) (0.33) Adjustments to interest expense, net 0.01 0.48 0.01 0.48 Adjustments to income tax (benefit) provision (0.35) 0.03 (0.47) (0.48)
Adjustments to post tax earnings from other equity method investments 14
0.03 (0.64) 0.06 (0.60) Adjustments to net loss attributable to non-controlling interests (0.04) (0.03) (0.16) (0.06) Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure)$ 0.96
Diluted net earnings per common share - discontinued operations (GAAP)
$ -$ 0.11 $ -$ 0.32 Total adjustments to net earnings attributable toWalgreens Boots Alliance, Inc. - discontinued operations - 0.03 - 0.07 Adjusted diluted net earnings per common share - discontinued operations (Non-GAAP measure) $ -$ 0.14 $ -$ 0.39 Adjusted diluted net earnings per common share (Non-GAAP measure)$ 0.96 $ 1.51 $ 4.23 $ 4.13 Weighted average common shares outstanding, diluted (in millions) 865.3 867.0 866.0 866.2
1 Certain legal and regulatory accruals and settlements relate to significant charges
associated with certain legal proceedings, including legal defense costs. During the
three months ended
a settlement agreement with the
distribution and dispensing of prescription opioid medications across the Company's
pharmacies in the
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. WBA Q3 2022 Form 10-Q 59
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS
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 the fair value based remeasurement of awards under purchase
accounting 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 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. 4 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
merger, acquisition and divestitures related activities. These costs include charges
incurred related to certain mergers, acquisition and divestitures related activities
recorded in operating income, for example, 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.
6 The Company's
("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 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 income.
8 During the three months ended
adjustments with AmerisourceBergen related to the sale of the Alliance Healthcare business,
resulting in a
Statement of Earnings. 9 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. We do
not believe this volatility related to mark-to-market adjustment on the underlying
derivative instruments reflects the Company's operational performance. 10 Includes significant gains on the sale of equity method investments. During the three
months ended
to a partial sale of its equity method investment in AmerisourceBergen. During the three
months and nine months ended
investment in Option Care Health. 11 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
million for
connection with the early extinguishment of debt related to the integration of Shields. In
the three months ended
the Company's cash tender offers to partially purchase and retire
reflect the Company's ongoing financial performance.
WBA Q3 2022 Form 10-Q 60
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13 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
recorded within income tax provision (benefit). 14 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 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. In the three months ended
of ownership interests in Option Care Health, our then equity method investee HC Group
Holdings lost the ability to control Option Care Health and, therefore, deconsolidated
Option Care Health in its financial statements. As a result of this deconsolidation, HC
equity earnings in
31, 2021. 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. OnJune 17, 2022 , the Company entered into a five-year$3.5 billion revolving credit agreement and an eighteen-month$1.5 billion revolving credit agreement. Simultaneously, with the entry into the credit agreements, the Company has terminated the Revolving Credit Agreements datedDecember 23, 2020 andAugust 29, 2018 . Further, onJune 3, 2022 , a notice of redemption was given to holders of certain notes issued by the Company onSeptember 13, 2012 . As a result, onJuly 5, 2022 , the notes with aggregate principal amount of$731 million will be redeemed in full. See Note 20. Subsequent events for further information. 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. Cash, cash equivalents, marketable securities and restricted cash were$4.5 billion (including$197 million in non-U.S. jurisdictions) as ofMay 31, 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.
WBA Q3 2022 Form 10-Q 61
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS 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$1.6 billion and$1.9 billion . OnMay 5, 2022 , the Company entered into an agreement with theState of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the Company's pharmacies in theState of Florida . The settlement amount of$683 million includes$620 million to be paid in equal installments to theState of Florida over 18 years, and applied by it to remediation of past and future opioid damages, as well as a one-time payment of$63 million for attorneys' fees. The Company made the first annual settlement payment of$97.4 million into escrow onJune 17, 2022 . OnMay 11, 2022 , the Company sold 6.0 million shares of AmerisourceBergen for$900 million , recorded as a cash inflow in investing activities, decreasing the Company's ownership of AmerisourceBergen's common stock from approximately 28.1% to approximately 25.2% of AmerisourceBergen's outstanding common stock based on the share count publicly reported by AmerisourceBergen in its most recent Quarterly Report on Form 10-Q. As ofMay 31, 2022 , the Company had an aggregate borrowing capacity of$5.8 billion , including funds already drawn. AtMay 31, 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 nine months endedMay 31, 2022 was$3.8 billion , compared to$4.3 billion for the prior year period. The decrease in cash provided by operating activities reflects lower cash inflows from inventories, accounts payable, accrued expenses and other liabilities, partially offset by an increase in operating performance and higher cash inflows from accounts receivable. Changes in inventory, accrued expenses and other liabilities are mainly driven by timing and absence of COVID-19 related government support. Changes in accounts payable are mainly driven by timing partially offset by impact of AllianceRxWalgreens sales decline. Changes in accounts receivable are mainly driven by lower COVID-19 volume and receivables in theU.S. Cash flows from investing activities Net cash used for investing activities was$1.3 billion for the nine months endedMay 31, 2022 and 2021. Net cash used for investing activities for the nine months endedMay 31, 2022 includes$0.9 billion of sale proceeds related to the Company's sale of the 6.0 million shares of AmerisourceBergen common stock and cash outflows associated with business, investment and asset acquisitions, net of cash acquired ofVillageMD and Shields for$0.8 billion and$0.9 billion , respectively. See Note 6. Equity method investments and Note 3. Acquisitions and other investments, to the Consolidated Condensed Financial Statement for further information. WBA Q3 2022 Form 10-Q 62
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Capital Expenditure Capital expenditure includes information technology projects and other growth initiatives. Additions to property, plant and equipment were as follows (in millions): Nine months ended May 31, 2022 2021 United States $ 865$ 745 International 219 162Walgreens Health 156 28 Discontinued operations - 67 Total$ 1,241 $ 1,001 Cash flows from financing activities Net cash provided by financing activities for the nine months endedMay 31, 2022 was$0.8 billion compared to$1.9 billion of net cash used for financing activities, in the prior-year period. In the nine months endedMay 31, 2022 there were$11.9 billion in proceeds from debt, primarily from revolving credit facilities, commercial paper and the issuance of notes, compared to$14.3 billion in proceeds from debt in nine months endedMay 31, 2021 . In the nine months endedMay 31, 2022 there were$7.4 billion in payments of debt made primarily for revolving credit facilities and commercial paper compared to$11.1 billion in nine months endedMay 31, 2021 . See Note 8. Debt, to the Consolidated Condensed Financial Statements for further information. Financing activities during the three months endedMay 31, 2022 and 2021 include the early extinguishments of debt related to the integration of Shields and the partial purchase and retirement of$3.3 billion of long-term debt, respectively. The Company acquired$2.1 billion of non-controlling interests during the nine months endedMay 31, 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 nine months endedMay 31, 2022 to support the needs of its employee stock plans compared to$110 million in the prior year period. Cash dividends paid were$1.3 billion during the nine months endedMay 31, 2022 compared to$1.2 billion 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 ofMay 31, 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 ofMay 31, 2022 , the Company was in compliance with all such applicable covenants. WBA Q3 2022 Form 10-Q 63
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WALGREENS BOOTS ALLIANCE , INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS Credit ratings As ofJune 29, 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 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 Q3 2022 Form 10-Q 64
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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES
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