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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2022  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to ___________
Commission file number 001-36759
WALGREENS BOOTS ALLIANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-1758322
(State of incorporation) (I.R.S. Employer Identification No.)
108 Wilmot Road, Deerfield, Illinois
 60015
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (847) 315-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueWBAThe Nasdaq Stock Market LLC
3.600% Walgreens Boots Alliance, Inc. notes due 2025WBA25The Nasdaq Stock Market LLC
2.125% Walgreens Boots Alliance, Inc. notes due 2026WBA26The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:    None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes           No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐         No 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes     No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
 
Non-accelerated filer
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).          Yes ☐          No

As of February 28, 2022, the aggregate market value of Walgreens Boots Alliance, Inc. common stock held by non-affiliates (based on the closing transaction price on Monday, February 28, 2022) was approximately $23.2 billion. 

As of September 30, 2022, there were 864,813,091 shares of Walgreens Boots Alliance, Inc. common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our Annual Meeting of Stockholders planned to be held on January 26, 2023 are incorporated by reference into Part III of this Form 10-K as indicated herein.

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Walgreens Boots Alliance, Inc.
Annual Report on Form 10-K
Table of Contents
Part I
 Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Part II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
Part III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
Part IV
 
Item 15.
Item 16.
 
 
References in this Annual Report on Form 10-K (this “Form 10-K”) to the “Company,” “we,” “us” or “our” refer to Walgreens 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. Our fiscal year ends on August 31, and references herein to “fiscal 2022” refer to our fiscal year ended August 31, 2022.

This Form 10-K includes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. See cautionary note regarding forward-looking statements in Management’s discussion and analysis of financial condition and results of operations in Part II, Item 7.

All trademarks, trade names and service marks used herein are the property of their respective owners.
WBA Fiscal 2022 Form 10-K

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PART I
Item 1. Business

Overview
Walgreens Boots Alliance, Inc., a Delaware corporation (“Walgreens Boots Alliance” or the “Company”), is an integrated healthcare, pharmacy and retail leader serving millions of customers and patients every day, with a 170-year heritage of caring for communities. The Company is proud of its contributions to healthy communities, a healthy planet, an inclusive workplace and a sustainable marketplace. Walgreens Boots Alliance is a participant of the United Nations Global Compact and adheres to its principles-based approach to responsible business. The Company has been recognized for its commitment to operating sustainably; it is an index component of the Dow Jones Sustainability Indices (“DJSI”) and was named to the 100 Best Corporate Citizens of 2022.

A trusted, global innovator in retail pharmacy with approximately 13,000 locations across the U.S., Europe and Latin America, Walgreens Boots Alliance plays a critical role in the healthcare ecosystem. The Company is reimagining local healthcare and well-being for all as part of its purpose – to create more joyful lives through better health. Through dispensing medicines, improving access to a wide range of health services, providing high quality health and beauty products and offering anytime, anywhere convenience across its digital platforms, the Company is shaping the future of healthcare.

Walgreens Boots Alliance is the largest retail pharmacy, health and daily living destination across the United States (“U.S.”) and Europe with sales of $132.7 billion in fiscal 2022. Walgreens Boots Alliance has a presence in 9 countries and employs more than 325,000 people. In addition, Walgreens Boots Alliance is one of the world’s largest purchasers of prescription drugs and many other health and well-being products. The Company’s size, scale and expertise will help it expand the supply of, and address the rising cost of, prescription drugs in the U.S. and worldwide.

The Company provides customers with convenient, omni-channel access through its portfolio of retail and business brands which includes Walgreens, Boots and Duane Reade as well as increasingly global health and beauty product brands, such as No7, NICE!, Soap & Glory, Finest Nutrition, Liz Earle, Botanics, Sleek MakeUP and YourGoodSkin. The Company's global brands portfolio is enhanced by its in-house product research and development capabilities. Additionally, the Company has a portfolio of healthcare-focused investments located in several countries, including in the U.S. and China. Strategic partnerships with some of the world’s leading companies enable the Company to extend its healthcare solutions and convenience offerings to the communities it serves. The Company is well positioned to expand customer offerings in existing markets and become a health and well-being partner of choice in emerging markets.

Walgreens Boots Alliance was incorporated in Delaware in 2014 and is the successor of Walgreen Co., an Illinois corporation, which was formed in 1909 as a successor to a business founded in 1901. Our principal executive offices are located at 108 Wilmot Road, Deerfield, Illinois 60015. Our common stock trades on the Nasdaq Stock Market under the symbol “WBA”.

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 also plans to continue to transform its core pharmacy and retail business. The Company’s goal is to provide better consumer experiences, improve health outcomes and lower costs. To advance its healthcare strategy, the Company made majority investments in Village Practice Management Company, LLC (“VillageMD”), Shields Health Solutions Parent, LLC (“Shields”) and CCX Next, LLC (“CareCentrix”) which it believes will strengthen its capabilities in primary care, post-acute care and home care. These majority-owned businesses and the Company’s organically grown healthcare business, Walgreens Health, make up the Company’s U.S. Healthcare segment.

The U.S. Healthcare segment offers a technology-enabled care model powered by a nationally scaled, locally delivered healthcare platform, organically developed clinical programs and strategic collaboration with its majority-owned businesses, including VillageMD, Shields and CareCentrix.

Recent Transactions

Shields acquisition
On October 29, 2021, the Company completed the acquisition of a majority interest in 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.



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The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

On September 20, 2022, the Company announced the acceleration of its plans for full ownership of Shields. The Company entered into a definitive agreement to acquire the remaining 30% equity interest for approximately $1.37 billion of cash consideration. The transaction is expected to close in the second quarter of fiscal 2023. See Note 21. Subsequent events to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

VillageMD acquisition
On November 24, 2021, the Company completed the acquisition of a majority interest in VillageMD. Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests of VillageMD, increasing the Company’s total beneficial ownership in VillageMD’s outstanding equity interests from approximately 30% to approximately 63%, on a fully diluted basis, for a purchase price of $5.2 billion. The total purchase price comprised of cash consideration of $4.0 billion and a promissory note of $1.2 billion.

The Company accounted for this acquisition as a business combination resulting in consolidation of VillageMD within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

Sale of AmerisourceBergen common stock
On May 11, 2022, the Company sold 6.0 million shares of AmerisourceBergen Corporation (“AmerisourceBergen”) common stock pursuant to Rule 144 at a price of $150 per share for a total consideration of $900 million. This decreased the Company's ownership of AmerisourceBergen’s common stock from 58,854,867 shares, held at August 31, 2021 to 52,854,867 shares held as of August 31, 2022, representing approximately 25.4% of AmerisourceBergen common stock, based on the share count publicly reported by AmerisourceBergen in its most recent Quarterly Report on Form 10-Q. The transaction resulted in the Company recording a pre-tax gain of $417 million in Other income, net in the Consolidated Statements of Earnings, including a $32 million loss reclassified from within Accumulated other comprehensive income in the Consolidated Balance Sheets.

See Note 6. Equity method investments, to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

CareCentrix acquisition
On August 31, 2022, the Company completed the acquisition of a majority interest in CareCentrix. Pursuant to the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, the Company acquired approximately 55% controlling equity interest in CareCentrix, a leading player in the post-acute and home care management sectors, for cash consideration of $332 million.

The Company accounted for this acquisition as a business combination resulting in consolidation of CareCentrix within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

On October 11, 2022, the Company announced the acceleration of its plans for full ownership of CareCentrix. The Company entered into a definitive agreement to acquire the remaining 45% equity interest for approximately $392 million of cash consideration. The acquisition is subject to limited customary closing conditions and is expected to close by March 2023. See Note 21. Subsequent events to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.





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Relationship with AmerisourceBergen
The Company is party to various agreements and arrangements with AmerisourceBergen including (a) a pharmaceutical distribution agreement under which the Company sources branded and generic pharmaceutical products from AmerisourceBergen in the United States and (b) an agreement under which AmerisourceBergen accesses generic pharmaceutical products through the Company’s global sourcing enterprise, Walgreens Boots Alliance Development GmbH. These agreements have been amended multiple times, most recently in June 2021, in connection with the Company's sale of its Alliance Healthcare business to AmerisourceBergen (the “Alliance Healthcare Sale”). Pursuant to those amendments, the U.S. distribution agreement was extended through 2029 and the parties committed to pursue additional opportunities in sourcing and distribution. The parties also agreed that Alliance Healthcare UK will remain the distribution partner of Boots until 2031.

The Company also holds a substantial investment in AmerisourceBergen. The Company accounts for its equity investment in AmerisourceBergen using the equity method of accounting, with the net earnings (loss) attributable to the Company’s investment being classified within the operating income of its U.S. Retail Pharmacy segment. Due to the timing and availability of financial information of AmerisourceBergen, the Company accounts for this equity method investment on a financial reporting lag of two months. Equity earnings (loss) from AmerisourceBergen are reported as a separate line in the Consolidated Statements of Earnings.

See Management’s discussion and analysis in Part II, Item 7 and Note 2. Discontinued operations, Note 6. Equity method investments and Note 19. Related parties, to the Consolidated Financial Statements included in Part II, Item 8, for further information.

Industry overview
The retail pharmacy industry across the globe is highly competitive and dynamic and has experienced consolidation and an evolving competitive landscape in recent years. Prescription drugs play a significant role in healthcare and constitute a first line of treatment for many medical conditions. The Company believes the long-term outlook for prescription drug utilization is strong due, in part, to aging populations, increases in the availability of generic drugs, the continued development of innovative drugs that improve quality of life and control healthcare costs and increases in the number of persons with insurance coverage for prescription drugs, including, in the U.S., “baby boomers” increasingly becoming eligible for the federally funded Medicare Part D prescription program. Pharmaceutical wholesalers act as a vital link between drug manufacturers, pharmacies and healthcare providers in supplying pharmaceuticals to patients.

The retail pharmacy industry across the globe relies significantly on private and governmental third-party payers. Many private organizations throughout the healthcare industry, including pharmacy benefit management (“PBM”) companies and health insurance companies, have consolidated in recent years to create larger healthcare enterprises with greater bargaining power. Third-party payers, including the Medicare Part D plans and the state-sponsored Medicaid and related managed care Medicaid agencies in the U.S., can change eligibility requirements or reduce certain reimbursement rates. In addition, in many European countries, the government provides or subsidizes healthcare to consumers and regulates pharmaceutical prices, patient eligibility and reimbursement levels to control costs for the government-sponsored healthcare system. Changes in law or regulation also can impact reimbursement rates and terms. For example, the Patient Protection and Affordable Care Act (the “ACA”) was enacted to help control federal healthcare spending, including for prescription drugs, in the U.S. These changes generally are expected to reduce Medicaid reimbursements in the U.S. State Medicaid programs are also expected to continue to seek reductions in reimbursements. In addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. For example, the Inflation Reduction Act requires drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries. The mechanics of the rebate calculation would mimic those of the Medicaid rebate, but the expansion of inflation-based rebates may further complicate pricing strategies, particularly as to the launch of our new products. When third-party payers or governmental authorities take actions that restrict eligibility or reduce prices or reimbursement rates, sales and margins in the retail pharmacy industry could be reduced, which would adversely affect industry profitability. In some cases, these possible adverse effects may be partially or entirely offset by controlling inventory costs and other expenses, dispensing more higher margin generics, finding new revenue streams through pharmacy services or other offerings and/or dispensing a greater volume of prescriptions.

These industry dynamics and challenges are continuous and have intensified in recent years. Since the completion of the strategic combination of Walgreens and Alliance Boots in December 2014, the Company has had a continuous focus on operational efficiencies and cost reduction.



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Generic prescription drugs have continued to help lower overall costs for customers and third-party payers. The Company expects the utilization of generic pharmaceuticals to continue to increase. In general, in the U.S., generic versions of drugs generate lower sales dollars per prescription, but higher gross profit dollars, as compared with patent-protected brand name drugs. The impact on retail pharmacy gross profit dollars can be significant in the first several months after a generic version of a drug is first allowed to compete with the branded version, which is generally referred to as a “generic conversion”. In any given year, the number of major brand name drugs that undergo a conversion from branded to generic status can vary and the timing of generic conversions can be difficult to predict, which can have a significant impact on retail pharmacy sales and gross profit dollars. In general, in the U.S., the specialty prescription business is also growing and generates higher sales dollars per prescription, but lower gross margin, as compared to generic prescription drugs.

The Company expects that market demand, government regulation, third-party reimbursement policies, government contracting requirements and other pressures will continue to cause the industries in which the Company competes to evolve. Pharmacists are on the frontlines of the healthcare delivery system, and the Company believes rising healthcare costs and the limited access to primary care physicians present opportunities for pharmacists and retail pharmacies to play an even greater role in driving positive outcomes for patients and payers through expanded service offerings.

Segments
The Company's operations are conducted through three reportable segments:
U.S. Retail Pharmacy,
International, and
U.S. Healthcare.

In the fourth quarter of fiscal 2022, the Company changed the name of two reportable segments to better align with the Company’s business activities, structure and strategy. The “United States” segment was renamed to “U.S. Retail Pharmacy” and the “Walgreens Health” segment was renamed to “U.S. Healthcare”. The segment name changes did not result in any change to the composition of the segments and therefore no change to the historical results of segment operations. The information for these segments for all periods included in these consolidated financial statements has been presented using the new names.

In fiscal 2022, our segment sales were: U.S. Retail Pharmacy $109.1 billion, International $21.8 billion and U.S. Healthcare $1.8 billion. Additional information relating to our segments is included in Management’s discussion and analysis of financial condition and results of operations in Part II, Item 7, and in Note 17. Segment reporting and Note 18. Sales to the Consolidated Financial Statements included in Part II, Item 8.

U.S. Retail Pharmacy
The Company's U.S. Retail Pharmacy segment includes the Walgreens business which is comprised of the operations of retail drugstores, health and wellness services, specialty and home delivery pharmacy services, and its equity method investment in AmerisourceBergen.

Sales for the segment are principally derived from the sale of prescription drugs and a wide assortment of retail products, including health and wellness, beauty, personal care and consumables and general merchandise. The U.S. Retail Pharmacy segment (excluding equity method investments) has pharmacy-led health and beauty retail offerings in 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The Company operated 8,886 retail stores in the segment as of August 31, 2022. The principal retail pharmacy brands in the segment are Walgreens and Duane Reade. The Company is a market leader in the U.S. and, as of August 31, 2022, approximately 78% of the population of the U.S. lived within five miles of a Walgreens or Duane Reade retail pharmacy.

The Company is focused on creating a neighborhood health destination and a more modern pharmacy aligned to a wider range of healthcare services. Significant investments have accelerated the Company's customer-centric approach, with specific focus on transforming omni-channel capabilities and offerings across retail and healthcare. The Company’s services help improve health outcomes for patients and manage costs for payers, including employers, managed care organizations, health systems, PBM companies and the public sector. The Company utilizes its retail network as a channel to provide health and wellness services to its customers and patients, as illustrated by the Company’s ability to play a significant role in providing vaccinations. Additionally, through our key collaborations, we aim to develop new healthcare delivery models and to improve the speed, efficiency and safety of the prescription fulfillment process. We have taken further steps to develop our neighborhood health destinations, to provide an integrated primary care and pharmacy model that aims to drive better health outcomes, reduce costs and provide a differentiated patient experience to the communities we serve.



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The Company also provides specialty pharmacy and mail services and offers certain other health and wellness services throughout the U.S. The Company employs more than 85,000 healthcare service providers, including pharmacists, pharmacy technicians, nurse practitioners and other health related professionals.

The segment provides customers with convenient, omni-channel access to consumer goods and services, including own branded general merchandise, such as NICE!, Finest Nutrition, No7, and Soap & Glory, as well as pharmacy and health and wellness services in communities across the U.S. Integrated with the Company’s e-commerce platform, the Walgreens mobile application allows customers to refill prescriptions through scan technology, receive notifications when a refill is due and choose their delivery option, which includes in-store pick up, drive-through or delivery to their home.

In fiscal 2021, we launched myWalgreens, replacing the former Balanced Rewards customer loyalty program, to provide a new interface for customers to access the enhanced and growing Walgreens digital offering. The new program simplifies how customers accumulate and use rewards. Points have been replaced by Walgreens Cash, reflecting the actual value of the reward and allowing the cash benefit to be applied as the customer chooses, not just to future transactions at Walgreens but even in support of their favorite charity or community cause. The number of myWalgreens members continues to grow and as of August 31, 2022, totaled approximately 102 million.

The Walgreens Find Care platform also includes telehealth service providers, connecting patients and customers with options to access convenient and affordable care from their mobile devices. Additionally, the Company has expanded the retail functionality of its mobile application, such as extending drive-through service to include retail products, curbside collection for online orders and same day offerings including pick up orders within 30 minutes. The segment is also implementing new approaches to promotions, product selection and other areas to deliver greater value to its customers in its stores, including an enhanced beauty offering.

The components of the segment’s sales are Pharmacy (the sale of prescription drugs and provision of pharmacy-related services) and Retail (the sale of healthcare and retail products including non-prescription drugs, health and wellness, beauty and personal care, and consumables and general merchandise). The segment’s sales are subject to the influence of seasonality, particularly the cough, cold and flu seasons and winter holiday. This seasonality also can affect the segment’s proportion of sales between Retail and Pharmacy during certain periods. The components of the segment’s fiscal year sales were as follows:
 Fiscal 2022Fiscal 2021Fiscal 2020
Pharmacy74 %76 %75 %
Retail26 %24 %25 %
Total100 %100 %100 %

The Company filled 819.6 million prescriptions (including vaccinations) in the segment in fiscal 2022. Adjusted to 30-day equivalents, prescriptions filled were 1.2 billion in fiscal 2022. The Company fills prescriptions under Medicare, Medicaid and other publicly financed or sponsored health benefit and prescription drug plans and programs, including the federal 340B drug pricing program. Sales where reimbursement is received from managed care organizations, governmental agencies, PBM companies and private insurance were approximately 97% of the segment’s fiscal 2022 Pharmacy sales.

The Company fills prescriptions for many state Medicaid public assistance programs. Sales from all such Medicaid plans were approximately 5% of the segment’s fiscal 2022 sales. Sales from Medicare Part D plans were approximately 22% of the segment’s fiscal 2022 sales.

The Company's myWalgreens Credit Card program features the myWalgreens Mastercard and the myWalgreens Credit Card. These cards are the first ever of their kind to reward more personalized wellbeing choices and offer industry-leading rewards at Walgreens locations, Walgreens.com, Duane Reade stores, via the Walgreens mobile app, and wherever Mastercard is accepted.

AmerisourceBergen supplies and distributes a significant amount of generic and branded pharmaceutical products to the segment’s pharmacies. The Company purchases its non-pharmaceutical merchandise from numerous manufacturers and wholesalers.

The segment’s sales, gross profit margin and gross profit are impacted by, among other things, both the percentage of prescriptions filled that are generic and the rate at which new generic drugs are introduced to the market. Because any number of factors outside of the Company’s control can affect timing for a generic conversion, the Company faces substantial uncertainty in predicting when such conversions will occur and what effect they will have on particular future periods.



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The current environment of the Company’s pharmacy business also includes ongoing reimbursement pressure, a shift in pharmacy mix towards 90-day at retail (one prescription that is the equivalent of three 30-day prescriptions), an increased volume of Medicare Part D prescriptions and increased consumer use of prescription discount cards. Further consolidation among generic manufacturers coupled with changes in the number of major brand name drugs anticipated to undergo a conversion from branded to generic status may also result in gross margin pressures within the industry.

The Company continuously faces reimbursement pressure from PBM companies, government, health maintenance organizations, managed care organizations and other commercial third-party payers. Agreements with these payers are regularly subject to expiration, termination or renegotiation. In addition, plan changes with rate adjustments often occur in January and the Company’s reimbursement arrangements may provide for rate adjustments at prescribed intervals during their term. The Company experienced lower reimbursement rates in fiscal 2022 as compared to the same period in the prior year. The Company expects these pressures to continue.

The Company has also worked to develop and expand its relationships with commercial third-party payers to enable new and/or improved market access via participation in pharmacy provider networks they offer. The prescription volume impact of new agreements and relationships typically is incremental over time.

The Company’s 90-day at retail prescription drug offering is typically at a lower margin than comparable 30-day prescriptions, but provides the Company with the opportunity to increase business with patients with chronic prescription needs while offering increased convenience, helping facilitate improved prescription adherence and resulting in a lower cost to fill the 90-day prescription. Similarly, the specialty prescription business, which generates higher sales dollars per prescription, may result in gross margin pressures within the industry, as compared to generic prescription drugs. The segment’s performance is also impacted by the current environment, including the uncertainty as a result of COVID-19. For more information, see Risk factors in Item 1A.

International
The International segment consists of pharmacy-led health and beauty retail businesses outside the U.S. and the pharmaceutical wholesaling and distribution business in Germany.

Pharmacy-led health and beauty retail businesses include Boots branded stores in the United Kingdom (“UK”), the Republic of Ireland and Thailand, the Benavides brand in Mexico and the Ahumada brand in Chile. Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products. The Company operated 3,989 retail stores in the segment as of August 31, 2022 (see properties in Part I, Item 2 for information regarding geographic coverage) and has grown its omni-channel platform, including its online presence, in recent years. In the UK, the Company is a market leader and its retail stores are conveniently located with pharmacists well placed to provide a significant role in the provision of healthcare services, working closely with other primary healthcare providers in the communities the Company serves.

The Boots omni-channel offering is differentiated from that of competitors due to the product brands the Company owns, such as No7, Liz Earle, Soap & Glory, Botanics, Sleek MakeUp, Boots Pharmaceuticals and ‘only at Boots’ exclusive products, together with its long established reputation for trust and customer care. The Company’s brands portfolio is enhanced by its in-house product research and development capabilities. The Company has introduced new beauty brands and beauty halls in key locations. Certain of the product brands of the Company are also sold by third-party retailers.

The Company’s retail store networks are typically complemented by online platforms. In the UK, through the boots.com website and integrated mobile application, the ‘order and collect’ service normally allows customers to order from a range of over 37,000 products by 5:00 p.m. and collect the following day from approximately 98% of the UK’s retail stores.

The Boots Advantage Card loyalty program, where customers earn points on purchases for redemption at a later date, continues to be a key element of the Boots offering. As of August 31, 2022, the number of active Boots Advantage Card members (members who have used their card in the last six months) totaled approximately 13 million.

In addition, Boots in the UK is one of the leaders in the optical market with 543 practices, of which 160 operated on a franchise basis as of August 31, 2022. Approximately 30% of these optical practices are located in Boots stores with the balance being standalone optical practices.



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The components of the segment’s sales are Pharmacy (typically the sale of prescription drugs and provision of pharmacy-related services, subject to variation in particular jurisdictions depending upon regulatory and other factors) and Retail (primarily the sale of health and beauty products including beauty, toiletries and lifestyle merchandising, non-prescription drugs and, in the UK, the provision of optical services). Further, the segment also has a wholesale business in Germany with 35 distribution centers which distribute prescription medicines to pharmacies and other similar healthcare facilities.

The segment’s sales are subject to the influence of seasonality, with the second fiscal quarter typically the strongest as a result of the winter holiday period. This seasonality affects the segment’s proportion of sales between Retail and Pharmacy during certain periods. The components of the segment’s fiscal year sales were as follows:

 Fiscal 2022Fiscal 2021Fiscal 2020
Pharmacy17 %19 %25 %
Retail32 %30 %41 %
Wholesale51 %51 %34 %
Total100 %100 %100 %

The segment’s Pharmacy sales, gross margin and gross profit dollars are impacted by governmental agencies and other third-party payers seeking to minimize increases in the costs of healthcare, including pharmaceutical drug reimbursement rates. In the UK, which is the segment’s largest market for Pharmacy sales, the amount of government funding available for pharmacy services is typically reviewed and agreed with the pharmacy industry on an annual basis.

The segment’s Retail sales, gross profit margin and gross profit dollars are impacted by, among other things, the highly competitive nature of the health and beauty category, specifically the Company and its competitors’ pricing actions, promotional offers and events, and the customer’s desire for value and convenience.

The segment’s Wholesale sales, gross profit margin and gross profit dollars are impacted by, among other things, government actions, which typically seek to reduce the growth in prescription drug consumption, reduce reimbursement rates and increase utilization of generic drugs. A greater proportion of generic drugs, whether as a result of government actions, generic conversions or other factors, typically has an adverse effect on the Company’s revenues.

In addition, performance as measured in U.S. dollars is impacted by the exchange rates used to translate these amounts into U.S. dollars, the exchange rate of British pound sterling being the most significant.

The segment’s performance and relevant exchange rates are also impacted by the current environment, including the uncertainty as a result of COVID-19. For more information relating to these topics, see Risk factors in Item 1A.

U.S. Healthcare
The Company’s U.S. Healthcare segment, created at the beginning of fiscal 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey. The U.S. Healthcare segment delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.

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

The components of the segment’s fiscal year sales were as follows:
 Fiscal 2022
VillageMD84 %
Shields16 %
Total100 %



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Intellectual property and licenses
The Company markets products and services under various trademarks, trade dress and trade names and relies on a combination of patent, copyright, trademark, service mark and trade secret laws, as well as contractual restrictions to establish and protect its proprietary rights. The Company owns numerous domain names, holds numerous patents, has registered numerous trademarks and has filed applications for the registration of a number of other trademarks and service marks in various jurisdictions. The Company holds assorted business licenses (such as pharmacy, occupational, liquor and cigarette) having various lives within multiple legal jurisdictions, which are necessary for the normal operation of the business.

Seasonal variations in business
The Company’s business is affected by a number of factors including, among others, COVID-19, its sales performance during holiday periods (including particularly the winter holiday season) and during the cough, cold and flu season (the timing and severity of which is difficult to predict), significant weather conditions, the timing of its own or competitor discount programs and pricing actions and the timing of changes in levels of reimbursement from governmental agencies and other third-party payers.

See the summary of quarterly results (unaudited) in Note 20. Supplementary financial information, to the Consolidated Financial Statements included in Part II, Item 8.

Sources and availability of raw materials
Inventories are purchased from numerous domestic and foreign suppliers. The Company does not believe that the loss of any one supplier or group of suppliers under common control would have a material adverse effect on its business or that of any of its segments.

Working capital practices
Effective inventory management is important to the Company’s operations. The Company uses various inventory management techniques, including demand forecasting and planning and various forms of replenishment management. Its working capital needs typically are greater in the months leading up to the winter holiday season. The Company generally finances its inventory and expansion needs with internally-generated funds and short-term debt.

For further information, see the liquidity and capital resources section in Management’s discussion and analysis of financial condition and results of operations in Part II, Item 7.

Customers
The Company sells to numerous retail and wholesale customers. The Company also provides healthcare services to healthcare payors’ eligible members. No single customer accounted for more than 10% of the Company’s consolidated sales for any of the periods presented. In fiscal 2022, substantially all of our retail pharmacy sales were to customers covered by third-party payors (e.g., pharmacy benefit managers, insurance companies and governmental agencies) that agree to pay for all or a portion of a customer's eligible prescription purchases. Three third-party payors accounted for approximately 31% of the Company’s consolidated sales in fiscal 2022.

See Note 17. Segment reporting, to the Consolidated Financial Statements included in Part II, Item 8 for further information.

Regulation
In the countries in which the Company does business, the Company is subject to national, state and local laws, regulations and administrative practices concerning healthcare, retail and wholesale pharmacy operations, including regulations relating to the Company’s filling of prescriptions under Medicare, Medicaid and other publicly financed or sponsored health benefit plan and prescription drug plans and programs including the federal 340B drug pricing program; regulations prohibiting kickbacks, beneficiary inducement and the submission of false claims; the Health Insurance Portability and Accountability Act (“HIPAA”); the ACA; licensure and registration requirements concerning the operation of pharmacies and the practice of pharmacy; and regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the U.S. Drug Enforcement Administration and the U.S. Consumer Product Safety Commission, as well as regulations promulgated by comparable foreign, state and local governmental authorities concerning the operation of the Company’s businesses. The Company is also subject to laws and regulations relating to licensing, tax, foreign trade, intellectual property, privacy and data protection, currency, political and other business restrictions.



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The Company is also governed by national, state and local laws of general applicability in the countries in which it does business, including laws regulating matters of working conditions, health and safety and equal employment opportunity. In connection with the operation of its businesses, the Company is subject to laws and regulations relating to the protection of the environment and health and safety matters, including those governing exposure to, and the management and disposal of, hazardous substances.

Competitive conditions
The industries in which the Company operates are highly competitive. As a leader in the retail pharmacy industry and as a retailer of general merchandise, the Company competes with various local, regional, national and global retailers, including chain and independent pharmacies, mail order prescription providers, grocery stores, convenience stores, mass merchants, online and omni-channel pharmacies and retailers, warehouse clubs, dollar stores and other discount merchandisers.

The Company's wholesale offerings and related investments compete with pharmaceutical wholesalers as well as alternative supply sources such as importers and manufacturers who supply directly to pharmacies.

The Company competes primarily on the basis of service, convenience, variety and price. Its geographic dispersion helps mitigate the impact of temporary, localized economic and competitive conditions in individual markets. See “Properties” in Part I, Item 2, for further information regarding the Company’s geographic dispersion.

Human Capital Management
The Company’s purpose is to help people lead more joyful lives through better health. In order to best achieve this purpose, the Company is committed to: attracting, developing and retaining employees to deliver the highest levels of service to our customers and patients, supporting the personal health and well-being of employees, investing in talent development and employee engagement, fostering a diverse and inclusive culture for all, and implementing a robust approach to health and safety. Since most employees work directly with patients and customers to provide essential services, supporting the health of employees took on particular urgency with COVID-19.

Employees
As of August 31, 2022, the Company employed approximately 325,000 persons globally, of which approximately 125,000 were part-time employees working less than 30 hours per week. Employees based in the U.S. and the UK account for 78% and 16% of the Company’s total workforce, respectively. The foregoing does not include employees of equity method investments.

Oversight and governance
The Company’s Board of Directors (the “Board”), through its Compensation and Leadership Performance Committee (the “CLP Committee”), provides oversight of human capital matters, including the Company’s diversity and inclusion initiatives. The CLP Committee is also responsible for periodically reviewing the Company’s compensation and benefits programs as well as management development and succession planning practices and strategies. The reports and recommendations to the Board via the CLP Committee underpin the broader framework that guides how the Company attracts, retains and develops its workforce in line with Company values.

Compensation, benefits and well-being
The Company’s compensation and benefits are designed to support the financial, mental, and physical well-being of employees and their families. The Company offers a comprehensive range of benefits to full- and part-time employees. In the U.S. the Company offers healthcare coverage, insurance benefits, access to a digital well-being program and an employee assistance program. In addition, the Company provides benefits such as paid time off, defined contribution plans, paid maternity and paternal leave, and a stock purchase plan. The Company continuously evaluates its wellness offerings through competitive benchmarking and bi-annual employee surveys. Certain information related to retirement related benefit plans is included in Note 14. Retirement benefits, to the Consolidated Financial Statements included in Part II, Item 8 for further information.



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Talent management and engagement
The Company has a talent management process that is designed to identify and assess talent across the organization and provide equal and consistent opportunities for employees to develop their skills. Several levels of employees participate in the Company’s annual performance management process to create development plans that support their particular career objectives. The Company offers numerous resources and programs to attract, engage, develop, advance and retain colleagues. Training and development programs provide employees the support they need to perform in their current roles while planning and preparing for future opportunities. In the U.S. the Company has created Walgreens University which provides training, leadership development and career advancement programs to employees at all levels. Walgreens University is a multi-channel platform that offers U.S. employees access to instructor-led classroom training, online learning, personal and professional development tools. In the UK, an apprenticeship program focused on developing career aspirations and fundamental skills is offered to Boots UK employees. Across the globe, the Company offers on-demand self-paced learning resources for all employees regardless of role or location.

The Company believes engaged employees translate directly to business success. The Company conducts global employee engagement surveys that provide colleagues with an opportunity to share their opinions and helps the Company measure and improve engagement.

Diversity, equity and inclusion (“DE&I”)
A diverse, equitable and inclusive organization is an essential part of the Company’s business strategy, as we believe it positively impacts Company performance, growth and employee engagement. The Company’s policies strictly prohibit any form of discrimination or racial profiling, and the Company has several training programs in place which help identify and eliminate unconscious bias towards women and minority groups.

The Company provides information on its DE&I initiatives, outcomes, and impacts through its DE&I and Environmental Social and Governance reports. The Company also provides racial, ethnic, and gender composition of its U.S. work force through the Equal Employment Opportunity 2021 Employer Information Report (EEO-1) available on the Company’s website and filed with the Equal Employment Opportunity Commission (EEOC). In fiscal 2022, the Company received a score of 100 from the Human Rights Campaign’s Corporate Equality Index and a Bronze Award on the Stonewall Top Global Employers Index for LGBTQ+ inclusion. The Company also scored 100 percent on the Disability Equality Index for disability inclusion.

The Company maintained its Leadership Accountability Model to ensure that managers are held accountable for recruitment, retention and development of people of color and women at every level of the organization. In fiscal 2022, the Company continued to have a portion of the bonus incentive for all bonus eligible employees linked to the Company’s performance on the DE&I corporate goal which focuses on increasing diverse representation of senior leadership and spend with diverse suppliers.

In fiscal 2020, the Board reaffirmed its commitment to diversity when it amended the Company’s Corporate Governance Guidelines and the charter of the Nominating and Governance Committee of the Board to provide that when searching for new directors, the Nominating and Governance Committee will actively seek out women and individuals from minority groups to include in the pool from which Board nominees are chosen.

The Board currently has five female directors, two African American directors, one Asian American director and one director who identifies as LGBTQ+.

Workplace Health and Safety
The Company is committed to creating and upholding safe environments for employees, customers, contractors and patients across all of its business operations. The Company has a Health, Safety and Environmental Committee which works to continuously improve the management of health and safety. To create a safe and productive workplace, employees across the Company are offered avenues to report incidents including calling a toll-free, confidential hotline, submitting an online report, emailing the compliance officer and contacting human resources.

Available information
The Company makes available free of charge on or through its website at http://investor.walgreensbootsalliance.com its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after the Company files or furnishes them to the SEC. The contents of the website are not, however, a part of this Form 10-K or the Company’s other SEC filings.



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Information about our executive officers
The following table sets forth, for each person currently serving as an executive officer of the Company, the name, age (as of October 13, 2022) and office(s) held by such person:
Name Age Office(s) held
Stefano Pessina81 Executive Chairman of the Board
Rosalind Brewer60Chief Executive Officer
Ornella Barra 68 Chief Operating Officer, International
James Kehoe 59 Executive Vice President and Global Chief Financial Officer
Danielle Gray 44 Executive Vice President and Global Chief Legal Officer
John Standley 1
59Executive Vice President and President, Walgreen Co.
Holly May40Executive Vice President and Global Chief Human Resources Officer
Lee Cooper60Executive Vice President and President, Walgreens Pharmacy
Kevin Ban55Executive Vice President and Chief Medical Officer
Tracey Brown
55Senior Vice President and President, Retail Products and Chief Customer Officer, Walgreen Co.

1. As disclosed on the Company’s Current Report on Form 8-K filed with the SEC on September 20, 2022, Mr. Standley will leave the Company on November 1, 2022.

Set forth below is information regarding the principal occupations and employment and business experience over the past five years for each executive officer. Executive officers are elected by, and serve at the discretion of, the Board of Directors. Unless otherwise stated, employment is by Walgreens Boots Alliance.
Mr. Pessina has served as Executive Chairman of the Board since March 2021. Mr. Pessina served as Chief Executive Officer from July 2015 to March 2021 and as Executive Vice Chairman from January 2015 to March 2021. He also served as Acting Chief Executive Officer from January 2015 to July 2015. Previously, he served as Executive Chairman of Alliance Boots from July 2007 to December 2014. Prior to that, Mr. Pessina served as Executive Deputy Chairman of Alliance Boots. Prior to the merger of Alliance UniChem and Boots Group, Mr. Pessina was Executive Deputy Chairman of Alliance UniChem, previously having been its Chief Executive for three years through December 2004. Mr. Pessina was appointed to the Alliance UniChem Board in 1997 when UniChem merged with Alliance Santé, the Franco-Italian pharmaceutical wholesale group which he established in Italy in 1977. Mr. Pessina also serves on the Board of Directors of a number of private companies, and, from 2000 to 2017, served on the Board of Directors of Galenica AG, a publicly-traded Swiss healthcare group.

Ms. Brewer has served as Chief Executive Officer since March 2021. Ms. Brewer joined the Company from Starbucks Corporation, where she served as Group President, Americas and Chief Operating Officer from October 2017 to February 2021 and as a director from March 2017 to February 2021. Prior to that, Ms. Brewer served as President and Chief Executive Officer of Sam’s Club, a membership-only retail warehouse club and a division of Walmart Inc. (“Walmart”), a multinational retail corporation, from February 2012 to February 2017. From 2006 to 2012, Ms. Brewer served in a number of roles at Walmart, from Regional General Manager, Georgia Operations to Executive Vice President and President of Walmart’s East Business Unit. Ms. Brewer was President of the Global Nonwovens Division for Kimberly-Clark Corporation (“Kimberly-Clark”), a global health and hygiene products company, from 2004 to 2006 and held various management positions at Kimberly-Clark from 1984 to 2006. Ms. Brewer serves as Chair of the Board of Trustees of Spelman College. Ms. Brewer served on the board of directors of Amazon.com, Inc. from February 2019 until February 2021. She also formerly served on the boards of directors for Lockheed Martin Corporation from April 2011 until October 2017 and Molson Coors Brewing Company from 2006 until 2011.

Ms. Barra has served as Chief Operating Officer, International since April 2021. Ms. Barra served as Co-Chief Operating Officer from June 2016 to April 2021. She served as Executive Vice President, President and Chief Executive of Global Wholesale and International Retail from December 2014 to June 2016. Previously, she served as the Chief Executive, Wholesale and Brands of Alliance Boots from September 2013 to December 2014 and Chief Executive of the Pharmaceutical Wholesale Division of Alliance Boots from January 2009 to September 2013, and before that, Wholesale & Commercial Affairs Director of Alliance Boots. Since January 2015, Ms. Barra has served as a director of AmerisourceBergen and from April 2013 to April 2019, served as a director of Assicurazioni Generali, the parent company of Generali Group, a global insurance group. Ms. Barra also serves as a director of a number of private companies, and, until February 2015, served as a director of Alliance Boots.



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Mr. Kehoe has served as Executive Vice President and Global Chief Financial Officer since June 2018. Previously, he served Takeda Pharmaceutical Company Limited as Global Chief Financial Officer and Corporate Officer from June 2016 to March 2018 and as a board director June 2017 to May 2018. He previously served as Executive Vice President and Chief Financial Officer of Kraft Foods Group, Inc. from February 2015 to July 2015. Previously, he worked for Gildan Activewear Inc., a supplier of branded family apparel in Canada, where he served as Executive Vice President and Chief Financial and Administrative Officer earlier in 2015. Prior to that, he was Senior Vice President, Operating Excellence at Mondelēz International, Inc. from November 2013 until December 2014. Mr. Kehoe joined Kraft in 1988 and held a variety of senior-level positions, including serving as Senior Vice President, Corporate Finance from October 2012 to October 2013, and Senior Vice President, Finance of Kraft Foods North America from November 2010 until September 2012.

Ms. Gray has served as Executive Vice President and Global Chief Legal Officer since September 2021. Previously, she served as Senior Vice President, Chief Legal and Administrative Officer and Corporate Secretary of Blue Cross Blue Shield of North Carolina from March 2018 to September 2021 and as a Litigation Partner with O’Melveny & Myers LLP from April 2014 to March 2018. Prior to this, Ms. Gray held a number of public service roles in the White House and U.S. Department of Justice from 2009 to 2014, including Assistant to the President and Cabinet Secretary from 2013 to 2014, Deputy Director of the National Economic Council from 2011 to 2013, Senior Counsel in the U.S. Department of Justice from 2010 to 2011 and Associate Counsel to the President in the White House Counsel's Office from 2009 to 2010. Ms. Gray began her career serving as a law clerk to Judge Merrick Garland on the U.S. Court of Appeals for the DC Circuit and Justice Stephen Breyer on the U.S. Supreme Court.

Mr. Standley has served as Executive Vice President and President, Walgreen Co. since August 2020. Previously, he served as Chief Executive Officer of Rite Aid Corporation (“Rite Aid”) from June 2010 to August 2019 and was President from September 2008 to June 2013. Mr. Standley served as Chairman of the Board of Rite Aid from June 2012 to October 2018 and was the Chief Operating Officer from September 2008 to June 2010. He also served as a consultant to Rite Aid from July 2008 to September 2008. From August 2005 through December 2007, Mr. Standley served as Chief Executive Officer and was a member of the board of directors of Pathmark Stores, Inc. From June 2002 to August 2005, he served as Senior Executive Vice President and Chief Administrative Officer of Rite Aid and, in addition, in January 2004 was appointed Chief Financial Officer of Rite Aid. He had served as Senior Executive Vice President and Chief Financial Officer of Rite Aid from September 2000 to June 2002 and had served as Executive Vice President and Chief Financial Officer of Rite Aid from December 1999 until September 2000. Mr. Standley served on the SUPERVALU INC. board of directors from May 2013 to July 2015 and on the board of directors of CarMax, Inc. from August 2017 to January 2018. As previously announced, Mr. Standley will leave the Company on November 1, 2022.

Ms. May has served as Executive Vice President and Global Chief Human Resources Officer since October 2021. Prior to joining the Company, Ms. May served as Global Chief Human Resources Officer for Abercrombie & Fitch Co., a global retail company, from January 2021 to October 2021. Prior to that, she served as Senior Vice President, Global Total Rewards & Service Delivery for Starbucks, a global retail food and beverage company, from September 2018 to January 2021 and as Vice President, Global Compensation, Mobility and Payroll for Visa, Inc., an electronic payments company, from October 2016 to August 2018. Ms. May held various senior positions with Voya Financial, a financial services company, from September 2012 to October 2016, including Senior Vice President, Human Resources from November 2014 to October 2016.

Mr. Cooper has served as Executive Vice President and President, Walgreens Pharmacy since October 2022. Mr. Cooper previously served as Chief Executive Officer of Shields Healthcare Solutions, the premier specialty pharmacy integrator in the United States, from 2020 to October 2022. Prior to Shields, Mr. Cooper was an operating partner at Welsh, Carson, Anderson & Stowe, focusing on healthcare investments, from 2019 to 2020. Prior to that, Mr. Cooper served in various leadership roles with GE from February 1990 to June 2019, most recently as the President and CEO of GE Healthcare, U.S. and Canada from January 2016 to June 2019.

Mr. Ban has served as Executive Vice President and Chief Medical Officer since September 2022. Mr. Ban previously served as Senior Vice President and Chief Medical Officer from January 2020 to September 2022. Prior to joining the Company, Mr. Ban was Chief Medical Officer at athenahealth, Inc., a leading provider of network-enabled software and services for medical groups and health systems nationwide, from October 2017 to December 2019 and served as Population Health Executive Director from November 2015 to September 2017.



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Ms. Brown has served as Senior Vice President and President of Retail Products and Chief Customer Officer, Walgreen Co. since September 2022. Ms. Brown has served as President of Retail Products and Chief Customer Officer, Walgreen Co. since November 2021. She was previously Chief Executive Officer of the American Diabetes Association (“ADA”) from June 2018 to November 2021. Prior to the ADA, Ms. Brown was Senior Vice President, Operations and Chief Experience Officer for Sam’s Club, a division of Walmart Inc., from 2014 to June 2018. Prior to that, she served in leadership roles with RAPP Dallas, a data-driven integrated marketing agency, Direct Impact, a direct marketing agency, and Advanced Micro Devices. Earlier in her career, she held leadership positions at American Express, Proctor & Gamble and Exxon Mobil.

Mr. Pessina and Ms. Barra are married. There are no other family relationships among any of our directors or executive officers.

Other Officers
Manmohan Mahajan, 43, has served as Senior Vice President, Global Controller and Chief Accounting Officer since July 2021. Mr. Mahajan served as Vice President, Global Reporting and Technical Accounting from February 2016 to September 2019 and as Vice President, Assistant Global Controller from October 2019 to July 2021. Prior to joining the Company, Mr. Mahajan served in positions of increasing responsibility with GE Capital, a former subsidiary of General Electric Company, most recently serving as Controller at GE Capital Americas from March 2011 until January 2016.

Item 1A. Risk factors
In addition to the other information in this report and our other filings with the SEC, you should carefully consider the risks described below, which could materially and adversely affect our business operations, financial condition and results of operations. COVID-19 amplifies and exacerbates many of the risks we face in our business operations, including those discussed below. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial.

Risk Factor Summary
The following summary is intended to enhance the readability and accessibility of our risk factor disclosures. We encourage you to carefully review the full risk factors discussed below in their entirety for additional information. Some of the factors that could materially and adversely affect our business, financial condition or results of operations include:

Risks Relating to Our Business
Global health developments and economic uncertainty resulting from COVID-19 have adversely impacted, and may continue to adversely impact, our business, results of operations, cash flows and financial position.
Reductions in third-party reimbursement levels, from private or governmental agency plans, and potential changes in industry pricing benchmarks for prescription drugs could materially and adversely affect our results of operations.
A shift in pharmacy mix toward lower margin plans, products and programs could adversely affect our results of operations.
We derive a significant portion of our sales in the U.S. Retail Pharmacy segment from prescription drug sales reimbursed by a limited number of pharmacy benefit management companies.
We could be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs.
Consolidation and strategic alliances in the healthcare industry could adversely affect our business operations, competitive positioning, financial condition and results of operations.
Our business results depend on our ability to successfully manage ongoing organizational change and business transformation and achieve cost savings and operating efficiency initiatives.
Changes in economic conditions could adversely affect consumer buying practices.
The industries in which we operate are highly competitive and constantly evolving and changes in market dynamics could adversely impact us.
If we do not successfully develop and maintain a relevant omni-channel experience for our customers, our businesses and results of operations could be adversely impacted.
If the merchandise and services that we offer fail to meet customer needs, our sales may be adversely affected.
Our substantial international business operations subject us to a number of operating, economic, political, regulatory and other international business risks.
We may be unable to achieve our environmental, social and governance goals.



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Risks Related to Our Operations
Disruption in our global supply chain could negatively impact our businesses.
We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs.
We use a single wholesaler of branded and generic pharmaceutical drugs as our primary source of such products.
Failure to retain and recruit, or failure to manage succession of, key personnel could have an adverse impact on our future performance.
We may be unable to keep existing store locations or open new locations in desirable places on favorable terms, which could materially and adversely affect our results of operations.
Our business and operations are subject to risks related to climate change.

Risks Relating to Our Business Strategy
We may not be successful in executing elements of our business strategy, which may have a material adverse impact on our business and financial results.
Our growth strategy is partially dependent upon our ability to identify and successfully complete acquisitions, joint ventures and other strategic partnerships and alliances.
Businesses acquired as part of our U.S. Healthcare segment could experience losses or liabilities that would result in a material adverse effect on our business operations, results of operation and financial condition.
The anticipated strategic and financial benefits of our relationship with AmerisourceBergen may not be realized.
From time to time, we may choose to divest certain assets or businesses as we execute our strategy and our ability to engage in such transactions will be subject to market conditions beyond our control which will affect our ability to transact on terms favorable to us or at all.
From time to time, we make investments in companies over which we do not have sole control and some of these companies may operate in sectors that differ from our current operations and have different risks.

Cybersecurity, Data Privacy and Information Security Risks
A significant disruption in our information technology and computer systems or those of businesses we rely on could harm us.
Privacy and data protection laws increase our compliance burden and any failure to comply could harm us.
We and businesses we interact with experience cybersecurity incidents and might experience significant computer system compromises or data breaches.
We are subject to payment-related and other financial services risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business operations.

Financial and Accounting Risks
We have significant outstanding debt; our debt and associated payment obligations could significantly increase in the future if we incur additional debt and do not retire existing debt.
As a holding company, we are dependent on funding from our operating subsidiaries to pay dividends and other obligations.
Our quarterly results may fluctuate significantly based on seasonality and other factors.
We have a substantial amount of goodwill and other intangible assets which could, in the future, become impaired and result in material non-cash charges to our results of operations.
We are exposed to risks associated with foreign currency exchange rate fluctuations.
We could be adversely impacted by changes in assumptions used in calculating pension assets and liabilities.

Risks from Changes in Public Policy and Other Legal and Regulatory Risks
Changes in the healthcare industry and regulatory environments may adversely affect our businesses.
We are exposed to risks related to litigation and other legal proceedings.
A significant change in, or noncompliance with, governmental regulations and other legal requirements could have a material adverse effect on our reputation and profitability.
We could be adversely affected by violations of anti-bribery, anti-corruption and/or international trade laws.
We could be adversely affected by product liability, product recall, personal injury or other health and safety issues.
We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.


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Risks Related to Our Structure and Organization
Certain stockholders may have significant voting influence over matters requiring stockholder approval.
Conflicts of interest, or the appearance of conflicts of interest, may arise because certain of our directors and officers are also owners or directors of companies we may have dealings with.
Our certificate of incorporation and bylaws, Delaware law or our agreements with certain stockholders may impede the ability of our stockholders to make changes to our Board or impede a takeover.
We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.


Risks Relating to Our Business

Global health developments and economic uncertainty resulting from COVID-19 have adversely impacted, and may continue to adversely impact, our business, results of operations, cash flows and financial position.

COVID-19 has severely impacted, and may continue to severely impact, the economies of the U.S., the UK and other countries around the world. As a result, governmental authorities imposed a variety of restrictions on people and businesses and public health authorities offered regular guidance on health and safety, all of which had an adverse impact on footfall in our stores, general economic activity and consumer behavior and spending patterns. COVID-19 has created significant volatility, uncertainty and economic disruption in every region in which we operate, all of which have adversely affected and may continue to adversely affect our business, financial condition and results of operations.

COVID-19 and related measures have impacted and may continue to impact many aspects of our business, financial condition and results of operations in a number of ways, including but not limited to our growth, product costs, supply chain disruptions and the potential for inventory spoilage, labor shortages and costs, operating costs, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities, our ability to access capital markets, and the global economy and financial markets generally. Our stores are open and operational, however, any future illness or absence of a substantial number of employees could require that we temporarily close one or more of our stores. We have experienced and may experience in the future, disruptions in store and distribution centers operations, including the temporary closure of certain stores.

We have incurred and continue to incur additional costs to protect the health and well-being and meet the needs of our customers and team members. These measures may not be sufficient to prevent the spread of COVID-19 among our customers and employees. Illness, absenteeism, or other workforce disruptions could negatively affect our business operations. Further, the shift to a remote working environment and other policies has, and will continue to have, impacts on our business, including increased costs related to information technology infrastructure and the ability of our business and that of our suppliers to work with the same productivity. The increase in remote work arrangements has increased certain operational risks, including but not limited to cybersecurity risks, and could adversely affect our ability to manage our business.

The extent of the impact of COVID-19 on our future operational and financial performance is currently uncertain and will depend on many factors outside our control, including, without limitation, the development and availability of effective treatments and vaccines, the imposition of public safety measures, and the impact of COVID-19 on the global economy. Potential negative impacts of these external factors include, but are not limited to, material adverse effects on demand for our products and services; our supply chain and sales and distribution channels; our ability to execute strategic plans; impairments; and our profitability and cost structure. To the extent COVID-19 adversely affects our business, results of operations and financial condition, it may also have the effect of exacerbating the other risks discussed in this “Risk Factors” section.



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Reductions in third-party reimbursement levels, from private or governmental agency plans, and potential changes in industry pricing benchmarks for prescription drugs could materially and adversely affect our results of operations.

The substantial majority of the prescriptions we fill are reimbursed by third-party payers, including private and governmental agency payers. The continued efforts of health maintenance organizations, managed care organizations, PBM companies, governmental agencies, and other third-party payers to reduce prescription drug costs and pharmacy reimbursement rates, as well as litigation and other legal proceedings relating to how drugs are priced, may adversely impact our results of operations. In the U.S., plan changes with rate adjustments often occur in January and our reimbursement arrangements may provide for rate adjustments at prescribed intervals during their term. In addition, the timing and amount of periodic contractual reconciliations payments can vary significantly and may not follow a predictable path. Further, in an environment where some PBM clients utilize narrow or restricted pharmacy provider networks, some of these entities may offer pricing terms that we may not be willing to accept or otherwise restrict our participation in their networks of pharmacy providers.

In addition, many payers in the U.S. are increasingly considering new metrics as the basis for reimbursement rates. It is possible that the pharmaceutical industry or regulators may evaluate and/or develop an alternative pricing reference to replace average wholesale price, which is the pricing reference used for many of our contracts. In addition, many state Medicaid fee-for-service programs have established pharmacy network payments on the basis of actual acquisition cost, which could have an impact on reimbursement practices in other commercial and governmental arrangements. Future changes to the pricing benchmarks used to establish pharmaceutical pricing, including changes in the basis for calculating reimbursement by third-party payers, could adversely affect us.

A shift in pharmacy mix toward lower margin plans, products and programs could adversely affect our results of operations.

Our U.S. Retail Pharmacy segment seeks to grow prescription volume while operating in a marketplace with continuous reimbursement pressure. A shift in the mix of pharmacy prescription volume towards programs offering lower reimbursement rates could adversely affect our results of operations. For example, our U.S. Retail Pharmacy segment has experienced a shift in pharmacy mix towards 90-day at retail in recent years and more recently during COVID-19, and specialty pharmacy represents a significant and growing proportion of prescription drug spending in the U.S. and a larger proportion of our revenues. Our 90-day at retail offering for patients with chronic prescription needs typically is at a lower margin than comparable 30-day prescriptions, and specialty pharmacy sales are generally also lower margin. Our U.S. Retail Pharmacy segment also has experienced a shift in pharmacy mix towards Medicare Part D prescriptions in recent years, and that trend may continue. Preferred Medicare Part D networks have increased in number in recent years; however, we do not participate in all such networks. We have accepted market competitive reimbursement rates in order to secure preferred relationships with Medicare Part D plans serving senior patients with significant pharmacy needs. We also have worked to develop and expand our relationships with commercial third-party payers to enable new and/or improved market access via participation in the pharmacy provider networks they offer. If we are not able to generate additional prescription volume and other business from patients participating in these programs that is sufficient to offset the impact of lower reimbursement, or if the degree or terms of our participation in such preferred networks declines from current levels in future years, our results of operations could be materially and adversely affected.

We derive a significant portion of our sales in the U.S. Retail Pharmacy segment from prescription drug sales reimbursed by a limited number of pharmacy benefit management companies.

We derive a significant portion of our sales in the U.S. Retail Pharmacy segment from prescription drug sales reimbursed through prescription drug plans administered by a limited number of PBM companies. PBM companies typically administer multiple prescription drug plans that expire at various times and provide for varying reimbursement rates, and often limit coverage to specific drug products on an approved list, known as a formulary, which might not include all of the approved drugs for a particular indication. Changes in pricing and other terms of our contracts with PBM companies can significantly impact our results of operations. There can be no assurance that we will continue to participate in any particular PBM company’s pharmacy provider network in any particular future time period or on terms reasonably acceptable to us. If our participation in the pharmacy provider network for a prescription drug plan administered by one or more of the large PBM companies is restricted or terminated, we expect that our sales would be adversely affected, at least in the short-term. If we are unable to replace any such lost sales, either through an increase in other sales or through a resumption of participation in those plans, our operating results could be materially and adversely affected. If we exit a pharmacy provider network and later resume participation, there can be no assurance that we will achieve any particular level of business on any particular pace, or that all clients of the PBM company will choose to include us again in the pharmacy network for their plans, initially or at all. In addition, in such circumstances we may incur increased marketing and other costs in connection with initiatives to regain former patients and attract new patients covered by such plans.


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We could be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs.

The profitability of our pharmacy businesses depends upon the utilization of prescription drugs. Utilization trends are affected by, among other factors, the introduction of new and successful prescription drugs as well as lower-priced generic alternatives to existing brand name drugs. Inflation in the price of drugs also can adversely affect utilization, particularly given the increased prevalence of high-deductible health insurance plans and related plan design changes. New brand name drugs can result in increased drug utilization and associated sales, while the introduction of lower priced generic alternatives typically results in relatively lower sales, but relatively higher gross profit margins. Accordingly, a decrease in the number or magnitude of significant new brand name drugs or generics successfully introduced, delays in their introduction, or a decrease in the utilization of previously introduced prescription drugs, could materially and adversely affect our results of operations.

In addition, if we experience an increase in the amounts we pay to procure pharmaceutical drugs, including generic drugs, our gross profit margins would be adversely affected to the extent we are not able to offset such cost increases. Any failure to fully offset any such increased prices and costs or to modify our activities to mitigate the impact could have a material adverse effect on our results of operations. Also, any future changes in drug prices could be significantly different than our expectations.

Consolidation and strategic alliances in the healthcare industry could adversely affect our business operations, competitive positioning, financial condition and results of operations.

Many organizations in the healthcare industry, including PBM companies, have consolidated in recent years to create larger healthcare enterprises with greater bargaining power, which has resulted in greater pricing pressures. If this consolidation trend continues, it could give the resulting enterprises even greater bargaining power, which may lead to further pressure on the prices for our products and services. If these pressures result in reductions in our prices, our businesses would become less profitable unless we are able to achieve corresponding reductions in costs or develop profitable new revenue streams.

Our business results depend on our ability to successfully manage ongoing organizational change and business transformation and achieve cost savings and operating efficiency initiatives.

Our Board of Directors approved the plans to increase the Transformational Cost Management Program described in "Management’s discussion and analysis of financial condition and results of operations" in Part II, Item 7 as part of an initiative to reduce costs and increase operating efficiencies. There can be no assurance that we will realize, in full or in part, the anticipated benefits of these programs. Our financial goals assume a level of productivity improvement, including those reflected in the Transformational Cost Management Program and other business optimization initiatives. If we are unable to implement the programs or deliver these expected productivity improvements, while continuing to invest in business growth, or if the volume and nature of change overwhelms available resources, our business operations, financial condition and results of operations could be materially and adversely impacted.

Changes in economic conditions could adversely affect consumer buying practices.

Our performance has been, and may continue to be, adversely impacted by changes in global, national, regional or local economic conditions and consumer confidence. These conditions can also adversely affect our key vendors and customers. External factors that affect consumer confidence and over which we exercise no influence include unemployment rates, inflation, levels of personal disposable income, levels of taxes and interest and global, national, regional or local economic conditions, health epidemics or pandemics (such as COVID-19), as well as looting, vandalism, acts of war or terrorism. Changes in economic conditions and consumer confidence could adversely affect consumer preferences, purchasing power and spending patterns, which could lead to a decrease in overall consumer spending as well as in prescription drug and health services utilization and which could be exacerbated by the increasing prevalence of high-deductible health insurance plans and related plan design changes. In addition to general levels of inflation that we have experienced, we are also subject to risk of specific inflationary pressures on product prices due to, for example, the continuing impacts of COVID-19, related global supply chain disruptions, and the uncertain economic and geopolitical environment. If inflation continues to increase, we may not be able to adjust prices sufficiently to offset the effect without negatively impacting consumer demand or our gross margin. Furthermore, reduced or flat consumer spending may drive us and our competitors to offer additional products at promotional prices. All of these factors could materially and adversely impact our business operations, financial condition and results of operations.



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The industries in which we operate are highly competitive and constantly evolving and changes in market dynamics could adversely impact us.

The level of competition in the retail pharmacy, healthcare services and pharmaceutical wholesale industries is high. Changes in market dynamics or actions of competitors or manufacturers, including industry consolidation and the emergence of new competitors and strategic alliances, could materially and adversely impact us. Disruptive innovation, or the perception of potentially disruptive innovation, by existing or new competitors could alter the competitive landscape in the future and require us to accurately identify and assess such changes and if required make timely and effective changes to our strategies and business model to compete effectively. All of our businesses face intense competition from multiple existing and new businesses, some of which are aggressively expanding in markets we serve. We continue to develop our offerings to respond to market dynamics; however, if our customers are not receptive to these changes, if we are unable to expand successful programs in a timely manner, or we otherwise do not effectively respond to changes in market dynamics, our businesses and financial performance could be materially and adversely affected.

Specialty pharmacy represents a significant and growing proportion of prescription drug spending in the U.S., a significant portion of which is dispensed outside of traditional retail pharmacies. Because our specialty pharmacy business focuses on complex and high-cost medications, many of which are made available by manufacturers to a limited number of pharmacies (so-called limited distribution drugs), that serve a relatively limited universe of patients, the future growth of this business depends to a significant extent upon expanding our ability to access key drugs and successfully penetrate key treatment categories. Accordingly, it is important that we and our affiliates compete effectively in this evolving and highly competitive market, or our business operations, financial condition and results of operations could be materially and adversely affected. To better serve this evolving market, the Company wholly owns and operates AllianceRx Walgreens. Certain clients of AllianceRx Walgreens were and are not obligated to contract through AllianceRx Walgreens, and have in the past, and may in the future, enter into specialty pharmacy and other agreements without involving AllianceRx Walgreens. Certain clients have chosen not to renew their contracts through AllianceRx Walgreens which impacts gross sales. If AllianceRx Walgreens is not able to compete effectively in this evolving and highly competitive market and successfully adapt to changing market conditions, our business operations, financial condition and results of operations could be materially and adversely affected.

If we do not successfully develop and maintain a relevant omni-channel experience for our customers, our businesses and results of operations could be adversely impacted.

The portion of total consumer expenditures with retailers occurring online and through mobile applications has continued to increase and has accelerated significantly during COVID-19. The pace of this increase could further accelerate in the future. Our business has evolved from an in-store experience to interaction with customers across numerous channels, including in-store, online, mobile and social media, among others. Omni-channel and differentiated retail models are rapidly evolving and we must keep pace with changing customer expectations and new developments by our competitors. We must compete by offering a consistent and convenient shopping experience for our customers regardless of the ultimate sales channel and by investing in, providing and maintaining digital tools for our customers. If we are unable to make, improve, or develop relevant customer-facing technology in a timely manner that keeps pace with technological developments and dynamic customer expectations, our ability to compete and our results of operations could be materially and adversely affected. In addition, if our online activities or our other customer-facing technology systems do not function as designed, we may experience a loss of customer confidence, data security breaches, lost sales, or be exposed to fraudulent purchases, any of which could materially and adversely affect our business operations, reputation and results of operations.

If the merchandise and services that we offer fail to meet customer needs, our sales may be adversely affected.

The success of our retail pharmacy businesses depends on our ability to offer a superior shopping experience, engaging customer service and a quality assortment of available merchandise that differentiates us from other retailers, including enhanced health and beauty product offerings. We must identify, obtain supplies of, and offer to our customers attractive, innovative and high-quality merchandise on a continuous basis. It is difficult to predict consistently and successfully the products and services our customers will demand. If we misjudge the demand for products and services we sell or our customers’ purchasing habits, we may be faced with sales declines, excess product inventories and missed opportunities for products and services we chose not to offer, which could materially and adversely impact our results of operations.



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Our substantial international business operations subject us to a number of operating, economic, political, regulatory and other international business risks.

Our substantial international business operations are subject to a number of risks, including, without limitation, compliance with a wide variety of foreign laws and regulations; potential difficulties in managing foreign operations, mitigating credit risks in foreign markets, enforcing agreements and collecting receivables through foreign legal systems; varying regional and geopolitical business conditions and demands; tax and trade policies, tariffs and other government regulations affecting trade between the U.S. and other countries; fluctuations in currency exchange rates; the impact of recessions and economic slowdowns in economies outside the U.S.; and the instability of foreign economies, governments and currencies and unexpected regulatory, economic or political changes in foreign markets.

These factors can also adversely affect our payers, vendors and customers in international markets, which in turn can negatively impact our businesses. We cannot assure you that one or more of these factors will not have a material adverse effect on our business operations, results of operation and financial condition.

We may be unable to achieve our environmental, social and governance goals.

We recognize the rising importance of environmental, social, and governance matters among our team members, customers, and certain shareholders and are committed to upholding a culture dedicated to corporate responsibility. We have established certain goals that allow us to better communicate and align to our environmental, social, and governance strategy. However, these goals are subject to risks and uncertainties, which are outside of our control and might prohibit us from meeting the goals. Further, there is a risk that team members, customers, or certain shareholders might not be satisfied with our goals or strategy and efforts to meet the goals. Some of the risks that we are subject to include, but are not limited to: our ability to execute our operational strategy within the timeframe or costs projected; the availability or cost of renewable energy, materials, goods, and/or services required, and evolving regulations or requirements that change or limit our ability to set standards or gather information from our supplier partners or third party contractors. Failure to meet our goals could negatively impact public perception of our company with interested stakeholders.

Environmental, social, and governance matters are also increasingly important to current and potential employees. In order to retain and attract talent we know that it is critical that we clearly communicate our environmental, social, and governance strategy, and a delay or inability to meet our goals on time could impact our reputation as a desirable place to work. With increased interest from certain shareholders, an inability to meet our goals could also have a negative impact on our stock price. These impacts could make it more difficult for us to operate efficiently and effectively and could have a negative effect on our business, operating results and financial conditions.

Risks Related to Our Operations

Disruption in our global supply chain could negatively impact our businesses.

The products we sell are sourced from a wide variety of domestic and international vendors, and any future disruption in our supply chain or inability to find qualified vendors and access products that meet requisite quality and safety standards in a timely and efficient manner could adversely impact our businesses. The loss or disruption of such supply arrangements for any reason, including for issues such as COVID-19 or other health epidemics or pandemics, labor disputes, loss or impairment of key manufacturing sites, inability to procure sufficient raw materials, quality control issues, ethical sourcing issues, a supplier’s financial distress, natural disasters, looting, vandalism or acts of war (such as the conflict in Ukraine) or terrorism, trade sanctions or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have a material adverse impact on our business operations, financial condition and results of operations.

We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs.

We outsource certain business and administrative functions and rely on third parties to perform certain services on our behalf. We rely on these third parties to meet our quality and performance requirements and to timely perform as expected. If our continuing relationship with certain third-party providers is interrupted, or if such third-party providers experience disruptions or do not perform as anticipated, or we experience problems with any transition, we may experience operational difficulties, reputational harm, and increased costs that could materially and adversely affect our business operations and results of operations.



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We use a single wholesaler of branded and generic pharmaceutical drugs as our primary source of such products.

The Company and AmerisourceBergen are parties to various agreements and arrangements, including a pharmaceutical distribution agreement between the Company and AmerisourceBergen pursuant to which we source branded and generic pharmaceutical products from AmerisourceBergen in the U.S. and an agreement which provides AmerisourceBergen the ability to access generic pharmaceutical products through our global sourcing enterprise. These agreements were amended in June 2021 in connection with the Alliance Healthcare Sale. Pursuant to those amendments, the U.S. distribution agreement was extended through 2029 and the parties committed to pursue additional opportunities in sourcing and distribution. The parties also agreed that Alliance Healthcare UK will remain the distribution partner of Boots until 2031. As of the date of this report, AmerisourceBergen distributes substantially all of our branded and generic pharmaceutical products. Consequently, our business may be adversely affected by any operational, financial or regulatory difficulties that AmerisourceBergen experiences, including those resulting from COVID-19. For example, if AmerisourceBergen’s operations are seriously disrupted for any reason, whether due to a natural disaster, pandemic, labor disruption, regulatory action, computer or operational systems or otherwise, it could adversely affect our business and our results of operations.

Our distribution agreement with AmerisourceBergen is subject to early termination in certain circumstances and, upon the expiration or termination of the agreement, there can be no assurance that we or AmerisourceBergen will be willing to renew the agreement or enter into a new agreement, on terms favorable to us or at all. If such expiration or termination occurred, we believe that alternative sources of supply for most generic and brand-name pharmaceuticals are readily available and that we could obtain and qualify alternative sources, which may include self-distribution in some cases, for substantially all of the prescription drugs we sell on an acceptable basis, such that the impact of any such expiration or termination would be temporary. However, there can be no assurance we would be able to engage alternative supply sources or implement self-distribution processes on a timely basis or on terms favorable to us, or effectively manage these transitions, any of which could adversely affect our business operations, financial condition and results of operations.

Failure to retain and recruit, or failure to manage succession of, key personnel could have an adverse impact on our future performance.

Our ability to attract, engage, develop and retain qualified and experienced employees at all levels, including in executive and other key strategic positions, is essential for us to meet our objectives. Competition among potential employers might result in increased salaries, benefits or other employee-related costs, or in our failure to recruit and retain employees which could have a materially adverse impact on our business operations, financial condition and results of operations.

Additionally, any failure to adequately plan for and manage succession of key management roles or the failure of key employees to successfully transition into new roles could have a material adverse effect on our business and results of operations. While we have succession plans in place and employment arrangements with certain key executives, these do not guarantee the services of these executives will continue to be available to us.

We may be unable to keep existing store locations or open new locations in desirable places on favorable terms, which could materially and adversely affect our results of operations.

We compete with other retailers and businesses for suitable locations for our stores. Local land use and zoning regulations, environmental regulations and other regulatory requirements may impact our ability to find suitable locations and influence the cost of constructing, renovating and operating our stores. In addition, real estate, zoning, construction and other delays may adversely affect store openings and renovations and increase our costs. Further, changing local demographics at existing store locations may adversely affect revenue and profitability levels at those stores. The terms of leases at existing store locations may adversely affect us if the renewal terms of, or requested modifications to, those leases are unacceptable to us and we are forced to close or relocate stores. If we are unable to maintain our existing store locations or open new locations in desirable places and on favorable terms, our results of operations could be materially and adversely affected.



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Our business and operations are subject to risks related to climate change.

The long-term effects of global climate change present both physical risks (such as extreme weather conditions or rising sea levels) and transition risks (such as regulatory or technology changes), which are expected to be widespread and unpredictable. These changes could over time affect, for example, the availability and cost of products, commodities and energy (including utilities), which in turn may impact our ability to procure goods or services required for the operation of our business at the quantities and levels we require. In addition, many of our operations and facilities around the world are in locations that may be impacted by the physical risks of climate change, and we face the risk of losses incurred as a result of physical damage to stores, distribution or fulfillment centers, loss or spoilage of inventory and business interruption caused by such events. We also use natural gas, diesel fuel, gasoline and electricity in our operations, all of which could face increased regulation as a result of climate change or other environmental concerns. Regulations limiting greenhouse gas emissions and energy inputs may also increase in coming years, which may increase our costs associated with compliance and merchandise. These events and their impacts could otherwise disrupt and adversely affect our operations and could materially adversely affect our financial performance.

Risks Relating to Our Business Strategy

We may not be successful in executing elements of our business strategy, which may have a material adverse impact on our business and financial results.

We engage in strategic initiatives to, among other reasons, maximize long-term shareholder value, expand on our consumer-centric approach, strengthen our partnerships with local healthcare providers and improve health outcomes. These strategic initiatives may not result in improvements in future financial performance. We cannot provide any assurance that we will be able to successfully execute these strategic initiatives, or that these initiatives will not result in additional unanticipated costs. The failure to realize the benefits of any strategic initiatives or successfully structure our business to meet market conditions could have a material adverse effect on our business, financial condition, cash flows, or results of operations.

Our growth strategy is partially dependent upon our ability to identify and successfully complete acquisitions, joint ventures and other strategic partnerships and alliances.

A significant element of our growth strategy is to identify, pursue and successfully complete and integrate acquisitions, joint ventures and other strategic partnerships and alliances that either expand or complement our existing operations. Acquisitions and other strategic transactions involve numerous risks, including difficulties in successfully integrating the operations and personnel, navigating the necessary regulatory approval requirements, distraction of management from overseeing, and disruption of, our existing operations, difficulties in entering markets or lines of business in which we have no or limited direct prior experience, the possible loss of key employees and customers, and difficulties in achieving the synergies we anticipated. Any failure to select suitable opportunities at fair prices, conduct appropriate due diligence, acquire and successfully integrate the acquired company, including particularly when acquired businesses operate in new geographic markets or areas of business, could materially and adversely impact our growth strategies, financial condition and results of operations. Our ability to integrate and retain qualified and experienced employees from acquired businesses at all levels, including in executive and other key strategic positions, is essential for us to meet our growth strategy and successfully complete acquisition, joint ventures and other strategic partnerships and alliances.

These transactions may also cause us to significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition or investment, issue common stock that would dilute our current stockholders’ percentage ownership, or incur asset write-offs and restructuring costs and other related expenses that could have a material adverse impact on our operating results. Acquisitions, joint ventures and strategic investments also involve numerous other risks, including potential exposure to assumed litigation and unknown environmental and other liabilities, as well as undetected internal control, regulatory or other issues, or additional costs not anticipated at the time the transaction was completed.



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Businesses acquired as part of our U.S. Healthcare segment could experience losses or liabilities that would result in a material adverse effect on our business operations, results of operation and financial condition.

Healthcare businesses acquired as part of our U.S. Healthcare segment could experience losses or liabilities, including medical liability claims, causing us to incur significant expenses and requiring us to pay significant damages if not covered by insurance. These businesses have in the past been subject to medical liability claims in the ordinary course of business, and although we carry insurance covering medical malpractice claims, including professional liability insurance, in amounts we believe are appropriate in light of the risks attendant to our business, successful medical liability claims could resulting in substantial damage awards that exceed the limits of our insurance coverage. Professional liability insurance is expensive and insurance premiums may increase significantly in the future, particularly as we expand our services. As a result, adequate professional liability insurance may not be available to our providers or to us in the future at acceptable costs or at all. Any claims made against us or our acquired businesses that are not fully covered by insurance could be costly to defend against, result in substantial damage awards against us and divert the attention of our management and our providers from our operations, which could harm our business. In addition, any claims may significantly harm our business or reputation.

In addition, the businesses acquired as part of our U.S. Healthcare segment expose us to risks that are inherent in the provision of healthcare services. If patients, clients or partners assert liability claims against us, any ensuing litigation, regardless of outcome, could result in a substantial cost to us, divert management’s attention from operations, and decrease market acceptance of our services and care delivery model. We do not control the providers and other healthcare professionals in our U.S. Healthcare segment with respect to the practice of medicine and the provision of healthcare services, and the risk of liability, including through unexpected medical outcomes, is inherent to the healthcare industry.

The businesses acquired as part of the U.S. Healthcare segment have also entered and intend to continue to enter risk-based contracts with payors, pursuant to which they contract with payors to receive a fee for professional services based on the number of patients assigned or attributed to U.S. Healthcare providers and assume the financial responsibility for the healthcare expenses of such patients, These contracts may also include arrangements that contemplate sharing certain of the savings generated with respect to U.S. Healthcare segment’s patients’ costs of care back with the payor. To the extent that patients require more care than is anticipated or the cost of care increases, aggregate compensation amounts may be insufficient to cover the costs associated with treatment. If medical costs and expenses exceed estimates, except in very limited circumstances, our healthcare businesses will not be able to increase the fee received under these risk agreements during their then-current terms and could suffer losses with respect to such agreements, which may adversely impact the growth, profitability and liquidity of our U.S. Healthcare segment.

The anticipated strategic and financial benefits of our relationship with AmerisourceBergen may not be realized.

As of August 31, 2022, we beneficially owned approximately 25.4% of the outstanding AmerisourceBergen common stock and had designated one nominee for election to AmerisourceBergen’s board of directors. The Company accounts for its investment in AmerisourceBergen using the equity method of accounting, subject to a two-month reporting lag, with the net earnings attributable to the investment classified within the operating income of the Company’s U.S. Retail Pharmacy segment. The financial performance of AmerisourceBergen, including any charges which may arise relating to its ongoing opioid litigation matters, 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. Further, our ability to transact in AmerisourceBergen securities is subject to certain restrictions set forth in our agreements with AmerisourceBergen and arising under applicable laws and regulations, which in some circumstances could adversely impact our ability to transact in AmerisourceBergen securities in amounts and at the times desired. These considerations may materially and adversely affect the Company’s financial condition and results of operations.



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From time to time, we may choose to divest certain assets or businesses as we execute our strategy and our ability to engage in such transactions will be subject to market conditions beyond our control which will affect our ability to transact on terms favorable to us or at all.

We have, from time to time, divested certain assets or businesses in order to redeploy capital into our core strategies. The success of such transactions in the future will be subject to market conditions, availability of financing and other circumstances beyond our control. For instance, on June 28, 2022, we announced our decision to maintain the Boots and No7 Beauty Company businesses under existing ownership. This marked the conclusion of the review that began in January 2022 in line with our strategic priorities. In the future, we may intend to relaunch a process for the sale of the businesses or contemplate other opportunities to monetize our interest in these businesses. In addition, we have recently divested of a portion of our interests in AmerisourceBergen (See Part II, Item 7, Investment in AmerisourceBergen for further information) and Option Care Health, Inc. and may choose to divest more of our interests in the future. However, our ability to divest these or any of our other assets, will be subject to global financial markets and market instability which may severely impact the ability to divest, divestiture terms, financing availability and other considerations for potential buyers.

From time to time, we make investments in companies over which we do not have sole control and some of these companies may operate in sectors that differ from our current operations and have different risks.

From time to time, we make debt or equity investments in companies that we may not control or over which we may not have sole control. Some of the businesses in which we have made non-controlling investments operate in markets or industries that are different from our primary lines of business and/or operate in different geographic markets than we do. Investments in these businesses, among other risks, subject us to the operating and financial risks of the businesses we invest in and to the risk that we do not have sole control over the operations of these businesses. We rely on the internal controls and financial reporting controls of these entities and their failure to maintain effectiveness or comply with applicable standards may materially and adversely affect us. Investments in entities over which we do not have sole control, including joint ventures and strategic partnerships and alliances, present additional risks such as having differing objectives from our partners or the entities in which we are invested, becoming involved in disputes, or competing with those persons.

Cybersecurity, Data Privacy and Information Security Risks

A significant disruption in our information technology and computer systems or those of businesses we rely on could harm us.

We rely extensively on our computer systems to manage our ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment, customer loyalty programs, finance and other processes. Our systems are subject to damage or interruption from power outages, facility damage, computer and telecommunications failures, computer viruses, security breaches including credit card or personally identifiable information breaches, vandalism, theft, natural disasters, catastrophic events, human error and potential cyber threats, including malicious codes, worms, phishing attacks, denial of service attacks, ransomware and other sophisticated cyber-attacks, and our disaster recovery planning cannot account for all eventualities. If any of our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss or corruption of critical data and interruptions or disruptions and delays in our ability to perform critical functions, which could materially and adversely affect our businesses and results of operations.

In addition, we are currently making, and expect to continue to make, substantial investments in our information technology systems and infrastructure, some of which are significant. Implementing new systems carries significant potential risks, including failure to operate as designed, potential loss or corruption of data or information, changes in security processes, cost overruns, implementation delays, disruption of operations, and the potential inability to meet business and reporting requirements. We rely on strategic partners and other service providers to help us with certain significant information technology projects and services. Information technology projects or services frequently are long-term in nature and may take longer to complete and cost more than we expect and may not deliver the benefits we project once they are complete. Any system implementation and transition difficulty may result in operational challenges, reputational harm, and increased costs that could materially and adversely affect our business operations and results of operations. We also could be adversely affected by any significant disruption in the systems of third parties we interact with, including strategic and business partners, key payers and vendors.



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Privacy and data protection laws increase our compliance burden and any failure to comply could harm us.

The regulatory environment surrounding data security and privacy is increasingly demanding, with the frequent imposition of new and changing requirements across businesses and geographic areas. We are required to comply with increasingly complex and changing data security and privacy regulations in the jurisdictions in which we operate that regulate the collection, use and transfer of personal data, including the transfer of personal data between or among countries. In the U.S., for example, HIPAA imposes extensive privacy and security requirements governing the transmission, use and disclosure of health information by covered entities in the healthcare industry, including healthcare providers such as pharmacies. In addition, the California Consumer Privacy Act, which went into effect on January 1, 2020, imposes stringent requirements on the use and treatment of “personal information” of California residents, and other jurisdictions have enacted, or are proposing similar laws related to the protection of personal data. Outside the U.S., for example, the European Union’s General Data Protection Regulation, which became effective in May 2018, greatly increased the jurisdictional reach of European Union data protection laws and added a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, and provides for greater penalties for noncompliance. Other countries have enacted or are considering enacting data localization laws that require certain data to stay within their borders.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes. Failure to comply with these laws subjects us to potential regulatory enforcement activity, fines, private litigation including class actions, and other costs. We also have contractual obligations that might be breached if we fail to comply. A significant privacy breach or failure to comply with privacy and information security laws could have a materially adverse impact on our reputation, business operations, financial position and results of operations.

We and businesses we interact with experience cybersecurity incidents and might experience significant computer system compromises or data breaches.

The protection of customer, employee and Company data is critical to our businesses. Cybersecurity and other information technology security risks, such as a significant breach or theft of customer, employee, or company data, could create significant workflow disruption, attract media attention, damage our customer relationships, reputation and brand, and result in lost sales, fines or lawsuits. Throughout our operations, we receive, retain and transmit certain personal information that our customers and others provide to purchase products or services, fill prescriptions, enroll in promotional programs, participate in our customer loyalty programs and banking and credit programs, register on our websites, or otherwise communicate and interact with us. In addition, aspects of our operations depend upon the secure transmission of confidential information over public networks. We also depend on and interact with the information technology networks and systems of third-parties for many aspects of our business operations, including payers, strategic partners and cloud service providers. These third parties may have access to information we maintain about our company, operations, customers, employees and vendors, or operating systems that are critical to or can significantly impact our business operations. Like other global companies, we and businesses we interact with have experienced threats to data and systems, including from vandalism or theft of physical systems or media and from perpetrators of random or targeted malicious cyber-attacks, computer viruses, worms, phishing attacks, bot attacks or other destructive or disruptive software and attempts to misappropriate customer information, including credit card information, and cause system failures and disruptions.

Compromises of our data security systems or of those of businesses with which we interact that result in confidential information being accessed, obtained, damaged or used by unauthorized or improper persons, have in the past and could in the future adversely impact us. Any such compromise could harm our reputation and expose us to regulatory actions, customer attrition, remediation expenses, and claims from customers, financial institutions, payment card associations and other persons, any of which could materially and adversely affect our reputation, business operations, financial condition and results of operations. In addition, security incidents may require that we expend substantial additional resources related to the security of information systems and disrupt our businesses. The risks associated with data security and cybersecurity incidents have increased during COVID-19 given the increased reliance on remote work arrangements.



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We are subject to payment-related and other financial services risks that could increase our operating costs, expose us to fraud or theft, subject us to potential liability and potentially disrupt our business operations.

We accept payments using a variety of methods, including cash, checks, credit and debit cards, gift cards and mobile payment technologies such as Apple Pay™, and we may offer new payment options over time. Acceptance of these payment options subjects us to rules, regulations, contractual obligations and compliance requirements, including payment network rules and operating guidelines, data security standards and certification requirements, and rules governing electronic funds transfers. These requirements and related interpretations may change over time, which has made and could continue to make compliance more difficult or costly. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which could increase over time and raise our operating costs. We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, and other forms of electronic payment. If these companies become unable to provide these services to us, or if their systems are compromised, it could disrupt our business. The payment methods that we offer also subject us to potential fraud and theft by persons who seek to obtain unauthorized access to or exploit any weaknesses that may exist in the payment systems. If we fail to comply with applicable rules or requirements, or if data is compromised due to a breach or misuse of data relating to our payment systems, we may be liable for costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments could be impaired. In addition, our reputation could suffer and our customers could lose confidence in certain payment types, which could result in higher costs and/or reduced sales and materially and adversely affect our results of operations.

Additionally, we offer branded credit cards, money (wire) transfer services and sell prepaid debit, credit and gift cards at certain business units. These products and services require us to comply with global anti-money laundering laws and regulations. Failure to comply with these laws and regulations could result in fines, sanctions, penalties and damage to our reputation.

Financial and Accounting Risks

We have significant outstanding debt; our debt and associated payment obligations could significantly increase in the future if we incur additional debt and do not retire existing debt.

We have outstanding debt and other financial obligations. As of August 31, 2022, we had approximately $11.7 billion of outstanding indebtedness, including short-term debt. Our debt level and related debt service obligations could have negative consequences, including:

requiring us to dedicate significant cash flow from operations to amounts payable on our debt, which would reduce the funds we have available for other purposes;
making it more difficult or expensive for us to obtain any necessary future financing;
reducing our flexibility in planning for or reacting to changes in our industry and market conditions and making us more vulnerable in the event of a downturn in our business operations; and
exposing us to interest rate risk given that a portion of our debt obligations and undrawn revolving credit facilities is at variable interest rates.

We may incur or assume significantly more debt in the future, including in connection with acquisitions, strategic investments or joint ventures. If we add new debt and do not retire existing debt, the risks described above could increase. Incurrence of additional debt by us and changes in our operating performance could also adversely affect our credit ratings. Any actual or anticipated downgrade of our credit ratings, including any announcement that our ratings are under review for a downgrade or have been assigned a negative outlook, could adversely affect our cost of funds, liquidity, financial covenants, competitive position and access to capital markets and increase the cost of existing facilities, which could materially and adversely affect our business operations, financial condition, and results of operations. We also could be adversely impacted by any failure to renew or replace, on terms acceptable to us or at all, existing funding arrangements when they expire, and any failure to satisfy applicable covenants.

Our long-term debt obligations include covenants that may adversely affect our ability, and the ability of certain of our subsidiaries, to incur secured indebtedness or engage in certain types of transactions. In addition, our existing credit agreements require us to maintain as of the last day of each fiscal quarter a ratio of consolidated debt to total capitalization not to exceed a certain level. Our ability to comply with these restrictions and covenants may be affected by events beyond our control. If we breach any of these restrictions or covenants and do not obtain a waiver from the lenders, then, subject to applicable cure periods, our outstanding indebtedness could be declared immediately due and payable. This could have a material adverse effect on our business operations and financial condition.



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As a holding company, we are dependent on funding from our operating subsidiaries to pay dividends and other obligations.

The Company is a holding company with no business operations of its own. Its assets primarily consist of direct and indirect ownership interests in, and its business is conducted through, subsidiaries which are separate legal entities. As a result, it is dependent on funding from its subsidiaries, including Walgreens and international subsidiaries, to pay dividends and meet its obligations. The Company’s subsidiaries may be restricted in their ability to pay cash dividends or to make other distributions to the Company, which may limit the payment of cash dividends or other distributions to the holders of the Company's common stock. Credit facilities and other debt obligations of the Company, as well as statutory provisions, may further limit the ability of the Company and its subsidiaries to pay dividends. Payments to the Company by its subsidiaries are also contingent upon its subsidiaries’ earnings and business considerations. Future dividends to the Company will be determined based on earnings, capital requirements, financial condition and other factors considered relevant by its Board of Directors.

Our quarterly results may fluctuate significantly based on seasonality and other factors.

Our operating results have historically varied on a quarterly basis, including increased variability during COVID-19, and may continue to fluctuate significantly in the future. For instance, our businesses are seasonal in nature, with the second fiscal quarter (December, January and February), which falls during the holiday season, typically generating a higher proportion of retail sales and earnings than other fiscal quarters. In addition, both prescription and non-prescription drug sales are affected by the timing and severity of the cough, cold and flu season, which can vary considerably from year to year. Other factors that may affect our quarterly operating results, some of which are beyond the control of management, include, but are not limited to the impact and duration of COVID-19, the timing of the introduction of new generic and brand name prescription drugs; inflation, including with respect to generic drug procurement costs; seasonality, including the timing and severity of the cough, cold and flu season; changes or rates of change in payer reimbursement rates and terms; the timing and amount of periodic contractual reconciliation payments, fluctuations in inventory, energy, transportation, labor, healthcare and other costs; significant acquisitions, dispositions, joint ventures and other strategic initiatives; asset impairment charges, including the performance of and impairment charges related to our equity method investments; the relative magnitude of our LIFO provision in any particular quarter; foreign currency fluctuations; market conditions, widespread looting or vandalism; and many of the other risk factors discussed herein. Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and investors should not place undue reliance on the results of any particular quarter as an indication of our future performance.

We have a substantial amount of goodwill and other intangible assets which could, in the future, become impaired and result in material non-cash charges to our results of operations.

As of August 31, 2022, we had $22.3 billion of goodwill and $10.7 billion of other intangible assets on our Consolidated Balance Sheets. We evaluate this goodwill and other indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. As part of this impairment analysis, we determine fair value for each reporting unit using both the income and market approaches. We determine fair value of indefinite-lived intangible assets using the relief from royalty method and excess earnings method of the income approach. Definite-lived intangible assets are evaluated for impairment if an event occurs or circumstances change that indicate the carrying amount may not be recoverable. Estimated fair values could change if, for example, there are changes in the business climate, changes in the competitive environment, adverse legal or regulatory actions or developments, changes in capital structure, cost of debt and equity, capital expenditure levels, operating cash flows, or market capitalization, whether due to COVID-19 or otherwise. There can be no assurance that impairments will not occur, and any impairment may have a material impact on our financial condition and results of operations.



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We are exposed to risks associated with foreign currency exchange rate fluctuations.

We operate or have equity method investments in several countries across the globe which expose us to currency exchange rate fluctuations and related risks, including transaction currency exposures relating to the import and export of goods in currencies other than a businesses’ functional currencies as well as currency translation exposures relating to profits and net assets denominated in currencies other than the U.S. dollar. We present our financial statements in U.S. dollars and have a significant proportion of net assets and income in non-U.S. dollar currencies, primarily the British pound sterling, as well as a range of other foreign currencies. Our results of operations and capital ratios can therefore be sensitive to movements in foreign exchange rates. Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon our future results of operations. In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. A depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have a significant adverse impact on our results of operations.

We may from time to time, in some instances, enter into foreign currency contracts or other derivative instruments intended to hedge a portion of our foreign currency fluctuation risks, which subjects us to additional risks, such as the risk that counterparties may fail to honor their obligations to us, that could materially and adversely affect us. Additionally, we may (and currently do) use foreign currency debt to hedge some of our foreign currency fluctuation risks. The periodic use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. We cannot assure you that fluctuations in foreign currency exchange rates will not materially affect our consolidated financial results.

We could be adversely impacted by changes in assumptions used in calculating pension assets and liabilities.

We operate certain defined benefit pension plans in the UK, which were closed to new entrants in 2010, as well as smaller plans in other jurisdictions. The valuation of the pension plans’ assets and liabilities depends in part on assumptions, which are primarily based on the financial markets as well as longevity and employee retention rates. This valuation is particularly sensitive to material changes in the value of equity, bond and other investments held by the pension plans, changes in the corporate bond yields which are used in the measurement of the liabilities, changes in market expectations for long-term price inflation and other macroeconomic factors, and new evidence on projected longevity rates. Funding requirements and the impact on the statement of earnings relating to these pension plans are also influenced by these factors. Adverse changes in the assumptions used to calculate the value of pension assets and liabilities, including lower than expected pension fund investment returns and/or increased life expectancy of plan participants, or regulatory change could require us to increase the funding of its defined benefit pension plans or incur higher expenses, which would adversely impact our results of operations and financial position.

Risks from Changes in Public Policy and Other Legal and Regulatory Risks

Changes in the healthcare industry and regulatory environments may adversely affect our businesses.

Political, economic and regulatory influences are subjecting the healthcare industry to significant changes that could adversely affect our results of operations. In recent years, the healthcare industry has undergone significant changes in an effort to reduce costs and government spending. These changes include an increased reliance on managed care; cuts in certain Medicare and Medicaid funding in the U.S. and the funding of governmental payers in foreign jurisdictions; consolidation of competitors, suppliers and other market participants; and the development of large, sophisticated purchasing groups. In addition, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. For example, the Inflation Reduction Act requires drug manufacturers to pay rebates to Medicare if they increase prices faster than inflation for drugs used by Medicare beneficiaries. The mechanics of the rebate calculation would mimic those of the Medicaid rebate, but the expansion of inflation-based rebates may further complicate pricing strategies, particularly as to the launch of our new products. The Inflation Reduction Act of 2022 could have the effect of reducing the prices we can charge and reimbursement we receive for our products, thereby reducing our profitability.



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We expect the healthcare industry to continue to change significantly in the future. Some of these potential changes, such as a reduction in governmental funding for certain healthcare services or adverse changes in legislation or regulations governing prescription drug pricing, healthcare services or mandated benefits, may cause customers to reduce the amount of our products and services they purchase or the price they are willing to pay for our products and services. We expect continued governmental and private payer pressure to reduce pharmaceutical pricing, and these pressures could be further exacerbated if payer deficits or shortfalls increase due to COVID-19 or otherwise. Changes in pharmaceutical manufacturers’ pricing or distribution policies and practices as well as applicable government regulations, including, for example, in connection with the federal 340B drug pricing program, could also significantly reduce our profitability.

We are exposed to risks related to litigation and other legal proceedings.

We operate in a highly regulated and litigious environment. We are involved in legal proceedings, including litigation, arbitration and other claims, and investigations, inspections, audits, claims, inquiries and similar actions by pharmacy, healthcare, tax and other governmental authorities, including those contained in Note 11. Commitments and contingencies, to the Consolidated Financial Statements included in Part II, Item 8 for further information. For example, in January 2019, Walgreen Co., on behalf of itself, its subsidiaries and certain identified affiliates, resolved matters regarding certain dispensing practices by entering into, among other things, a Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services. The Corporate Integrity Agreement has a five-year term and provides that Walgreen Co. shall, among other things, continue the compliance program it created to address compliance with federal healthcare program requirements, provide annual certifications of compliance and provide training and education for certain covered employees. Failure to meet the Corporate Integrity Agreement obligations could have material adverse consequences for us, including reputational harm and monetary penalties for each instance of non-compliance. In addition, in the event of a breach or deliberate violation of the Corporate Integrity Agreement, we could be excluded from participation in federal healthcare programs, or subjected to other significant penalties, which could seriously harm our results of operations, liquidity and financial results.

Legal proceedings, in general, and securities, derivative action and class action and multi-district litigation, in particular, can be expensive and disruptive. Some of these suits may purport or may be determined to be class actions and/or involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. For example, we are a defendant in numerous litigation proceedings relating to opioid matters, including federal multidistrict litigation that consolidated numerous cases filed against an array of defendants by various plaintiffs such as counties, cities, hospitals, Indian tribes, and others, as well as numerous lawsuits brought in state courts. Additionally, the Company has received from the Department of Justice and the Attorney Generals of numerous states subpoenas, civil investigative demands and/or other requests concerning opioid matters. The Company incurs and expects to continue to incur significant expense in order to resolve those and other opioids-related matters, including through settlement agreements. From time to time, the Company is also involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property and other matters. See Note 11. Commitments and contingencies, to the Consolidated Financial Statements included in Part II, Item 8 for further information.

The Company’s financial results may also be adversely affected by the litigation and other legal proceedings of companies in which it has an equity method investment. For example, AmerisourceBergen is involved in litigation and legal proceeding, including those relating to opioid matters. Any unfavorable outcome or settlement related to these proceedings could have a material adverse effect on the Company’s financial results.

Like other companies in the retail pharmacy, healthcare services and pharmaceutical wholesale industries, the Company is subject to extensive regulation by national, state and local government agencies in the U.S. and other countries in which it operates. There continues to be a heightened level of review and/or audit by regulatory authorities of, and increased litigation regarding business, compliance and reporting practices of the Company and other industry participants. As a result, the Company regularly is the subject of government actions of the types described above. In addition, under the qui tam or “whistleblower” provisions of the federal and various state false claims acts, persons may bring lawsuits alleging that a violation of the federal anti-kickback statute or similar laws has resulted in the submission of “false” claims to federal and/or state healthcare programs, including Medicare and Medicaid. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination.



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We cannot predict with certainty the outcomes of these legal proceedings and other contingencies, and the costs incurred in litigation can be substantial, regardless of the outcome. Substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, we could from time to time incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could harm our reputation and have a material adverse effect on our results of operations in the period in which the amounts are accrued and/or our cash flows in the period in which the amounts are paid. In addition, as a result of governmental investigations or proceedings, the Company may be subject to damages, civil or criminal fines or penalties, or other sanctions, including the possible suspension or loss of licensure and/or suspension or exclusion from participation in government programs. The outcome of some of these legal proceedings and other contingencies could require us to take, or refrain from taking, actions which could negatively affect our operations. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management’s attention and resources.

A significant change in, or noncompliance with, governmental regulations and other legal requirements could have a material adverse effect on our reputation and profitability.

We operate in complex, highly regulated environments around the world and could be materially and adversely affected by changes to applicable legal requirements including the related interpretations and enforcement practices, new legal requirements and/or any failure to comply with applicable regulations. Our retail pharmacy and health and wellness services businesses are subject to numerous country, state and local regulations including licensing, billing practices, utilization and other requirements for pharmacies and reimbursement arrangements. The regulations to which we are subject include, but are not limited to: country and state registration and regulation of pharmacies and drug discount card programs; dispensing and sale of controlled substances and products containing pseudoephedrine; applicable governmental payer regulations including Medicare and Medicaid; data privacy and security laws and regulations including HIPAA; the ACA or any successor thereto; laws and regulations relating to the protection of the environment and health and safety matters, each of which continues to evolve, including those governing exposure to, and the management and disposal of, hazardous substances; regulations regarding food and drug safety including those of the U.S. Food and Drug Administration (“FDA”) and Drug Enforcement Administration (“DEA”), trade regulations including those of the U.S. Federal Trade Commission, and consumer protection and safety regulations including those of the Consumer Product Safety Commission, as well as state regulatory authorities, governing the availability, sale, advertisement and promotion of products we sell as well as our loyalty and drug discount card programs; anti-kickback laws; false claims laws; laws against the corporate practice of medicine; and foreign, national and state laws governing healthcare fraud and abuse and the practice of the profession of pharmacy. For example, in the U.S., the DEA, FDA and various other regulatory authorities regulate the distribution and dispensing of pharmaceuticals and controlled substances. We are required to hold valid DEA and state-level licenses, meet various security and operating standards and comply with the federal and various state controlled substance acts and related regulations governing the sale, dispensing, disposal, holding and distribution of controlled substances. The DEA, FDA and state regulatory authorities have broad enforcement powers, including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which shall take effect in 2023. We are also governed by foreign, national and state laws of general applicability, including laws regulating matters of working conditions, health and safety and equal employment opportunity and other labor and employment matters as well as employee benefit, competition and antitrust matters. In addition, we could have significant exposure if we are found to have infringed another party’s intellectual property rights.

Changes in laws, regulations and policies and the related interpretations and enforcement practices may alter the landscape in which we do business and may significantly affect our cost of doing business. The impact of new laws, regulations and policies and the related interpretations and enforcement practices generally cannot be predicted, and changes in applicable laws, regulations and policies and the related interpretations and enforcement practices may require extensive system and operational changes, be difficult to implement, increase our operating costs and require significant capital expenditures. Untimely compliance or noncompliance with applicable laws and regulations could result in the imposition of civil and criminal penalties that could adversely affect the continued operation of our businesses, including: suspension of payments from government programs; loss of required government certifications; loss of authorizations to participate in or exclusion from government programs, including the Medicare and Medicaid programs in the U.S. and the National Health Service in the UK; loss of licenses; and significant fines or monetary penalties. Any failure to comply with applicable regulatory requirements in the U.S. or in any of the countries in which we operate could result in significant legal and financial exposure, damage to our reputation and brand, and have a material adverse effect on our business operations, financial condition and results of operations.



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We could be adversely affected by violations of anti-bribery, anti-corruption and/or international trade laws.

We are subject to laws concerning our business operations and marketing activities in foreign countries where we conduct business. For example, we are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), U.S. export control, anti-money laundering and economic and trade sanction laws, and similar anti-corruption and international trade laws in certain foreign countries, such as the UK Bribery Act, any violation of which could create substantial liability for us and also harm our reputation. Violations of these laws and regulations or any other anti-bribery, anti-corruption or international trade laws may subject us to penalties, sanctions, including civil and criminal fines, disgorgement of profits, and suspension or debarment of our ability to contract with governmental agencies or receive export licenses. From time to time, we may face audits or investigations by one or more domestic or foreign governmental agencies relating to our international business activities, compliance with which could be costly and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could damage our reputation and subject us to fines or other penalties, which could materially and adversely affect our business operations, financial condition, and results of operations.

We could be adversely affected by product liability, product recall, personal injury or other health and safety issues.

We could be adversely impacted by the supply of defective or expired products, including the infiltration of counterfeit products into the supply chain, errors in re-labeling of products, product tampering, product recall and contamination or product mishandling issues. Through our pharmacies and specialist packaging sites, including through services provided by third-party healthcare providers, we are also exposed to risks relating to the products and services we offer. Errors in the dispensing and packaging of pharmaceuticals, including related counseling, and in the provision of other healthcare services could lead to serious injury or death. Product liability or personal injury claims may be asserted against us and mandatory or voluntary product recalls may apply to us with respect to any of the retail products or pharmaceuticals we sell or services we provide, particularly with regard to our private branded products that are not available from other retailers. For example, from time to time, the FDA issues statements alerting patients that products in our supply chain may contain impurities or harmful substances, and claims relating to the sale or distribution of such products may be asserted against us or arise from these statements. Our healthcare clinics also increase our exposure to professional liability claims related to medical care. We could suffer significant reputational damage and financial liability if we, or any affiliated entities or third-party healthcare providers that we do business with, experience any of the foregoing health and safety issues or incidents, which could have a material adverse effect on our business operations, financial condition and results of operations.

We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.

As a large corporation with operations in the U.S. and numerous other jurisdictions, from time to time, changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability. There can be no assurance that changes in tax laws or regulations, both within the U.S. and the other jurisdictions in which we operate, will not materially and adversely affect our effective tax rate, tax payments, financial condition and results of operations. Similarly, changes in tax laws and regulations that impact our customers and counterparties or the economy generally may also impact our financial condition and results of operations.

Tax laws and regulations are complex and subject to varying interpretations, and we are subject to regular review and audit by both domestic and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative impact on our effective tax rate, tax payments, financial condition and results of operations. In addition, the determination of our income tax provision and other tax liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain. The ultimate tax determination may differ from the amounts recorded in our financial statements and may materially affect our results of operations in the period or periods for which such determination is made. Any significant failure to comply with applicable tax laws and regulations in all relevant jurisdictions could give rise to substantial penalties and liabilities. Any changes in enacted tax laws, rules or regulatory or judicial interpretations; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations.



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Risks Related to Our Structure and Organization

Certain stockholders may have significant voting influence over matters requiring stockholder approval.

As of August 31, Stefano Pessina, our Executive Chairman (together with his affiliates, the “SP Investors”), had sole or shared voting power, directly or indirectly, over an aggregate of approximately 17% of our outstanding common stock. The SP Investors have agreed to, for so long as they have the right to designate a nominee for election to the Board, to vote all of their shares of common stock in accordance with the Board’s recommendation on matters submitted to a vote of the Company’s stockholders (including with respect to the election of directors). The SP Investors’ significant interest in our common stock potentially could determine the outcome of matters submitted to a vote by our stockholders. The influence of the SP Investors could result in the Company taking actions that other stockholders do not support or failing to take actions that other stockholders support. In addition, issuances or sales of our common stock (or the exercise of related registration rights), including sales of shares by our directors and officers or key investors, including the SP Investors and certain other former Alliance Boots stockholders, are subject to restrictions in the case of shares held by persons deemed to be our affiliates and to certain obligations pursuant to the Company Shareholders Agreement (as defined herein). As a result, the market price of our common stock could be adversely affected.

Conflicts of interest, or the appearance of conflicts of interest, may arise because certain of our directors and officers are also owners or directors of companies we may have dealings with.

Conflicts of interest, or the appearance of conflicts of interest, could arise between our interests and the interests of the other entities and business activities in which our directors or officers are involved. For example, potential conflicts of interest could arise if a dispute were to arise between the Company and other parties to the shareholders agreement (the “Company Shareholders Agreement”) with certain SP Investors. Mr. Pessina, our Executive Chairman, indirectly controls Alliance Santé Participations S.A. (“ASP”), a privately-held company which is a party to the Company Shareholders Agreement, and he and his spouse Ornella Barra, our Chief Operating Officer, International serve as directors of ASP. There are other arrangements between affiliates of Mr. Pessina and the Company, with required disclosures included in the Company’s annual proxy statement, including with respect to Alliance Healthcare Italia SpA, which is an entity indirectly owned and controlled by Mr. Pessina (and in which, until April 2022, the Company held an indirect 9% interest), which operates Boots branded stores in Italy. Conflicts of interest, or the appearance of conflicts of interest, or similar issues could arise in connection with these or other transactions in the future. While our contractual arrangements place restrictions on the parties’ conduct in certain situations, and related party transactions are subject to independent review and approval in accordance with our related party transactions approval procedures and applicable law, the potential for a conflict of interest exists and such persons may have conflicts of interest, or the appearance of conflicts of interest, with respect to matters involving or affecting both companies.

Our certificate of incorporation and bylaws, Delaware law or our agreements with certain stockholders may impede the ability of our stockholders to make changes to our Board or impede a takeover.

Certain provisions of our certificate of incorporation and bylaws, as well as provisions of the Delaware General Corporation Law (the “DGCL”), could make it difficult for stockholders to change the composition of the Board or discourage, delay, or prevent a merger, consolidation, or acquisitions that stockholders may otherwise consider favorable. These provisions include the authorization of the issuance of “blank check” preferred stock that could be issued by the Board, limitations on the ability of stockholders to call special meetings, and advance notice requirements for nomination for election to the Board or for proposing matters that can be acted upon by stockholders at stockholder meetings. We are also subject to the provisions of Section 203 of the DGCL, which prohibits us, except under specified circumstances, from engaging in any mergers, significant sales of stock or assets, or business combinations with any stockholder or group of stockholders who own 15% or more of our common stock.

Under the Company Shareholders Agreement, the SP Investors are entitled to designate one nominee to the Board (currently Stefano Pessina) for so long as the SP Investors continue to meet certain beneficial ownership thresholds and subject to certain other conditions. Pursuant to the Company Shareholders Agreement, the SP Investors have agreed that, for so long as they have the right to designate a nominee to the Board, they will vote all of their shares of common stock in accordance with the Board’s recommendation on matters submitted to a vote of our stockholders (including with respect to the election of directors).

While these provisions do not make us immune from takeovers or changes in the composition of the Board, and are intended to protect our stockholders from, among other things, coercive or otherwise unfair tactics, these provisions could have the effect of making it difficult for stockholders to change the composition of the Board or discouraging, delaying, or preventing a merger, consolidation, or acquisitions that stockholders may otherwise consider favorable.



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We cannot guarantee that our stock repurchase program will be fully implemented or that it will enhance long-term stockholder value.

In June 2018, our Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $10 billion of our common stock. The repurchase program does not have an expiration date and we are not obligated to repurchase a specified number or dollar value of shares, on any particular timetable or at all. There can be no assurance that we will repurchase stock at favorable prices. Activity under this program was suspended in July 2020 and there can be no assurance whether or when activity will resume. If resumed, the repurchase program may be suspended or terminated at any time and, even if fully implemented, may not enhance long-term stockholder value.


Item 1B. Unresolved staff comments
There are no unresolved written comments that were received from the SEC Staff 180 days or more before the end of the fiscal year relating to the Company’s periodic or current reports under the Exchange Act.


Item 2. Properties
The following information regarding the Company’s properties is provided as of August 31, 2022 and does not include properties of unconsolidated, partially-owned entities.

Retail stores and clinics
The U.S. Retail Pharmacy segment operated 8,886 retail stores and 3 specialty pharmacies. The International segment operated 3,989 retail stores and 341 standalone Boots Opticians locations. The U.S. Healthcare segment included 334 VillageMD clinics of which 146 were co-located clinics, 124 were standalone clinics and 64 were affiliate clinics.

The following is a breakdown of the Company’s domestic and international retail stores and clinics by segment:
 Retail stores and clinics
U.S. Retail Pharmacy: 
United States 1
8,784
Puerto Rico104
U.S. Virgin Islands1
8,889
 
International:
United Kingdom2,573
Mexico1,133
Chile295
Thailand237
The Republic of Ireland92
4,330
U.S. Healthcare - standalone clinics124
Walgreens Boots Alliance total13,343 
1 Includes VillageMD co-located clinics

The Company’s domestic and international retail stores and clinics, which includes Boots Opticians and specialty pharmacy locations, covered approximately 143 million square feet. The Company owned approximately 8% and 4% of these U.S. Retail Pharmacy and International segment locations, respectively. The remaining locations, including U.S. Healthcare locations were leased or licensed. For more information on leases, see Note 5. Leases, to the Consolidated Financial Statements included in Part II, Item 8 for further information.



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Distribution centers and other facilities
The Company operated 22 retail distribution centers covering approximately 14 million square feet of space, of which 12 locations were owned. Geographically, 17 of these retail distribution centers were located in the U.S. and 5 were located outside of the U.S. In addition, the Company used public warehouses and third-party distributors to handle certain retail distribution needs.

The Company’s U.S. Retail Pharmacy segment operated 8 microfulfillment centers, 1 prescription mail service facility and 1 manufacturing facility, covering approximately 607 thousand, 110 thousand, and 77 thousand square feet, respectively.

The Company's International segment operated and owned 35 pharmaceutical distribution centers in Germany, covering approximately 3 million square feet.

Office facilities
The Company operated 43 principal office facilities, covering approximately 2.3 million square feet, of which 4 were owned. Geographically, 29 of these principal office facilities were located in the U.S. and 14 were located outside of the U.S.


Item 3. Legal proceedings
The information in response to this item is included in Note 11. Commitments and contingencies, to the Consolidated Financial Statements included in Part II, Item 8 for further information.


Item 4. Mine safety disclosures
Not applicable.




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PART II


Item 5. Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities
Walgreens Boots Alliance’s common stock is listed on the Nasdaq Stock Market under the symbol WBA. As of August 31, 2022, there were approximately 46,192 holders of record of Walgreens Boots Alliance common stock.

The Company has paid cash dividends every quarter since 1933. Future dividends will be determined based on earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors.
 
The following table provides information about purchases made by the Company during the quarter ended August 31, 2022 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act. Subject to applicable law, share purchases may be made from time to time in open market transactions, privately negotiated transactions including accelerated share repurchase agreements, or pursuant to instruments and plans complying with Rule 10b5-1, among other types of transactions and arrangements.
 Issuer purchases of equity securities
PeriodTotal number of shares purchasedAverage price paid per share
Total number of shares purchased as part of publicly announced repurchase programs1
Approximate dollar value of shares that may yet be purchased under the plans or programs1
6/1/22 - 6/30/22— $— — $2,003,419,960 
7/1/22 - 7/31/22— — — 2,003,419,960 
8/1/22 - 8/31/22— — — 2,003,419,960 
— — 
1In June 2018, Walgreens Boots Alliance authorized a stock repurchase program, which authorized the repurchase of up to $10.0 billion of Walgreens Boots Alliance common stock. This program has no specified expiration date. In July 2020, the Company announced that it had suspended activities under this program.


Item 6. Reserved

Not applicable.



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Item 7. Management’s discussion and analysis of financial condition and results of operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein and the description of the Company’s business and reportable segments in Part I, Item 1. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements that involve risks and uncertainties. Factors that might cause a difference include, but are not limited to, those discussed under “Cautionary note regarding forward-looking statements” below and in Risk factors in Part I, Item 1A of this Form 10-K. References herein to the “Company,” “we,” “us,” or “our” refer to Walgreens 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 Consolidated Financial Statements and associated notes 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 itself to become a leading provider of healthcare services. Its operations are conducted through three reportable segments:
U.S. Retail Pharmacy,
International, and
U.S. Healthcare.

In the fourth quarter of fiscal 2022, the Company changed the name of two reportable segments to better align with the Company’s business activities, structure and strategy. The “United States” segment was renamed to “U.S. Retail Pharmacy” and the “Walgreens Health” segment was renamed to “U.S. Healthcare”. The segment name changes did not result in any change to the composition of the segments and therefore no change to the historical results of segment operations. The information for these segments for all periods included in these consolidated financial statements has been presented using the new names. See Note 17. Segment reporting and Note 18. Sales, to the Consolidated Financial Statements included in Part II, Item 8 for further information.

FACTORS, TRENDS AND UNCERTAINTIES AFFECTING OUR RESULTS AND COMPARABILITY
The 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 (“COVID-19”) on our operations and financial results; the financial performance of our equity method investees, including AmerisourceBergen; the influence of certain holidays; seasonality; foreign currency rates; changes in vendor, payer and customer relationships and terms and associated reimbursement pressure; strategic transactions and acquisitions, dispositions, joint ventures and other strategic collaborations; changes in laws, including U.S. tax law changes; changes in trade tariffs, including trade relations between the U.S. and China, and international relations, including the UK's withdrawal from the European Union and its impact on our operations and prospects, and those of our customers and counterparties; 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 the U.S., a significant portion of which is dispensed outside of traditional retail pharmacies. To better serve the evolving specialty pharmacy market, in March 2017, the Company and Prime Therapeutics LLC, a PBM, closed a transaction to form a combined central specialty pharmacy and mail services company, AllianceRx Walgreens Prime, using an innovative model that sought to align pharmacy, PBM and health plans to coordinate patient care, improve health outcomes and deliver cost of care opportunities. On December 31, 2021, the Company purchased Prime’s portion of the joint venture and now wholly own the joint venture, which was renamed AllianceRx Walgreens. Certain clients of AllianceRx Walgreens are not obligated to contract through AllianceRx Walgreens, and have in the past, and may in the future, enter into specialty pharmacy and other agreements without involving AllianceRx Walgreens. Certain clients have chosen not to renew their contracts through AllianceRx Walgreens 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.

In January 2022, the Company announced a strategic review of its Boots business, including the No7 beauty company. In June 2022, the Company announced the conclusion of the strategic review and decision to retain existing ownership in these businesses.



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On May 5, 2022, the Company entered into an agreement with the State of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the Company’s pharmacies in the State of Florida. The settlement amount of $683 million includes $620 million to be paid in equal installments to the State of Florida over 18 years and will be applied as 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 on June 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 the U.S., the UK and other countries around the world. COVID-19 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 has adversely affected our industries and our business operations. Further, financial and credit markets experienced volatility and could continue to experience volatility due to COVID-19 and other factors. 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 were 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 participated in certain of these programs, including for example availing itself to certain tax deferrals which were introduced by the CARES Act in the U.S., and certain tax deferral and benefit and employee wage support in the UK, 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 the Centers for Disease Control and Prevention (“CDC”), U.S. Department of Health and Human Services (“HHS”) and the U.S. government to help administer COVID-19 vaccinations to the general public and to high priority groups, including long-term care facility residents and staff. The U.S. Retail Pharmacy segment also expanded vaccination models to ensure convenient access, including same-day and walk-in appointments, mobile clinics, employer partnerships and extended hours. As of August 31, 2022, the Company has administered more than 69 million COVID-19 vaccinations, including 23 million booster vaccinations, and more than 45 million COVID-19 tests in the U.S. In fiscal 2022, the Company has administered approximately 35 million COVID-19 vaccinations and more than 31 million COVID-19 tests in the U.S.

In fiscal 2022, the U.S. Retail Pharmacy segment comparable 30-day equivalent prescriptions filled increased 1.3%, including a positive impact of 12 basis points from COVID-19 vaccinations. Comparable retail sales increase was aided by at-home COVID-19 test sales.

The Company continues to monitor COVID-19 and its potential future impacts on the consumer, customer and healthcare utilization patterns, as well as the U.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.

U.S. Healthcare
In fiscal 2022, 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 retail 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’s U.S. Healthcare segment, created at the beginning of fiscal 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey. The U.S. Healthcare segment delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.



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The U.S. Healthcare segment currently consists of a majority position in Village Practice Management Company, LLC (“VillageMD”), a leading, national provider of value-based primary care services; a majority position in Shields Health Solutions Parent, LLC (“Shields”), a specialty pharmacy integrator and accelerator for hospitals, a majority position in CCX Next, LLC (“CareCentrix”), a leading player in the post-acute and home care management sectors; and the Walgreens Health organic business that contracts with payors and providers to deliver clinical healthcare services to their members and members’ caregivers through both digital and physical channels. On September 20, 2022, the Company announced that it entered into a definitive agreement to acquire the remaining 30% equity interest in Shields, not currently owned.

The Company is now aligned into three reportable segments: U.S. Retail Pharmacy, International and U.S. Healthcare. Fiscal 2021 data related to the U.S. Healthcare segment, has been reclassified in the Consolidated Financial Statements and accompanying notes to conform to the current period presentation.

See Note 17. Segment reporting to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

RECENT TRANSACTIONS

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

The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

On September 20, 2022, the Company announced the acceleration of its plans for full ownership of Shields. The Company entered into a definitive agreement to acquire the remaining 30% equity interest for approximately $1.37 billion of cash consideration. The transaction is expected to close in the second quarter of fiscal 2023. See Note 21. Subsequent events to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

VillageMD acquisition
On November 24, 2021, the Company completed the acquisition of a majority interest in VillageMD. Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests of VillageMD, increasing the Company’s total beneficial ownership in VillageMD’s outstanding equity interests from approximately 30% to approximately 63%, on a fully diluted basis, for a purchase price of $5.2 billion. The total purchase price is comprised of cash consideration of $4.0 billion and a promissory note of $1.2 billion.

The Company accounted for this acquisition as a business combination resulting in consolidation of VillageMD within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments, and Note 6. Equity method investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

Sale of AmerisourceBergen common stock
On May 11, 2022, the Company sold 6.0 million shares of AmerisourceBergen Corporation (“AmerisourceBergen”) common stock pursuant to Rule 144 at a price of $150 per share for a total consideration of $900 million. This decreased the Company's ownership of AmerisourceBergen’s common stock from 58,854,867 shares, held at August 31, 2021 to 52,854,867 shares held as of August 31, 2022, representing approximately 25.4% of AmerisourceBergen common stock, based on the share count publicly reported by AmerisourceBergen in its most recent Quarterly Report on Form 10-Q. The transaction resulted in the Company recording a pre-tax gain of $417 million in Other income, net in the Consolidated Statements of Earnings, including a $32 million loss reclassified from within Accumulated other comprehensive income in the Consolidated Balance Sheets.

See Note 6. Equity method investments, to the Consolidated Financial Statements included in Part II, Item 8 for further information.




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CareCentrix acquisition
On August 31, 2022, the Company completed the acquisition of a majority interest in CareCentrix. Pursuant to the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement, the Company acquired approximately 55% controlling equity interest in CareCentrix, a leading player in the post-acute and home care management sectors, for cash consideration of $332 million.

The Company accounted for this acquisition as a business combination resulting in consolidation of CareCentrix within the U.S. Healthcare segment in its financial statements.

See Note 3. Acquisitions and other investments to the Consolidated Financial Statements included in Part II, Item 8 herein for further information

On October 11, 2022, the Company announced the acceleration of its plans for full ownership of CareCentrix. The Company entered into a definitive agreement to acquire the remaining 45% equity interest for approximately $392 million of cash consideration. The acquisition is subject to limited customary closing conditions and is expected to close by March 2023. See Note 21. Subsequent events to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

TRANSFORMATIONAL COST MANAGEMENT PROGRAM

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

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

The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company’s information technology (IT) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program which focus on the U.S. Retail Pharmacy and International reportable segments along with the Company's global functions. Divisional optimization within the Company’s segments includes activities such as optimization of stores, including plans to close approximately 350 stores in the UK and approximately 450 to 500 stores in the U.S. As of August 31, 2022, the Company has closed 235 and 287 stores in the UK and U.S., respectively.

The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $3.6 billion to $3.9 billion, of which $3.3 billion to $3.6 billion are expected to be recorded as exit and disposal activities. In addition to the impacts discussed above, as a result of the actions related to store closures taken under the Transformational Cost Management Program, the Company recorded $508 million of transition adjustments to decrease retained earnings due to the adoption of the new lease accounting standard (Topic 842) that became effective on September 1, 2019. The Company estimates that approximately 80% of the cumulative pre-tax charges relating to the Transformational Cost Management Program represent current or future cash expenditures, primarily related to employee severance and business transition costs, IT transformation and lease and other real estate payments.

The Company currently estimates that it will recognize aggregate pre-tax charges to its GAAP financial results related to the Transformational Cost Management Program as follows:

Transformational Cost Program ActivitiesRange of Charges
Lease obligations and other real estate costs1
1,250 to 1,350 million
Asset impairments2
750 to 800 million
Employee severance and business transition costs1,025 to 1,075 million
Information technology transformation and other exit costs300 to 350 million
Total cumulative pre-tax exit and disposal charges3.3 to 3.6 billion
Other IT transformation costs275 to 325 million
Total estimated pre-tax charges3.6 to 3.9 billion


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1Includes impairments relating to operating lease right-of-use and finance lease assets.
2Primarily related to store closures and other asset impairments.

From the inception of the Transformational Cost Management Program to August 31, 2022, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $2.2 billion, of which $2.0 billion is recorded as exit and disposal activities. See Note 4. Exit and disposal activities, to the Consolidated Financial Statements included in Part II, Item 8 for further information. These charges included $603 million related to lease obligations and other real estate costs, $443 million in asset impairments, $723 million in employee severance and business transition costs, $203 million of information technology transformation and other exit costs, and $272 million in other information technology costs.

Costs under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses, were as follows (in millions):

Fiscal 2022U.S. Retail PharmacyInternationalCorporate and OtherWalgreens Boots Alliance, Inc.
Lease obligations and other real estate costs$247 $$— $249 
Asset impairments132 58 — 190 
Employee severance and business transition costs156 29 25 210 
Information technology transformation and other exit costs12 29 — 40 
Total pre-tax exit and disposal charges$546 $118 $25 $690 
Other IT transformation costs57 15 — 73 
Total pre-tax charges$603 $134 $26 $763 

Fiscal 2021U.S. Retail PharmacyInternationalCorporate and OtherWalgreens Boots Alliance, Inc.
Lease obligations and other real estate costs$103 $$— $108 
Asset impairments15 — 24 
Employee severance and business transition costs79 40 45 165 
Information technology transformation and other exit costs20 17 — 38 
Total pre-tax exit and disposal charges$217 $72 $46 $335 
Other IT transformation costs63 19 — 82 
Total pre-tax charges$279 $91 $46 $417 

Fiscal 2020U.S. Retail PharmacyInternationalCorporate and OtherWalgreens Boots Alliance, Inc.
Lease obligations and other real estate costs$191 $$14 $215 
Asset impairments51 19 72 
Employee severance and business transition costs132 93 45 270 
Information technology transformation and other exit costs70 42 (4)108 
Total pre-tax exit and disposal charges$444 $163 $58 $665 
Other IT transformation costs55 18 — 73 
Total pre-tax charges$498 $182 $58 $737 


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Transformational Cost Management Program charges are recognized as the costs are incurred over time in accordance with GAAP. The Company treats charges related to the Transformational Cost Management Program as special items impacting comparability of results in its earnings disclosures.
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”.

INVESTMENT IN AMERISOURCEBERGEN
As of August 31, 2022 and 2021, respectively, the Company owns approximately 25.4% and 28.5% of AmerisourceBergen outstanding common stock, based on the share count publicly reported by AmerisourceBergen in its most recent Quarterly Report on Form 10-Q.

On May 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 at August 31, 2021 to 52,854,867 shares held as of August 31, 2022. The transaction resulted in the Company recording a pre-tax gain of $417 million in Other income, net in the Consolidated Statements of Earnings, including a $32 million loss reclassified from within Accumulated other comprehensive income in the Consolidated Balance Sheets.

The Company has a shareholders agreement with AmerisourceBergen, which was most recently amended and restated (the “A&R Shareholders Agreement”) in connection with the Company's sale of its Alliance Healthcare business to AmerisourceBergen (the “Alliance Healthcare Sale”). Pursuant to the A&R Shareholders Agreement, the Company has designated one member of AmerisourceBergen’s board of directors. The Company is also permitted, subject to certain conditions, 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 accounts for its investment in AmerisourceBergen using the equity method of accounting, subject to a two-month reporting lag, with the net earnings (loss) attributable to the investment classified within the Operating income of the Company’s U.S. Retail Pharmacy segment.

In fiscal 2022, 2021 and 2020, the Company recognized equity earnings (losses) in AmerisourceBergen of $418 million, $(1.1) billion, and $341 million, respectively. The equity losses for fiscal 2021 were primarily due to AmerisourceBergen's recognition of a loss of $5.6 billion, net of tax, related to its ongoing opioid litigation in its financial statements for the three months ended September 30, 2020.

The Company completed the Alliance Healthcare Sale in June 2021 per the Share Purchase Agreement with AmerisourceBergen. See Note 2. Discontinued operations, to the Consolidated Financial Statements included in Part II, Item 8 for further information.

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 Part I. Item 1. Business “Relationship with AmerisourceBergen” and Note 6. Equity method investments, to the Consolidated Financial Statements included in Part II, Item 8.


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EXECUTIVE SUMMARY
The following table presents certain key financial statistics for the Company for fiscal 2022, 2021 and 2020:

 (in millions, except per share amounts)
 202220212020
Sales$132,703 $132,509 $121,982 
Gross profit28,265 28,067 26,078 
Selling, general and administrative expenses27,295 24,586 25,436 
Equity earnings (loss) in AmerisourceBergen418 (1,139)341 
Operating income1,387 2,342 982 
Adjusted operating income (Non-GAAP measure) 1
5,133 5,117 4,730 
Earnings before interest and income tax provision4,385 2,900 1,060 
Net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (GAAP)4,337 1,994 180 
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (Non-GAAP measure)1
4,360 4,256 3,772 
Diluted net earnings per common share - continuing operations (GAAP)5.01 2.30 0.20 
Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure)1
5.04 4.91 4.28 
 Percentage increases (decreases)
 202220212020
Sales0.18.61.6
Gross profit0.77.6(7.4)
Selling, general and administrative expenses11.0(3.3)8.0
Operating income(40.8)138.4(79.4)
Adjusted operating income (Non-GAAP measure)1
0.38.2(27.0)
Earnings before interest and income tax provision51.2173.7(78.8)
Net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (GAAP)117.5NM(95.3)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (Non-GAAP measure)1
2.512.8(27.0)
Diluted net earnings per common share - continuing operations (GAAP)117.6NM(95.1)
Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure)1
2.514.6(23.5)
 Percent to sales
 202220212020
Gross margin21.321.221.4
Selling, general and administrative expenses20.618.620.9
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.









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WALGREENS BOOTS ALLIANCE RESULTS OF OPERATIONS
The following information summarizes our results of operations for fiscal 2022 compared to fiscal 2021. For discussion related to the results of operations by segment for fiscal 2021 compared to fiscal 2020, refer to Part II, Item 7. Management's discussion and analysis of financial condition and results of operations in our fiscal 2021 Form 10-K, as amended by Form 10-K/A which was filed with the United States Securities and Exchange Commission on November 24, 2021.

Net earnings from continuing operations fiscal 2022 compared to fiscal 2021
Fiscal 2022 net earnings attributable to the Company were $4.3 billion compared to $2.0 billion for the prior year period. Diluted net earnings per share were $5.01 compared to $2.30 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 ended November 30, 2021 due to the remeasurement of the Company's previously held minority equity and debt investments in VillageMD 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 offset by the fiscal 2022 impairment charges related to intangible assets in Boots UK, and the charge related to the opioid settlement with the State of Florida in fiscal 2022.

Other income, net in fiscal 2022 was $3.0 billion compared to $558 million in fiscal 2021. The increase in other income is mainly due to the remeasurement of the Company's previously held equity and debt investments in VillageMD and Shields to fair value, and the partial sale of the Company’s equity method investments in AmerisourceBergen and Option Care Health.

Net interest expense was $400 million and $905 million in fiscal 2022 and 2021, respectively. The decrease in interest expense was primarily the result of early debt extinguishments completed during fiscal 2021 and lower interest rates on remaining debt.

The Company's effective tax rate for fiscal 2022 and 2021 was a 0.8% benefit and 33.4%, respectively. The net decrease in the effective tax rate was primarily attributable to pre-tax gains from the consolidation of the Company’s investments in VillageMD and Shields, for which a majority of these gains were not subject to tax. Additionally, the Company recognized tax benefit due to the reduction of a valuation allowance previously recorded against deferred tax assets related to capital loss carryforwards. The reduction is primarily due to capital loss carryforwards utilized in the current year against capital gains recognized on the sale of shares in AmerisourceBergen and Option Care, capital gains recognized from internal restructuring, and based on forecasted capital gains. See Note 3. Acquisitions and other investments and Note 6. Equity method investments, to the Consolidated Financial Statement included in Part II, Item 8 for further information.

Adjusted net earnings from continuing operations (Non-GAAP measure) fiscal 2022 compared to fiscal 2021
Adjusted net earnings attributable to the Company in fiscal 2022 increased 2.5 percent to $4.4 billion compared with the prior year period. Adjusted diluted net earnings per share in fiscal 2022 increased 2.5 percent to $5.04 compared with the year-ago period. Adjusted net earnings and adjusted diluted earnings per share were both negatively impacted by 0.9 percentage points as a result of currency translation.

Excluding the impact of currency translation, the increase in adjusted net earnings for fiscal 2022 primarily reflects improved retail contributions in the U.S. Retail Pharmacy and a continued rebound in International segment sales and profitability, partly offset by a decrease in U.S. pharmacy operating results, and growth investments in U.S. Healthcare. 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
The following information summarizes our results of operations by segment for fiscal 2022 compared to fiscal 2021.

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



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FINANCIAL PERFORMANCE
 (in millions, except location amounts)
 202220212020
Sales$109,078 $112,005 $107,701 
Gross profit23,669 23,736 22,302 
Selling, general and administrative expenses21,180 20,042 19,331 
Equity earnings (loss) in AmerisourceBergen418 (1,139)341 
Operating income2,907 2,554 3,312 
Adjusted operating income (Non-GAAP measure) 1
5,029 5,019 4,761 
Number of prescriptions 2
819.6 827.5 818.0 
30-day equivalent prescriptions 2,3
1,216.4 1,210.6 1,165.3 
Number of locations at period end8,901 8,973 9,028 
 Percentage increases (decreases)
 202220212020
Sales(2.6)4.03.0
Gross profit(0.3)6.4(5.6)
Selling, general and administrative expenses5.73.70.1
Operating income13.8(22.9)(26.0)
Adjusted operating income (Non-GAAP measure) 1
0.25.4(18.9)
Comparable sales 4
5.15.12.8
Pharmacy sales(5.3)5.54.3
Comparable pharmacy sales 4
4.76.73.2
Retail sales5.6(0.4)(0.4)
Comparable retail sales 4
6.11.21.6
Comparable number of prescriptions 2,4
(1.0)2.4(1.3)
Comparable 30-day equivalent prescriptions 2,3,4
1.35.02.9
 Percent to sales
 202220212020
Gross margin21.721.220.7
Selling, general and administrative expenses19.417.917.9
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 that these prescriptions include approximately three times the amount of product days supplied compared to a normal prescription.


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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. Comparable retail sales for previous periods have been restated to include e-commerce sales. 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 fiscal 2022 compared to fiscal 2021
The U.S. Retail Pharmacy segment’s sales for fiscal 2022 decreased by 2.6 percent to $109.1 billion, including a 650 basis point impact of AllianceRx Walgreens sales decline. Comparable sales increased by 5.1 percent in fiscal 2022.

Pharmacy sales decreased by 5.3 percent in fiscal 2022, including 8.6 percentage point of AllianceRx Walgreens sales decline and represented 73.7 percent of the segment’s sales. Excluding AllianceRx Walgreens, pharmacy sales increased 4.2 percent in fiscal 2022. The increase is due to brand drug inflation and COVID-19 vaccinations and testing, partially offset by generic drug utilization and reimbursement pressure. In fiscal 2021, pharmacy sales increased 5.5 percent and represented 75.8 percent of the segment’s sales. Comparable pharmacy sales increased 4.7 percent in fiscal 2022 compared to an increase of 6.7 percent in fiscal 2021. Within comparable sales, prescriptions filled in fiscal 2022 increased by 1.3 percent from a year earlier, including a positive impact of approximately 12 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 in fiscal 2022 compared to a reduction of 0.5 percent in fiscal 2021. The effect of generics on segment sales was a reduction of 0.2 percent in fiscal 2022 compared to a reduction of 0.4 percent for fiscal 2021. 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 fiscal 2022 compared to 97.5 percent for fiscal 2021. The total number of prescriptions (including vaccinations) filled in fiscal 2022 was 819.6 million compared to 827.5 million in fiscal 2021. Prescriptions (including vaccinations) adjusted to 30-day equivalents were 1,216.4 million in fiscal 2022 compared to 1,210.6 million in fiscal 2021.

Retail sales increased by 5.6 percent in fiscal 2022 and were 26.3 percent of the segment’s sales. In comparison, fiscal 2021 retail sales decreased by 0.4 percent and comprised 24.2 percent of the segment’s sales. Comparable retail sales increased 6.1 percent in fiscal 2022 and increased 1.2 percent in fiscal 2021. The increase in comparable retail sales in fiscal 2022 was primarily driven by health and wellness, including favorable impact of at-home COVID-19 tests and cough, cold and flu, as well as personal care and beauty, partially offset by the planned decline in tobacco.

Operating income fiscal 2022 compared to fiscal 2021
The U.S. Retail Pharmacy segment’s operating income for fiscal 2022 increased 13.8 percent to $2.9 billion, including income of $418 million from the Company's share of equity earnings in AmerisourceBergen. Excluding the impact of equity earnings in AmerisourceBergen, the year over year decrease in operating income was driven by higher Selling, general and administrative expenses, including charges related to the opioid settlement with the State of Florida in the third quarter, offset by COVID-19 testing and retail gross profit growth.

Gross margin was 21.7 percent in fiscal 2022 compared to 21.2 percent in fiscal 2021. Gross margin was positively impacted in fiscal 2022 by retail margin, offset by pharmacy margin. The increase in retail margin was primarily due to favorable rate and product mix. The decrease in pharmacy margin was primarily driven by continued reimbursement pressure.

Selling, general and administrative expenses as a percentage of sales were 19.4 percent in fiscal 2022 compared to 17.9 percent in fiscal 2021. The increase was driven by costs related to the opioid settlement with the State of Florida, COVID-19 vaccinations and testing and labor investments, partially offset by savings related to the Company's Transformational Cost Management Program.



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Adjusted operating income (Non-GAAP measure) fiscal 2022 compared to fiscal 2021
U.S. Retail Pharmacy segment’s adjusted operating income for fiscal 2022 increased 0.2 percent to $5.0 billion. The increase was primarily due to retail gross profit growth and COVID-19 vaccinations and testing, 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 the U.S. and the Company's pharmaceutical wholesale and distribution business in Germany. Pharmacy-led health and beauty retail businesses include Boots branded stores in the UK, the Republic of Ireland and Thailand, the Benavides brand in Mexico and the Ahumada brand in Chile. Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products.

The International segment operates in currencies other than the U.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 7A. Quantitative and qualitative disclosure about market 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)
 202220212020
Sales$21,830 $20,505 $14,281 
Gross profit4,618 4,328 3,774 
Selling, general and administrative expenses4,964 4,101 5,863 
Operating (loss) income(346)227 (2,090)
Adjusted operating income (Non-GAAP measure) 1
726 466 157 
Number of locations at period end3,989 4,031 4,192 
 Percentage increases (decreases)
 202220212020
Sales6.543.6(8.1)
Gross profit6.714.7(16.9)
Selling, general and administrative expenses21.0(30.1)43.3
Operating (loss) incomeNM110.9NM
Adjusted operating income (Non-GAAP measure) 1
55.7197.2(79.4)
Comparable sales in constant currency 2
11.33.9(8.8)
Pharmacy sales(2.1)8.7(4.1)
Comparable pharmacy sales in constant currency 2
2.56.7
Retail sales11.25.5(17.8)
Comparable retail sales in constant currency 2
16.92.0(13.9)


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 Percent to sales
 202220212020
Gross margin21.221.126.4
Selling, general and administrative expenses22.720.041.1
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 in Germany. 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 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.

NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.

Sales fiscal 2022 compared to fiscal 2021
The International segment’s sales for fiscal 2022 increased 6.5 percent to $21.8 billion. The adverse impact of currency translation on sales was 6.9 percentage points. Comparable sales in constant currency, which excludes sales from the Company's pharmaceutical wholesale combined business in Germany, increased 11.3 percent, reflecting growth across all markets. Sales in the comparable year ago-period included the adverse impact of strict COVID-19 restrictions on the UK store footfall.

Pharmacy sales decreased 2.1 percent in fiscal 2022 and represented 17.1 percent of the segment’s sales. The negative impact of currency translation on pharmacy sales was 4.0 percentage points. Comparable pharmacy sales in constant currency increased 2.5 percent, primarily in the UK, reflecting stronger demand for pharmacy services, and pharmacy volumes in Mexico and Chile.

Retail sales increased 11.2 percent for fiscal 2022 and represented 31.7 percent of the segment’s sales. The negative impact of currency translation on retail sales was 5.2 percentage points. Comparable retail sales in constant currency increased 16.9 percent reflecting higher retail sales in the UK and Ireland, including a recovery in store footfall compared to a year ago-period, as COVID-19 restrictions were less severe.

Pharmaceutical wholesale sales increased 6.7 percent for fiscal 2022 and represented 51.2 percent of the segment’s sales. The negative impact of currency translation on pharmaceutical wholesale sales was 8.9 percentage points. The increase in pharmaceutical wholesale sales reflects the full year of operations since the the formation of the combined business in Germany in fiscal 2021

Operating income fiscal 2022 compared to fiscal 2021
The International segment’s operating loss for fiscal 2022 was $346 million, compared to an operating income of $227 million in fiscal 2021. Operating loss was favorably impacted by 33.0 percentage points ($75 million) of currency translation. Excluding the impact of currency translation, the decrease in operating income is primarily due to non-cash impairment charges, related to intangible assets in Boots UK in the fourth quarter.

Gross profit increased 6.7 percent in fiscal 2022. Gross profit was adversely impacted by 5.5 percentage points ($237 million) of currency translation. Excluding the impact of currency translation, the increase was primarily due to higher retail sales, stronger demand for pharmacy services in the UK, and incremental gross profit associated with the Company's pharmaceutical wholesale business in Germany. This was partially offset by higher NHS reimbursement levels in the year ago period.

Selling, general and administrative expenses increased 21.0 percent in fiscal 2022 compared to fiscal 2021. Expenses were favorably impacted by 7.6 percentage points ($312 million) as a result of currency translation. Excluding the impact of currency translation, the increase reflects Boots UK intangible asset impairment charges in the fourth quarter, incremental expenses associated with the Company's wholesale business in Germany, increased labor costs, and the non-recurring COVID-19 related government support in the year ago period. This was partially offset by a gain in UK from a sale-leaseback transaction.



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As a percentage of sales, Selling, general and administrative expenses were 22.7 percent in fiscal 2022, compared to 20.0 percent in the prior fiscal year.

Adjusted operating income (Non-GAAP measure) fiscal 2022 compared to fiscal 2021
The International segment’s adjusted operating income for fiscal 2022 increased $260 million to $726 million. Adjusted operating income was negatively impacted by 9.8 percentage points ($46 million) of currency translation. Excluding the impact of currency translation, the increase in adjusted operating income was primarily in the UK, 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 higher NHS pharmacy reimbursement levels in the year ago period in the UK.

See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.


U.S. Healthcare
The Company’s U.S. Healthcare segment, created at the beginning of fiscal 2022, is a consumer-centric, technology-enabled healthcare business that engages consumers through a personalized, omni-channel experience across the care journey. The U.S. Healthcare segment delivers improved health outcomes and lower costs for payors and providers by delivering care through owned and partnered assets.

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

FINANCIAL PERFORMANCE
 (in millions, except location amounts)
 202220212020
Sales$1,795 $— $— 
Gross loss(22)— — 
Selling, general and administrative expenses806 57 — 
Operating loss(829)(57)— 
Adjusted operating loss (Non-GAAP measure) 1
(370)(57)— 
Number of payor/provider partnerships at period end— 
Number of locations with Walgreens Health Corners at period end65 37 — 
Number of co-located VillageMD clinics at period end146 55 
Number of total VillageMD clinics at period end 2
334 252 155 
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 acquired VillageMD in the three months ended November 30, 2021. The number of VillageMD clinics presented for the prior periods is for comparative purposes only. Clinics are defined as the primary care locations where the Company or the Company’s affiliates lease or license space and the providers are employed by either the Company or one of the Company’s affiliates. These clinics are primarily branded as Village Medical where the Company employs the providers but, in some instances, may operate under their own brands.

Sales fiscal 2022
The U.S. Healthcare segment's sales for fiscal 2022 were $1.8 billion. This includes VillageMD sales of $1.5 billion and Shields sales of $286 million.

Operating loss fiscal 2022 compared to fiscal 2021
The U.S. Healthcare segment's operating loss for fiscal 2022 was $829 million, compared to a loss of $57 million in fiscal 2021.



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Gross loss for fiscal 2022 was $22 million, reflecting results from Shields and VillageMD. Gross loss was driven by expansion at VillageMD, partly offset by further growth in existing partnerships and expanding margins at Shields.

Selling, general and administrative expenses were $806 million in fiscal 2022 compared to $57 million in fiscal 2021. Selling, general and administrative expenses reflect the three acquisitions as well as continued investments in the Walgreens Health organic business.

Adjusted operating loss (Non-GAAP measure) for fiscal 2022 compared to fiscal 2021
The U.S. Healthcare segment's adjusted operating loss was $370 million for fiscal 2022, reflecting the three acquisitions as well as continued investments in the Walgreens Health organic business compared to a loss of $57 million in fiscal 2021. 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 SEC rules, presented herein to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (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.

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’s business 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. 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.


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NON-GAAP RECONCILIATIONS

Operating income to Adjusted operating income by segments (in millions)
 Fiscal 2022
 U.S. Retail PharmacyInternationalU.S. HealthcareCorporate and OtherWalgreens Boots Alliance, Inc.
Operating income (loss) (GAAP)$2,907 $(346)$(829)$(345)$1,387 
Adjustments to equity earnings (loss) in AmerisourceBergen218 — — — 218 
Acquisition-related amortization398 66 392 — 855 
Transformational cost management604 133 — 26 763 
Certain legal and regulatory accruals and settlements768 — — — 768 
Acquisition-related costs(2)89 67 69 223 
Impairment of goodwill and intangible assets— 783 — — 783 
LIFO provision135 — — — 135 
Adjusted operating income (loss) (Non-GAAP measure)$5,029 $726 $(370)$(251)$5,133 

Fiscal 2021
U.S. Retail PharmacyInternationalU.S. HealthcareCorporate and OtherWalgreens Boots Alliance, Inc.
Operating income (loss) (GAAP)$2,554 $227 $(57)$(382)$2,342 
Adjustments to equity earnings (loss) in AmerisourceBergen1,645 — — — 1,645 
Acquisition-related amortization448 75 — — 523 
Transformational cost management279 91 — 46 417 
Certain legal and regulatory accruals and settlements75 — — — 75 
Acquisition-related costs24 — 24 54 
Impairment of goodwill and intangible assets— 49 — — 49 
LIFO provision13 — — — 13 
Adjusted operating income (loss) (Non-GAAP measure)$5,019 $466 $(57)$(311)$5,117 

 Fiscal 2020
 U.S. Retail PharmacyInternationalU.S. HealthcareCorporate and OtherWalgreens Boots Alliance, Inc.
Operating income (loss) (GAAP)$3,312 $(2,090)$ $(239)$982 
Adjustments to equity earnings (loss) in AmerisourceBergen97 — — — 97 
Acquisition-related amortization309 75 — — 384 
Transformational cost management498 182 — 40 719 
Acquisition-related costs296 — 12 315 
LIFO provision95 — — — 95 
Store damage and inventory losses68 — — — 68 
Store optimization53 — — — 53 
Impairment of goodwill and intangible assets32 1,984 — — 2,016 
Adjusted operating income (loss) (Non-GAAP measure)$4,761 $157 $ $(187)$4,730 


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Net Earnings to Adjusted net earnings & Earnings per share to Adjusted Earnings per share (in millions)
 202220212020
Net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (GAAP)$4,337 $1,994 $180 
Adjustments to operating income:
Adjustments to equity earnings (loss) in AmerisourceBergen 1
218 1,645 97 
Acquisition-related amortization 2
855 523 384 
Transformational cost management 3
763 417 719 
Certain legal and regulatory accruals and settlements 4
768 75 — 
Acquisition-related costs 5
223 54 315 
Impairment of goodwill and intangible assets 6
783 49 2,016 
LIFO provision 7
135 13 95 
Store damage and inventory losses 8
— — 68 
Store optimization 3
— — 53 
Total adjustments to operating income3,746 2,775 3,747 
Adjustments to other income, net:  
Net investment hedging loss (gain) 9
(11)
Impairment of equity method investment and investment in equity securities 10
190 — 71 
Adjustment to gain on disposal of discontinued operations 11
38 — — 
Gain on sale of equity method investment 12
(559)(290)(1)
Gain on previously held investments 13
(2,576)— — 
Total adjustments to other income, net(2,906)(281)59 
Adjustments to interest expense, net:  
Early debt extinguishment 14
414 — 
Total adjustments to interest expense, net414 — 
Adjustments to income tax (benefit) provision:  
UK tax rate change 15
— 378 139 
U.S. tax law changes 15
— — (6)
Equity method non-cash tax 15
70 (161)60 
Tax impact of adjustments 15
(752)(283)(433)
Total adjustments to income tax (benefit) provision(681)(65)(240)
Adjustments to post-tax earnings from other equity method investments:
Adjustments to earnings in other equity method investments 16
58 (504)54 
Total adjustments to post-tax earnings from other equity method investments58 (504)54 
Adjustments to net loss attributable to non-controlling interests - continuing operations:
Acquisition-related amortization 2
(164)(75)(4)
Transformational cost management 3
(1)(10)
Acquisition-related costs 5
(32)— — 
Impairment of goodwill and intangible assets 6
— — (14)
LIFO provision 7
— (2)(1)
Early debt extinguishment 14
(1)— — 
Total adjustments to net loss attributable to non-controlling interests - continuing operations(198)(77)(29)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. - continuing operations (Non-GAAP measure)$4,360 $4,256 $3,772 



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 202220212020
Net earnings attributable to Walgreens Boots Alliance, Inc. - discontinued operations (GAAP)$ $548 $277 
Acquisition-related amortization 2
— 28 76 
Transformational cost management 3
— 73 
Acquisition-related costs 5
— 92 
Gain on disposal of discontinued operations11
— (322)— 
Tax impact of adjustments 15
— (6)(25)
Total adjustments to net earnings attributable to Walgreens Boots Alliance, Inc. - discontinued operations$— (206)126 
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. - discontinued operations (Non-GAAP measure)$ $342 $403 
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. (Non-GAAP measure)$4,360 $4,598 $4,175 
Diluted net earnings per common share - continuing operations (GAAP)$5.01 $2.30 $0.20 
Adjustments to operating income4.33 3.20 4.26 
Adjustments to other income, net(3.36)(0.32)0.07 
Adjustments to interest expense, net0.01 0.48 — 
Adjustments to income tax (benefit) provision(0.79)(0.08)(0.27)
Adjustments to post tax earnings from other equity method investments 16
0.07 (0.58)0.06 
Adjustments to net loss attributable to non-controlling interests(0.23)(0.09)(0.03)
Adjusted diluted net earnings per common share - continuing operations (Non-GAAP measure)$5.04 $4.91 $4.28 
Diluted net earnings per common share - discontinued operations (GAAP)— 0.63 0.31 
Total adjustments to net earnings attributable to Walgreens Boots Alliance, Inc. – discontinued operations— (0.24)0.14 
Adjusted diluted net earnings per common share - discontinued operations (Non-GAAP measure)$ $0.39 $0.46 
Adjusted diluted net earnings per common share (Non-GAAP measure)$5.04 $5.31 $4.74 
Weighted average common shares outstanding, diluted (in millions)865.9 866.4 880.3 

1Adjustments 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 $1,373 million during the three months ended November 30, 2020. These equity losses are primarily due to AmerisourceBergen's recognition of $5.6 billion, net of tax, charges related to its ongoing opioid litigation in its financial statements for the three months period ended September 30, 2020.
2Acquisition-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, developed technology 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 exclude the expected profit margin component from cost of sales recorded under the business combination accounting principles. The stock based compensation fair valuation adjustment reflects the 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.
3Transformational Cost Management Program and Store Optimization 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.


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4
Certain legal and regulatory accruals and settlements relate to significant charges associated with certain legal proceedings, including legal defense costs. In fiscal 2022, the Company recorded a $683 million charge related to a settlement agreement with the State of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the Company’s pharmacies in the State of Florida. The Company excludes these charges when evaluating operating performance because it does not incur such charges on a predictable basis and exclusion of such charges enables more consistent evaluation of the Company’s operating performance. These charges are recorded within Selling, general and administrative expenses.
5Acquisition-related costs are transaction and integration costs associated with certain 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 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.
6Impairment of goodwill and intangible assets do not relate to the ordinary course of the Company’s business. The Company excludes these charges when evaluating operating performance because it does not incur such charges on a predictable basis and exclusion of such charges enables more consistent evaluation of the Company’s operating performance. These charges are recorded within Selling, general and administrative expenses.
7The Company’s U.S. Retail Pharmacy segment inventory is accounted for using the last-in-first-out (“LIFO”) method. This adjustment represents the impact on cost of sales as if the U.S. Retail Pharmacy 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.
8Store damage and inventory losses as a result of looting in the U.S., net of insurance recoveries.
9Gain 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, net. We do not believe this volatility related to mark-to-market adjustment on the underlying derivative instruments reflects the Company’s operational performance.
10Impairment 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, net.
11In fiscal 2022, the Company finalized the working capital adjustments with AmerisourceBergen related to the sale of the Alliance Healthcare business, resulting in a $38 million charge recorded to Other income, net in the Consolidated Statement of Earnings. In fiscal 2021, the Company recorded a net gain of $322 million within results of discontinued operations related to the sale of the Alliance Healthcare business. This gain was excluded as it is not reflective of normal operating activities.
12
Includes significant gains on the sale of equity method investments. In fiscal 2022, the Company recorded a gain of $417 million and $145 million in Other income, net due to a partial sale of its equity method investments in AmerisourceBergen and Option Care Health, respectively. In fiscal 2021, the Company recorded a gain of $290 million in Other income, net due to a partial sale of ownership interest in Option Care Health by the Company's then equity method investee HC Group Holdings.
13
Includes significant gains on business combinations due to the remeasurement of previously held minority equity interests and debt securities to fair value. In fiscal 2022, the Company recorded such pre-tax gains of $2.2 billion and $402 million for VillageMD and Shields, respectively.
14
In fiscal 2022, the Company incurred a $4 million loss in connection with the early extinguishment of debt related to the integration of Shields. In fiscal 2021, the Company incurred a $419 million loss related to the Company's cash tender offers to partially purchase and retire $3.3 billion of long-term U.S. denominated notes. The Company excludes these charges as related activities do not reflect the Company’s ongoing financial performance.
15Adjustments 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 U.S. and U.K. tax law changes and equity method non-cash tax. These charges are recorded within income tax provision (benefit).
16
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 fiscal 2021, due to partial sales 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 Group Holdings recognized a gain of $1.2 billion and the Company recorded its share of equity earnings in HC Group Holdings of $576 million.
The Company considers certain metrics presented in this Annual Report on Form 10-K, such as comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions, and comparable 30-day equivalent prescriptions, number of payor/ provider partnerships, number of locations of Walgreens Health Corners, number of co-located VillageMD clinics and number of total VillageMD clinics, at period end, 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 Annual Report on Form 10-K, may not be comparable to similarly-titled performance indicators used by other companies.


WBA Fiscal 2022 Form 10-K
52

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. In June 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 Part I, Item 1A, Risk factors.

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, sale of marketable securities and current cash and investment balances. On June 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 dated December 23, 2020 and August 29, 2018. As of August 31, 2022, the Company had an aggregate borrowing capacity under committed revolving credit facilities of $5.0 billion, with no funds drawn under these facilities. On June 3, 2022, a notice of redemption was given to holders of certain notes issued by the Company on September 13, 2012. As a result, on July 5, 2022, the notes with aggregate principal amount of $731 million were redeemed in full. 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 7A, Qualitative and quantitative disclosure about market risk, for a discussion of certain financing and market risks.

Cash, cash equivalents, marketable securities and restricted cash were $2.6 billion (including $188 million in non-U.S. jurisdictions) as of August 31, 2022, compared to $1.3 billion (including $204 million in non-U.S. jurisdictions) as of August 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 in U.S. Treasury money market funds.

On May 5, 2022, the Company entered into an agreement with the State of Florida to resolve all claims related to the distribution and dispensing of prescription opioid medications across the Company’s pharmacies in the State of Florida. The settlement amount of $683 million million includes $620 million to be paid in equal installments to the State of Florida over 18 years, and will be applied as 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 on June 17, 2022.

On August 5, 2022, the Company entered into an agreement for the sale of its equity method investment in Guangzhou Pharmaceuticals Company Limited for approximately $150 million. The transaction is expected to close in the first quarter of fiscal 2023.

On September 20, 2022, the Company announced the acceleration of its plans for full ownership of Shields. The Company entered into a definitive agreement to acquire the remaining 30% equity interest for approximately $1.37 billion of cash consideration. The transaction is expected to close in the second quarter of fiscal 2023. On October 11, 2022, the Company announced the acceleration of its plans for full ownership of CareCentrix. The Company entered into a definitive agreement to acquire the remaining 45% equity interest for approximately $392 million of cash consideration. The acquisition is subject to limited customary closing conditions and is expected to close by March 2023. See Note 21. Subsequent events to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.

At August 31, 2022, the Company had no guarantees outstanding and the letters of credit issued were not material.

See Note 8. Debt, to the Consolidated Financial Statements included in Part II, Item 8 for further information on the Company’s debt instruments and its recent financing actions.



WBA Fiscal 2022 Form 10-K
53

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 was $3.9 billion in fiscal 2022 compared to $5.6 billion in fiscal 2021 and $5.5 billion in fiscal 2020. The decrease in cash provided by operating activities in fiscal 2022 compared to fiscal 2021, reflects lower cash inflows from inventories, accounts payable, accrued expenses and other liabilities, partially offset by higher cash inflows from accounts receivable.

Changes in inventory, accrued expenses and other liabilities are mainly driven by timing, absence of COVID-19 related government support, and payments for certain legal and regulatory settlements. Changes in accounts payable are mainly driven by impact of AllianceRx Walgreens sales decline and timing of payments. Changes in accounts receivable are mainly driven by lower COVID-19 volume and timing of collections.

Cash flows from investing activities
Net cash (used for) provided by investing activities was $(1.1) billion, $4.1 billion and $(1.3) billion in fiscal 2022, 2021 and 2020.

Net cash used for investing activities in fiscal 2022 includes cash outflows associated with business, investment and asset acquisitions, net of cash acquired of VillageMD, Shields and CareCentrix for $0.8 billion, $0.9 billion and $0.1 billion, respectively, offset by $900 million of sale proceeds related to the Company's sale of the 6.0 million shares of AmerisourceBergen common stock and $363 million related to the Company's sale of 11.0 million shares of Option Care Health common stock and proceeds from sale-leaseback transactions of $1.3 billion. See Note 6. Equity method investments and Note 3. Acquisitions and other investments, to the Consolidated Financial Statement included in Part II, Item 8 for further information.

Net cash provided by investing activities in fiscal 2021 includes proceeds from sale of business, net of cash disposed of $5.5 billion, related to the disposition of Alliance Healthcare business, proceeds from sale of assets of $453 million driven by partial sale of ownership interest in Option Care Health by the Company's then equity method investee HC Group Holdings and proceeds from sale-leaseback transactions of $856 million. Net cash provided by investing activities was offset by cash outflows associated with business, investment and asset acquisitions, net of cash, of $1.4 billion.

Net cash used for investing activities in fiscal 2020, includes additions to property, plant and equipment of $1.4 billion, cash outflows associated with business, investment and asset acquisitions, net of cash, of $718 million, offset by proceeds from sale-leaseback transactions of $724 million.

Capital Expenditure
Capital expenditure includes information technology projects and other growth initiatives. Additions to property, plant and equipment were as follows (in millions): 
 202220212020
U.S. Retail Pharmacy$1,207 $1,030 $1,040 
International295 243