Published: 2022-01-06 00:00:00 ET

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Basis of presentation

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

The Consolidated Condensed Financial Statements included herein are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited Consolidated Condensed Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Walgreens Boots Alliance Annual Report on Form 10-K for the fiscal year ended August 31, 2021, as amended by Form 10-K/A for the fiscal year ended August 31, 2021 filed on November 24, 2021.

The preparation of financial statements in accordance with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company bases its estimates on the information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances including estimates of the impact of the COVID-19 pandemic (“COVID-19”). The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous factors discussed throughout this Quarterly Report on Form 10-Q including, but not limited to, the severity and duration of COVID-19, the extent to which it will impact our customers, team members, suppliers, vendors, business partners and distribution channels. The Company assessed certain accounting matters that require consideration of estimates and assumptions in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of November 30, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s carrying value of goodwill, intangible and other long-lived assets including operating lease right-of-use assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods. Adjustments may be made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Actual results may differ.

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

On June 1, 2021, the Company completed the sale of the majority of the Company's Alliance Healthcare business as well as a portion of the Company’s retail pharmacy international businesses in Europe (“Disposal Group”) to AmerisourceBergen Corporation (“AmerisourceBergen”). The Disposal Group met the criteria to be reported as discontinued operations. Therefore, the operating results of the Disposal Group are reported as discontinued operations for all prior periods.

Effective as of the first quarter of fiscal year 2022, the Company is aligned into three reportable segments: United States, International and Walgreens Health. Unless otherwise specified, disclosures in these Consolidated Condensed Financial Statements reflect continuing operations only. Certain prior period data, related to discontinued operations has been reclassified in the Consolidated Condensed Financial Statements and accompanying notes to conform to the current period presentation. See Note 2 Discontinued operations and Note 15 Segment reporting for further information.

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

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On June 1, 2021, the Company completed the sale of Alliance Healthcare, for total consideration of $6.9 billion, which included cash consideration of $6.7 billion, subject to net working capital and net cash adjustments and 2 million shares of AmerisourceBergen common stock.

As of November 30, 2021, Other current assets include a $98 million receivable for purchase price consideration due from AmerisourceBergen that is subject to change upon the finalization of net working capital adjustments.

The operating results of the Disposal Group are reported as discontinued operations as the disposition reflected a strategic shift that has, or will have, a major effect on the Company’s operations and financial results.

Results of discontinued operations were as follows (in millions):

									Three months ended November 30, 2020
Sales									$	5,327
Cost of sales									4,818
Gross profit									509
Selling, general and administrative expense									415
Operating income from discontinued operations									94
Other expense									(2)
Interest expense, net									(4)
Earnings before income tax – discontinued operations									88
Income tax provision									8
Post tax earnings from other equity method investments									7
Net earnings from discontinued operations									$	87

Sales from the Disposal Group to the Company's continuing operations are not eliminated and aggregate to (in millions):

									Three months ended November 30, 2020
Sales									$	458

Cash flows from operating and investing activities for discontinued operations are (in millions):

									Three months ended November 30, 2020
Cash used in operating activities - discontinued operations									$	(45)
Cash used for investing activities - discontinued operations									(19)

See Note 17 Related parties, to the Consolidated Condensed Financial Statements for more information on the Company's transactions and continuing involvement with AmerisourceBergen.

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VillageMD

On November 24, 2021, the Company completed the acquisition of Village Practice Management Company, LLC (“VillageMD”). Pursuant to the terms and subject to the conditions set forth in the Unit Purchase Agreement, the Company purchased additional outstanding equity interests of VillageMD, increasing the Company’s total beneficial ownership in VillageMD’s outstanding equity interests from approximately 30% to approximately 63%, on a fully diluted basis, for a purchase price of $5.2 billion. The total purchase price comprises cash consideration of $4.0 billion and a promissory note of $1.2 billion. The cash consideration consisted of $2.9 billion to be paid to existing shareholders, after giving affect to the $1.9 billion tender offer described below, as well as $1.1 billion paid in exchange for new preferred units issued by VillageMD. Subject to notice being served, the Company has an option to prepay the promissory note at any time and VillageMD may require the Company to redeem the promissory note after February 1, 2022. The promissory note is eliminated in consolidation within the Consolidated Condensed Balance Sheets.

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

The Company accounted for this acquisition as a business combination resulting in consolidation of VillageMD within the Walgreens Health segment in its financial statements. A noncontrolling interest was recognized at fair value. As of November 30, 2021, the Company had not completed the analysis to assign fair values to all tangible and intangible assets acquired. As such, the preliminary purchase price allocation will be subject to further refinement and may change. These changes may relate to finalization of the fair value of the purchase consideration and the allocation of purchase consideration to all tangible and intangible assets acquired and identified.

As a result of this acquisition, the Company recognized a pre-tax gain in Other income in the Consolidated Condensed Statements of Earnings, of $1,597 million related to the fair valuation of the Company’s previously held minority equity interest. The Company also recorded a pre-tax gain of $577 million in Other income in the Consolidated Condensed Statements of Earnings related to the conversion to equity of the Company’s previously held investment in convertible debt securities of VillageMD, reclassified from within accumulated other comprehensive income.

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

Purchase Price Allocation:
Total purchase price						$	5,200
Less: purchase price for issuance of new preferred units at fair value 1						(2,300)
Net consideration						$	2,900
Fair value of share-based compensation awards attributable to pre-combination services 2						683
Fair value of previously held equity and debt						3,211
Fair value of non-controlling interest						3,257
Total						$	10,051
Identifiable assets acquired and liabilities assumed:
Tangible assets 1						$	637
Intangible assets						1,982
Liabilities						(241)
Total identifiable net assets						$	2,378
Goodwill						$	7,673

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

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

The goodwill represents anticipated future growth and expansion opportunities into new markets. Pro forma sales and net earnings of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.

Shields acquisition

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

The Company accounted for this acquisition as a business combination resulting in consolidation of Shields within the Walgreens Health segment in its financial statements. A noncontrolling interest was recognized at fair value. Under the terms of the transaction agreements, the Company has an option to acquire the remaining equity interests of Shields in the future. Shields’ other equity holders will also have an option to require the Company to purchase the remaining equity interests. Considering the contractual terms related to the noncontrolling interest, it is classified as redeemable noncontrolling interest in the Consolidated Condensed Balance Sheets.

As of November 30, 2021, the Company had not completed the analysis to assign fair values to all tangible and intangible assets acquired. As such, the preliminary purchase price allocation will be subject to further refinement and may result in changes. These changes may relate to finalization of the fair value of the purchase consideration and the allocation of purchase consideration to all tangible and intangible assets acquired and identified.

As a result of this acquisition, the Company remeasured its previously held minority equity interest in Shields at fair value resulting in a pre-tax gain of $402 million recognized in Other income in the Consolidated Condensed Statements of Earnings.

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

Purchase Price Allocation:
Cash consideration						$	969
Fair value of share-based compensation awards attributable to pre-combination services						13
Fair value of previously held equity interests						502
Fair value of non-controlling interests						589
Total						$	2,074
Identifiable assets acquired and liabilities assumed:
Tangible assets						$	84
Intangible assets						1,060
Liabilities						(528)
Total identifiable net assets						$	616
Goodwill						$	1,457

The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings. Pro forma sales and net earnings of the Company, assuming the acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.

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See Note 15 Segment reporting and Note 16 Sales for further information.

Other acquisitions

The Company acquired certain prescription files and related pharmacy inventory primarily in the U.S. for the aggregate purchase price of $74 million and $38 million during the three months ended November 30, 2021 and 2020, respectively.

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’s Board of Directors approved an expansion and extension of the Transformational Cost Management Program through the end of fiscal 2024. As a result, the Company increased its annual cost savings target to $3.3 billion by the end of fiscal 2024.

The 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 United States and International reportable segments along with the Company’s global functions. Divisional optimization within the Company’s segments includes activities such as optimization of stores. As a result of the expanded program, the Company plans to reduce its presence by up to 150 Boots stores in the UK and up to 150 stores in the United States over the next three years which are incremental to the previously planned reductions of approximately 200 Boots stores in the UK and approximately 250 stores in the United States.

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 these impacts, 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.

Since the inception of the Transformational Cost Management Program to November 30, 2021, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $1.5 billion, which were primarily recorded within selling, general and administrative expenses. These charges included $442 million related to lease obligations and other real estate costs, $292 million in asset impairments, $550 million in employee severance and business transition costs and $172 million of information technology transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program for the three months ended November 30, 2021 and 2020, respectively, were as follows (in millions):

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

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Three months ended November 30, 2020			United States						International						Corporate and Other						Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs			$	22					$	—					$	—					$	22
Asset impairments			4						(2)						—						1
Employee severance and business transition costs			12						28						12						52
Information technology transformation and other exit costs			10						(5)						—						5
Total pre-tax exit and disposal charges			$	48					$	21					$	12					$	81

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

									Lease obligations and other real estate costs						Asset Impairments						Employee severance and business transition costs						Information technology transformation and other exit costs						Total
Balance at August 31, 2021									$	17					$	—					$	77					$	20					$	114
Costs									89						40						37						9						175
Payments									(15)						—						(51)						(7)						(74)
Other									(72)						(40)						(3)						—						(115)
Currency									—						—						(1)						—						(1)
Balance at November 30, 2021									$	19					$	—					$	59					$	23					$	101

The Company leases certain retail stores, clinics, warehouses, distribution centers, office space, land, and equipment. For the majority of leases in the U.S., the initial lease term is typically 15 to 25 years, followed by additional terms containing renewal options typically at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

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

Balance Sheet supplemental information:						November 30, 2021						August 31, 2021
Operating Leases:
Operating lease right-of-use assets						$	21,826					$	21,893
Operating lease obligations - current						2,266						2,259
Operating lease obligations - non-current						22,103						22,153
Total operating lease obligations						$	24,369					$	24,412
Finance Leases:
Right-of-use assets included in:
Property, plant and equipment, net						$	713					$	725
Lease obligations included in:
Accrued expenses and other liabilities						37						37
Other non-current liabilities						963						974
Total finance lease obligations						$	1,000					$	1,010

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

						Three months ended November 30,
Statement of Earnings supplemental information:						2021						2020
Operating lease cost
Fixed						$	805					$	805
Variable 1						205						158
Finance lease cost
Amortization						$	11					$	11
Interest						13						13
Sublease income						25						20
Impairment of right-of-use assets						68						10
Gain on sale and leaseback 2						87						93

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

2Recorded within selling, general and administrative expenses.

Other supplemental information related to leases were as follows (in millions):

												Three months ended November 30,
Other Supplemental Information:																		2021						2020
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows from operating leases																		$	846					$	857
Operating cash flows from finance leases																		12						12
Financing cash flows from finance leases																		11						10
Total																		$	869					$	879
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases																		$	544					$	787
Finance leases																		5						—
Total																		$	549					$	787

Average lease term and discount rate were as follows:

Weighted average terms and discount rates:						November 30, 2021						August 31, 2021
Weighted average remaining lease term in years:
Operating leases						10.2						10.3
Finance leases						20.1						20.2
Weighted average discount rate:
Operating leases						4.75		%				4.77		%
Finance leases						5.18		%				5.18		%

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The aggregate future lease payments for operating and finance leases as of November 30, 2021 were as follows (in millions):

Future lease payments:
Fiscal year						Finance lease						Operating lease
2022 (Remaining period)						$	67					$	2,608
2023						88						3,376
2024						88						3,260
2025						87						3,145
2026						87						3,032
2027						86						2,924
Later						1,054						12,801
Total undiscounted minimum lease payments						$	1,556					$	31,146
Less: Present value discount						(556)						(6,777)
Lease liability						$	1,000					$	24,369

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

			November 30, 2021												August 31, 2021
			Carrying value						Ownership percentage						Carrying value						Ownership percentage
AmerisourceBergen			$	4,393					28%						$	4,407					28%
Others			1,974						8% - 50%						2,580						8% - 50%
Total			$	6,367											$	6,987

AmerisourceBergen investment

As of November 30, 2021 and August 31, 2021, the Company owned 58,854,867 AmerisourceBergen common shares representing approximately 28.3% of its outstanding common stock based on the most recent share count publicly reported by AmerisourceBergen in its most recent Annual Report on Form 10-K.

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 United States 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 Condensed Statements of Earnings.

During the three months ended November 30, 2021 and 2020, the Company recognized equity income of $100 million and equity losses of $1.4 billion, in AmerisourceBergen, respectively. The equity losses for the period ended November 30, 2020 were primarily due to AmerisourceBergen's recognition of loss of $5.6 billion, net of tax, related to its ongoing opioid litigation in its financial statements for the three months ended September 30, 2020.

The Level 1 fair market value of the Company’s equity investment in AmerisourceBergen common stock at November 30, 2021 and August 31, 2021 was $6.8 billion and $7.2 billion, respectively. As of November 30, 2021 the carrying value of the Company’s investment in AmerisourceBergen exceeded its proportionate share of the net assets of AmerisourceBergen by $4.3 billion. This premium of $4.3 billion was recognized as part of the carrying value in the Company’s equity investment in AmerisourceBergen. The difference was primarily related to goodwill and the fair value of AmerisourceBergen intangible assets.

Other investments

The Company’s other equity method investments include its U.S. investments in HC Group Holdings I, LLC (“HC Group Holdings”) which owns equity interest in Option Care Health, and BrightSpring Health Services, and the Company’s China investments in Sinopharm Medicine Holding Guoda Drugstores Co., Ltd, Guangzhou Pharmaceuticals Corporation and Nanjing

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Pharmaceutical Company Limited. The Company reported $7 million of post-tax equity losses and $15 million of post-tax equity earnings from other equity method investments for the three months ended November 30, 2021 and 2020, respectively.

During the three months ended November 30, 2021, the Company acquired majority equity interests in VillageMD and Shields. The Company accounted for these acquisitions as business combinations resulting in the remeasurement of its previously held minority equity interests and convertible debt securities at fair value resulting in pre-tax gains of $2,174 million and $402 million for VillageMD and Shields, respectively, recognized in Other income in the Consolidated Condensed Statements of Earnings. As a result of these transactions, the Company now consolidates VillageMD and Shields within the Walgreens Health segment in its financial statements.

Summarized financial information

Summarized financial information for the Company’s equity method investments in aggregate is as follows:

Statements of earnings (loss) (in millions)

			Three months ended November 30,
			2021						2020
Sales			$	67,588					$	56,088
Gross Profit			3,420						2,410
Net earnings (loss)			308						(4,806)
Share of earnings (loss) from equity method investments			93						(1,357)

The summarized financial information for equity method investments has been included on an aggregated basis for all investments as reported at the end of each reporting period.

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

Based on the analysis completed during fiscal 2021, as of the June 1, 2021 valuation date, the fair values of the Company’s reporting units exceeded their carrying amounts ranging from approximately 18% to approximately 195%. Boots reporting unit's fair value was in excess of its carrying value by approximately 18%, compared to a nominal amount as of June 1, 2020. Other international reporting unit's fair value was in excess of its carrying value by approximately 29%. As of November 30, 2021 the carrying values of goodwill were $1.0 billion and $372 million for Boots reporting unit and Other international reporting unit, respectively. The fair values of indefinite-lived intangibles within the Boots reporting unit exceeded their carrying value amounts ranging from approximately 5% to approximately 27%. As of November 30, 2021 and August 31, 2021 the carrying value of the indefinite-lived intangibles within the Boots reporting unit was $7.2 billion and $7.3 billion, respectively.

The determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions with respect to the business and financial performance of the Company’s reporting units, as well as how such performance may be impacted by COVID-19.

Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions, including the impact of COVID-19, could have a significant impact on either the fair value of the reporting units and indefinite-lived intangibles, the amount of any goodwill and indefinite-lived intangible impairment charges, or both. These estimates can be affected by a number of factors including, but not limited to, the impact of COVID-19, its severity, duration and its impact on global economies, general economic conditions as well as our profitability. The Company will continue to monitor these potential impacts, including the impact of COVID-19 and economic, industry and market trends and the impact these may have on the Boots and Other international reporting units.

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

Goodwill roll forward:			United States						International												Walgreens Health						Walgreens Boots Alliance, Inc.
August 31, 2021			$	10,947					$	1,474											$	—					$	12,421
Acquisitions			—						—												9,130						9,130
Currency translation adjustments			—						(32)												—						(32)
November 30, 2021			$	10,947					$	1,443											$	9,130					$	21,520

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

Intangible assets			November 30, 2021						August 31, 2021
Gross amortizable intangible assets
Customer relationships and loyalty card holders 1			$	4,430					$	3,522
Primary care provider network			1,660						—
Trade names and trademarks			708						361
Purchasing and payer contracts			317						317
Developed technology			290						—
Others			75						221
Total gross amortizable intangible assets			$	7,479					$	4,421
Accumulated amortization
Customer relationships and loyalty card holders 1			$	1,395					$	1,335
Trade names and trademarks			228						226
Purchasing and payer contracts			284						227
Developed technology			17						—
Others			29						37
Total accumulated amortization			1,953						1,826
Total amortizable intangible assets, net			$	5,526					$	2,595
Indefinite-lived intangible assets
Trade names and trademarks			$	5,208					$	5,276
Pharmacy licenses			2,036						2,066
Total indefinite-lived intangible assets			$	7,244					$	7,342
Total intangible assets, net			$	12,770					$	9,936

1Includes purchased prescription files.

Amortization expense for intangible assets was $165 million and $95 million for the three months ended November 30, 2021, and 2020, respectively. Estimated future annual amortization expense for the next five fiscal years for intangible assets recorded at November 30, 2021 is as follows (in millions):

			2022 (Remaining period)						2023						2024						2025						2026						2027
Estimated annual amortization expense			$	462					$	560					$	541					$	514					$	490					$	443

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

			November 30, 2021						August 31, 2021
Short-term debt
Commercial paper			$	875					$	—
Credit facilities			799						—
$8 billion note issuance 1
3.300% unsecured notes due 2021 2			—						1,250
$4 billion note issuance 4
3.100% unsecured notes due 2022			731						—
Other 3			242						56
Total short-term debt			$	2,647					$	1,305
Long-term debt
Credit facilities			$	2,990					$	—
$850 million note issuance 1
0.9500% unsecured notes due 2023			848						—
$1.5 billion note issuance 1
3.200% unsecured notes due 2030			497						497
4.100% unsecured notes due 2050			792						792
$6 billion note issuance 1
3.450% unsecured notes due 2026			1,442						1,442
4.650% unsecured notes due 2046			318						318
$8 billion note issuance 1
3.800% unsecured notes due 2024			1,154						1,154
4.500% unsecured notes due 2034			301						301
4.800% unsecured notes due 2044			868						868
£700 million note issuance 1
3.600% unsecured Pound sterling notes due 2025			403						408
€750 million note issuance 1
2.125% unsecured Euro notes due 2026			846						873
$4 billion note issuance 4
3.100% unsecured notes due 2022			—						731
4.400% unsecured notes due 2042			263						263
Other 3			477						29
Total long-term debt, less current portion			$	11,199					$	7,675

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

2On September 18, 2021, the Company redeemed in full the $1.25 billion aggregate principal amount outstanding of its 3.300% unsecured notes due 2021 issued by the Company on November 18, 2014.

3Other debt represents a mix of fixed and variable rate debt with various maturities and working capital facilities denominated in various currencies. Other long term debt includes $447 million of debt acquired as part of Shields acquisition.

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4Notes are senior debt obligations of Walgreen Co. and rank equally with all other unsecured and unsubordinated indebtedness of Walgreen Co. On December 31, 2014, the Company fully and unconditionally guaranteed the outstanding notes on an unsecured and unsubordinated basis. The guarantee, for so long as it is in place, is an unsecured, unsubordinated debt obligation of the Company and will rank equally in right of payment with all other unsecured and unsubordinated indebtedness of the Company.

$850 million Note Issuance

On November 17, 2021, the Company issued, in an underwritten public offering, $850 million of 0.95% Notes due 2023. The Notes contain a call option which allow for the Notes to be repaid, in full or in part, prior to May 17, 2022 (the “Par Call Date”) at 100% of the principal amount of the Notes to be redeemed or the sum of the present values of the remaining scheduled payments thereof to the Par Call Date discounted at the applicable treasury rate, plus 10 basis points and (ii) on or after the Par Call Date, at 100% of the principal amount of the Notes to be redeemed, in each case plus accrued and unpaid interest.

Credit facilities

November 15, 2021, Delayed Draw Term Loan

On November 15, 2021, the Company entered into a $5.0 billion senior unsecured multi-tranche delayed draw term loan credit facility, (the “November 2021 DDTL”) consisting of (i) a 364-day senior unsecured delayed draw term loan facility in an aggregate principal amount of $2.0 billion (the“364-day loan”), (ii) a two-year senior unsecured delayed draw term loan facility in an aggregate principal amount of $2.0 billion (the “two-year loan”) and (iii) a three-year senior unsecured delayed draw term loan facility in an aggregate principal amount of $1.0 billion (the “three-year loan”). An aggregate amount of $3.0 billion or more of the November 2021 DDTL is for the purpose of funding the consideration due in respect of the purchase of an increased equity stake in VillageMD, and paying fees and expenses related to the foregoing, and the remainder can be used for general corporate purposes. The November 2021 DDTL is available for drawing in one or more tranches until May 15, 2022. The maturity date on the 364-day loan, the two-year loan and the three-year loan is, in each case, the earlier of the date that is 364 days, two years and three years from the date of the first drawing under each facility and February 14, 2023, February 15, 2024 and February 15, 2025 respectively. As of November 30, 2021 there were $3.0 billion in borrowings outstanding under the November 2021 DDTL.

December 23, 2020, Revolving Credit Agreement

On December 23, 2020, the Company entered into a $1.25 billion senior unsecured 364-day revolving credit agreement and a $2.25 billion senior unsecured 18-month revolving credit facility, with a swing line subfacility commitment amount of $350 million, with designated borrowers from time to time party thereto and lenders from time to time party thereto (the “2020

Revolving Credit Agreement”). The 364-day facility’s termination date is the earlier of (i) 364 days from December 23, 2020, the effective date (subject to the extension thereof pursuant to the 2020 Revolving Credit Agreement) and (ii) the date of termination in whole of the aggregate amount of the revolving commitments under the 364-day facility pursuant to the 2020 Revolving Credit Agreement. The 18-month facility’s termination date is the earlier of (i) 18 months from the effective date (subject to the extension thereof pursuant to the 2020 Revolving Credit Agreement) and (ii) the date of termination in whole of the aggregate amount of the revolving commitments under the 18-Month Facility pursuant to the 2020 Revolving Credit Agreement. As of November 30, 2021 there were $800 million in borrowings outstanding under the 2020 Revolving Credit Agreement.

August 2018 Revolving Credit Agreement

On August 29, 2018, the Company entered into a revolving credit agreement (the “August 2018 Revolving Credit Agreement”) with the lenders and letter of credit issuers from time-to-time party thereto. The August 2018 Revolving Credit Agreement is an unsecured revolving credit facility with aggregate commitment in the amount of $3.5 billion, with a letter of credit subfacility commitment amount of $500 million. The facility termination date is the earlier of (a) August 29, 2023, subject to extension thereof pursuant to the August 2018 Revolving Credit Agreement, and (b) the date of termination in whole of the aggregate amount of the revolving commitments pursuant to the August 2018 Revolving Credit Agreement. As of November 30, 2021, there were no borrowings outstanding under the August 2018 Revolving Credit Agreement.

Debt covenants

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

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Commercial paper

The Company periodically borrows under its commercial paper program and may borrow under it in future periods. The Company had average daily U.S. commercial paper outstanding of $712 million and $1.6 billion at a weighted average interest rate of 0.25% and 0.63% for the three months ended November 30, 2021 and 2020, respectively.

A subsidiary of the Company had average daily commercial paper outstanding, which was issued under the Joint HM Treasury and Bank of England's COVID Corporate Financing Facility commercial paper program, of £300 million, or approximately $401 million at a weighted average interest rate of 0.43% for the three months ended November 30, 2020. The subsidiary of the Company repaid the commercial paper issued under the Joint HM Treasury and Bank of England's COVID Corporate Financing Facility commercial paper program on May 14, 2021.

Interest

Interest paid by the Company was $153 million and $234 million for the three months ended November 30, 2021 and 2020, respectively.

The Company uses derivative instruments to hedge its exposure to market risks, including interest rate and currency risks, arising from operating and financing risks.

The Company has non-U.S. dollar denominated net investments and uses foreign currency denominated financial instruments, specifically foreign currency derivatives and foreign currency denominated debt, to hedge its foreign currency risk.

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

November 30, 2021			Notional						Fair Value						Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Foreign currency forwards			$	5					$	—					Other non-current assets
Cross currency interest rate swaps			153						4						Other non-current assets
Foreign currency forwards			17						—						Other non-current liabilities
Cross currency interest rate swaps			633						8						Other non-current liabilities
Foreign currency forwards			610						17						Other current assets
Foreign currency forwards			85						1						Other current liabilities
Cross currency interest rate swaps			157						5						Other current liabilities
Derivatives not designated as hedges:
Foreign currency forwards			$	3,900					$	64					Other current assets
Foreign currency forwards			2,968						2						Other current liabilities
Total return swap			271						11						Other current liabilities

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August 31, 2021			Notional						Fair Value						Location in Consolidated Condensed Balance Sheets
Derivatives designated as hedges:
Cross currency interest rate swaps			$	155					$	1					Other non-current assets
Foreign currency forwards			6						—						Other non-current assets
Foreign currency forwards			23						1						Other non-current liabilities
Cross currency interest rate swaps			801						23						Other non-current liabilities
Foreign currency forwards			575						7						Other current assets
Foreign currency forwards			31						1						Other current liabilities
Cross currency interest rate swaps			109						9						Other current liabilities
Derivatives not designated as hedges:
Foreign currency forwards			$	3,636					$	38					Other current assets
Total return swap			224						2						Other current assets
Foreign currency forwards			808						3						Other current liabilities
Total return swap			37						—						Other current liabilities

Net investment hedges

The Company uses cross currency interest rate swaps and foreign currency forward contracts to hedge net investments in subsidiaries with non-U.S. dollar functional currencies. For qualifying net investment hedges, changes in the fair value of the derivatives are recorded in the currency translation adjustment within accumulated other comprehensive income (loss).

Cash flow hedges

The Company uses interest rate swaps to hedge the variability in forecasted cash flows of certain floating-rate debt. For qualifying cash flow hedges, changes in the fair value of the derivatives are recorded in accumulated other comprehensive income (loss) and released to the Consolidated Statements of Earnings when the hedged cash flows affect earnings.

Derivatives not designated as hedges

The Company enters into derivative transactions that are not designated as accounting hedges. These derivative instruments are economic hedges of foreign currency risks. The Company also utilizes total return swaps to economically hedge variability in compensation charges related to certain deferred compensation obligations. The income (expenses) due to changes in fair value of these derivative instruments were recognized in earnings as follows (in millions):

									Three months ended November 30,
			Location in Consolidated Condensed Statements of Earnings						2021						2020
Foreign currency forwards			Selling, general and administrative expenses						$	55					$	(29)
Total return swap			Selling, general and administrative expenses						(2)						13
Foreign currency forwards			Other income (expense)						(1)						(9)

Derivatives credit risk

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

Derivatives offsetting

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

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

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

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

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

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

			November 30, 2021						Level 1						Level 2						Level 3
Assets:
Money market funds 1			$	319					$	319					$	—					$	—
Investments in equity securities 2			1						1						—						—
Investments in debt securities 3			20						—						—						20
Foreign currency forwards 5			81						—						81						—
Cross currency interest rate swaps 6			4						—						4						—
Liabilities:
Foreign currency forwards 5			$	4					$	—					$	4					$	—
Cross currency interest rate swaps 6			12						—						12						—
Total return swap			11						—						11						—

			August 31, 2021						Level 1						Level 2						Level 3
Assets:
Money market funds 1			$	634					$	634					$	—					$	—
Investments in equity securities 2			2						2						—						—
Investments in debt securities 4			663						—						—						663
Foreign currency forwards 5			46						—						46						—
Cross currency interest rate swaps 6			1						—						1						—
Total return swaps			2						—						2						—
Liabilities:
Foreign currency forwards 5			$	5					$	—					$	5					$	—
Cross currency interest rate swaps 6			32						—						32						—

1Money market funds are valued at the closing price reported by the fund sponsor.

2Fair values of quoted investments are based on current bid prices as of November 30, 2021 and August 31, 2021.

3Level 3 debt securities are valued using standard valuation techniques based on income and market approach.

4Level 3 debt securities include investments in convertible debt securities of VillageMD which are valued on a quarterly basis using the Probability Weighted Expect Return Method with gains or losses recorded in Other Comprehensive Income. Inputs include the enterprise value, expected holding term of the investment, volatility and risk-free interest rates.

5The fair value of forward currency contracts is estimated by discounting the difference between the contractual forward price and the current available forward price for the residual maturity of the contract using observable market rates. See Note 9 Financial instruments, for additional information.

6The fair value of interest rate swaps and cross currency interest rate swaps is calculated by discounting the estimated future cash flows based on the applicable observable yield curves. See Note 9 Financial instruments, for additional information.

There were no transfers between Levels for the three months ended November 30, 2021.

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The Company reports its debt instruments under the guidance of ASC Topic 825, Financial Instruments, which requires disclosure of the fair value of the Company’s debt in the footnotes to the Consolidated Financial Statements. As of November 30, 2021 the carrying amounts and estimated fair values of long-term notes outstanding including the current portion were $8.5 billion and $9.2 billion, respectively. The fair values of the notes outstanding are Level 1 fair value measures and determined based on quoted market prices and translated at the November 30, 2021 rate, as applicable. The fair values and carrying values of these issuances do not include notes that have been redeemed or repaid as of November 30, 2021. See Note 8 Debt, for further information.

The carrying values of accounts receivable and trade accounts payable approximated their respective fair values due to their short-term nature.

The Company is involved in legal proceedings, including litigation, arbitration and other claims, and investigations, inspections, subpoenas, audits, claims, inquiries and similar actions by pharmacy, healthcare, tax and other governmental authorities, arising in the normal course of the Company’s business, including the matters described below. Legal proceedings, in general, and securities, 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. From time to time, the Company is also involved in legal proceedings as a plaintiff involving antitrust, tax, contract, intellectual property and other matters. Gain contingencies, if any, are recognized when they are realized.

Like other companies in the retail pharmacy 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, the Company’s and the rest of the health care and related industry’s business, compliance and reporting practices. As a result, the Company regularly is the subject of government actions of the types described above. The Company also may be named from time to time in qui tam actions initiated by private third parties. In such actions, the private parties purport to act on behalf of federal or state governments, allege that false claims have been submitted for payment by the government and may receive an award if their claims are successful. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination. If the government declines to intervene, the private party may nonetheless continue to pursue the litigation on his or her own purporting to act on behalf of the government.

The results of legal proceedings, including government investigations, are often uncertain and difficult to predict, and the costs incurred in these matters can be substantial, regardless of the outcome. With respect to litigation and other legal proceedings where the Company has determined that a material loss is reasonably possible, except as otherwise noted, the Company is unable to estimate the amount or range of reasonably possible loss due to the inherent difficulty of predicting the outcome of and uncertainties regarding such litigation and legal proceedings. The Company believes that its defenses and assertions in pending legal proceedings have merit and does not believe that any of these pending matters, after consideration of applicable reserves and rights to indemnification, will have a material adverse effect on the Company’s consolidated financial position. However, substantial unanticipated verdicts, fines and rulings do sometimes occur. As a result, the Company could from time to time incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material adverse effect on its results of operations in the period in which the amounts are accrued and/or its 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.

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

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

On December 11, 2017, purported Rite Aid shareholders filed an amended complaint in a putative class action lawsuit in the U.S. District Court for the Middle District of Pennsylvania (the “M.D. Pa. action”) arising out of transactions contemplated by the merger agreement between the Company and Rite Aid. The amended complaint alleged that the Company and certain of its officers made false or misleading statements regarding the transactions. The Court denied the Company’s motion to dismiss the amended complaint on April 15, 2019. The Company filed an answer and affirmative defenses, and the Court granted plaintiffs' motion for class certification. Fact discovery has concluded and expert discovery is ongoing. In October and December 2020, two separate purported Rite Aid Shareholders filed lawsuits in the same court as the M.D. Pa. action opting out of the class in the M.D. Pa. action making nearly identical allegations as those in the M.D. Pa. action (the “Direct Actions”). On December 24, 2020, the parties to the Direct Actions filed a joint stipulation to stay the Direct Actions until the earlier of (a) 30 days after the entry of an order resolving any pre-trial dispositive motions in the M.D. Pa. action, or (b) 30 days after the entry of an order of final approval of any settlement of the M.D. Pa. action. The court so ordered the joint stipulation on December 28, 2020.

In December 2017, the U.S. Judicial Panel on Multidistrict Litigation consolidated numerous cases filed against an array of defendants by various plaintiffs such as counties, cities, hospitals, Indian tribes, and others, alleging claims generally concerning the impacts of widespread opioid abuse. The consolidated multidistrict litigation, captioned In re National Prescription Opiate Litigation (MDL No. 2804, Case No. 17-md-2804), is pending in the U.S. District Court for the Northern District of Ohio ("N.D. Ohio"). The Company is involved in the following multidistrict litigation (MDL) bellwether cases: (1) two consolidated cases in N.D. Ohio (Cnty. of Summit, Ohio, et al v. Purdue Pharma L.P., et al., Case No. 18-op-45090; Cnty. of Cuyahoga, Ohio, et al. v. Purdue Pharma L.P., Case No. 18-op-45004), previously scheduled for trial in November 2020 but postponed indefinitely; (2) one remanded to the U. S. District Court for the Eastern District of Oklahoma (The Cherokee Nation v. McKesson Corp., et al., Case No. 18-CV-00056-RAW-SPS), scheduled for trial in September 2022; and (3) one remanded to the U.S. District Court for the Northern District of California (City and Cnty. of San Francisco, et al. v. Purdue Pharma L.P., et al., Case No. 3:18-cv-07591-CRB), originally scheduled for trial in October 2021, but rescheduled for April 2022. The Company was also involved in two additional consolidated cases in N.D. Ohio (Cnty. of Lake, Ohio v. Purdue Pharma L.P., et al., Case No. 18-op-45032; Cnty. of Trumbull, Ohio v. Purdue Pharma L.P., et al., Case No. 18-op-45079), initially scheduled for trial in May 2021 but continued until October 2021. The jury in that case returned a verdict in favor of the plaintiffs as to liability, and the court will schedule a second trial regarding remedies to take place at some point in 2022. The court has yet to determine how much each defendant will pay in damages. The Company is unable to predict the outcome relative to remedies or apportionment and believes it has very strong grounds for appeal. In April 2021, the MDL court selected five additional bellwether cases involving the Company, all currently pending in N.D. Ohio: (1) Cobb Cnty. v. Purdue Pharma L.P., et al., Case No. 18-op-45817; (2) Durham Cnty. v. AmerisourceBergen Drug Corp., et al., Case No. 19-op-45346; (3) Montgomery Cnty. Bd. of Cnty. Commrs., et al. v. Cardinal Health, Inc., et al., Case No. 18-op-46326; (4) Board of Cnty. Commrs. of the Cnty. of Santa Fe v. Purdue Pharma L.P., et al., Case No. 18-op-45776; and (5) Cnty. of Tarrant v. Purdue Pharma L.P., et al., Case No. 18-op-45274.

The Company also has been named as a defendant in numerous lawsuits brought in state courts relating to opioid matters. Trial dates have been set in cases pending in state courts in New Mexico (State of New Mexico, ex rel. Hector Balderas, Attorney General v. Purdue Pharma L.P., et al., Case No. D-101-cv-2017-02541, First Judicial District Court, Santa Fe County, New Mexico - September 2022); West Virginia (State of West Virginia, ex rel. Patrick Morrisey, Attorney General v. Walgreens Boots Alliance, Inc., et al., Civil Action No.20-C-82 PNM, Circuit Court of Kanawha County, West Virginia, - September 2022; Missouri (Jefferson County, Missouri v. Dannie E. Williams, M.D., et al., Cause No. 20JE-CC00029, Twenty-Third Judicial Circuit, Jefferson County, Missouri - April 2023); Florida (State of Florida, Office of the Attorney General, Department of Legal Affairs v. Purdue Pharma L.P., et al., Case No. 2018-CA-001438, Sixth Judicial Circuit in and for Pasco County, Florida - April 2022); Nevada (State of Nevada v. McKesson Corporation, et al., Case No. A-19-796755-B, Eighth Judicial District Court, Clark County, Nevada - April 2023); Michigan (State of Michigan, ex rel. Dana Nessel, Attorney General v. Cardinal Health, Inc., et al., Case No. 19-016896-NZ, Circuit Court for Wayne County, Michigan - October 2022);

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and Alabama (The DCH Health Care Authority, et al. v. Purdue Pharma LP, et al., Cause No. CV-2019-000007.00, Circuit Court of Conecuh County, Alabama - July 2022).

The relief sought by various plaintiffs in these matters includes compensatory, abatement and punitive damages, as well as injunctive relief. 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 has also had communications with the Department of Justice with respect to purported violations of the federal Controlled Substances Act and the federal False Claims Act in dispensing prescriptions at certain Walgreens locations.

As discussed above, legal proceedings, including government investigations, are often uncertain and difficult to predict, and the costs and penalties incurred in these matters can be substantial.

The effective tax rate for the three months ended November 30, 2021 was an expense of 7.2%, primarily due to lower tax expense on gains from consolidation of the Company’s investment in VillageMD and Shields, as a portion of these gains is not subject to tax. See Note 3 Acquisitions for further information.

The effective tax rate for the three months ended November 30, 2020 was a benefit of 34.0%, on a pretax loss for the three months ended November 30, 2020, primarily due to the discrete tax effect of equity losses in AmerisourceBergen. See Note 6 Equity method investments for further information.

Income taxes paid for the three months ended November 30, 2021 were $34 million, compared to $16 million for the three months ended November 30, 2020.

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

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

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

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

									Three months ended November 30,
			Location in Consolidated Condensed Statements of Earnings						2021						2020
Service costs			Selling, general and administrative expenses						$	1					$	1
Interest costs			Other expense						39						33
Expected returns on plan assets/other			Other income						(74)						(80)
Total net periodic pension costs (income)									$	(33)					$	(45)

The Company made cash contributions to its defined benefit pension plans of $1 million for the three months ended November 30, 2021, which primarily related to committed payments. The Company plans to contribute an additional $40 million to its defined benefit pension plans in fiscal 2022.

Defined contribution plans

The principal retirement plan for U.S. employees is the Walgreen Profit-Sharing Retirement Trust, to which both the Company and participating employees contribute. The Company’s contribution is in the form of a guaranteed match which is made pursuant to the applicable plan document approved by the Walgreen Co. Board of Directors. Plan activity is reviewed

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periodically by certain Committees of the Walgreens Boots Alliance Board of Directors. The profit-sharing provision was an expense of $69 million and $57 million for the three months ended November 30, 2021 and 2020, respectively.

The Company also has certain contract based defined contribution arrangements. The principal arrangement is based in UK to which both the Company and participating employees contribute. The Company recognized an expense of $25 million and $26 million for the three months ended November 30, 2021 and 2020, respectively.

The following is a summary of net changes in accumulated other comprehensive income (“AOCI”) by component and net of tax for the three months ended November 30, 2021 and 2020 (in millions):

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

			Pension/ post-retirement obligations						Unrealized gain (loss) on cash flow hedges						Net investment hedges						Unrealized gain (loss) on available for sale securities						Share of AOCI of equity method investments						Cumulative translation adjustments						Total
Balance at August 31, 2020			$	(748)					$	(31)					$	(34)					$	—					$	(10)					$	(2,948)					$	(3,771)
Other comprehensive income (loss) before reclassification adjustments			17						4						(14)						—						7						72						85
Amounts reclassified from AOCI			(2)						1						—						—						—						3						2
Tax benefit (provision)			(4)						(1)						8						—						(1)						—						1
Net change in other comprehensive income (loss)			11						4						(7)						—						5						75						88
Balance at November 30, 2020			$	(736)					$	(27)					$	(41)					$	—					$	(5)					$	(2,873)					$	(3,682)

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In conjunction with the launch of its new consumer-centric healthcare strategy, in fiscal 2022, the Company announced the creation of a new operating segment, Walgreens Health. As a result, beginning in fiscal year 2022, the Company is now aligned into three reportable segments: United States, International and Walgreens Health. The operating segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker) to assess segment performance and allocate resources among the Company’s operating segments. The chief operating decision maker uses adjusted operating income to assess segment profitability. The chief operating decision maker does not use total assets by segment to make decisions regarding resources; therefore, the total asset disclosure by segment has not been included.

United States

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

International

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

Walgreens Health

The Company’s Walgreens Health segment currently consists of Walgreens Health, an organically developed consumer-centric omni-channel business that contracts with payors and providers to deliver clinical healthcare services to their members through both digital and physical channels; a majority equity ownership position in VillageMD, a leading, national provider of value-based primary care services; a majority equity ownership position in Shields, a specialty pharmacy integrator and accelerator for hospitals.

Selling, general and administrative costs for Walgreens Health for the three months ended November 30, 2020 have been reclassified in the Consolidated Condensed Financial Statements and accompanying notes to conform to the current period presentation.

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

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

			Three months ended November 30,
			2021						2020
Sales:
United States			$	28,032					$	27,163
International			5,818						4,285
Walgreens Health			51						—
Corporate and Other 1			—						(10)
Walgreens Boots Alliance, Inc.			$	33,901					$	31,438
Adjusted Operating income:
United States			$	1,690					$	1,155
International			164						87
Walgreens Health			(13)						(3)
Corporate and Other 1			(63)						(42)
Walgreens Boots Alliance, Inc.			$	1,777					$	1,196

1Includes certain eliminations.

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

			Three months ended November 30,
			2021						2020
Adjusted operating income			$	1,777					$	1,196
Transformational cost management			(203)						(100)
Acquisition-related amortization			(165)						(95)
Acquisition-related costs			(71)						(21)
Adjustments to equity earnings (loss) in AmerisourceBergen			(43)						(1,481)
LIFO provision			(14)						(33)
Operating income (loss)			$	1,283					$	(535)

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

						Three months ended November 30,
						2021						2020
United States
Pharmacy						$	21,105					$	20,869
Retail						6,927						6,294
Total						28,032						27,163
International
Pharmacy						1,017						895
Retail						1,796						1,522
Wholesale						3,005						1,868
Total						5,818						4,285
Walgreens Health						51						—
Corporate and Other 1						—						(10)
Walgreens Boots Alliance, Inc.						$	33,901					$	31,438

1Includes certain eliminations.

See Note 19 Supplemental information for further information on receivables from contracts with customers.

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

Related party transactions with AmerisourceBergen (in millions):

			Three months ended November 30,
			2021						2020
Purchases, net			$	15,791					$	15,441

			November 30, 2021						August 31, 2021
Trade accounts payable, net			$	6,909					$	6,589

See Note 2 Discontinued operations for further information.

Adoption of new accounting pronouncements

Receivables - nonrefundable fees and others

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other. This ASU clarifies the accounting for the amortization period for certain purchased callable debt securities held at a premium by giving consideration to securities which have multiple call dates. The Company adopted the new standard effective September 1, 2021, and the adoption did not have any impact on the Company’s results of operations, cash flows or financial position.

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Investments — equity securities; Investments — equity method and joint ventures; Derivatives and hedging

In January 2020, the FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in this ASU clarify the interaction between the accounting for investments in equity securities, investment in equity method and certain derivatives instruments. The ASU is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The Company adopted the new standard effective September 1, 2021, and the adoption did not have any impact on the Company’s results of operations, cash flows or financial position.

Income taxes - simplifying the accounting for income taxes

In December 2019, the FASB issued ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted the new standard effective September 1, 2021, and the adoption did not have any impact on the Company’s results of operations, cash flows or financial position.

Effects of reference rate reform on financial reporting

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates (“IBORs”) and, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable, or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, which adds implementation guidance to the above the ASU to clarify certain optional expedients in Topic 848. The Company adopted the new standard effective September 1, 2021, and the adoption did not have a material impact on the Company’s results of operations, cash flows or financial position.

New accounting pronouncements not yet adopted

Acquired contract assets and contract liabilities in a business combination

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

Disclosures by business entities about government assistance

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance. This ASU requires disclosures that are expected to increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. This ASU is effective for annual periods beginning after December 15, 2021 (fiscal 2023). The Company is evaluating the effect of adopting this new accounting guidance.

Accounts receivable

Accounts receivable are stated net of allowances for doubtful accounts. Accounts receivable balances primarily consist of trade receivables due from customers, including amounts due from third party providers (e.g., pharmacy benefit managers, insurance companies and governmental agencies). Trade receivables were $4.6 billion and $4.5 billion at November 30, 2021 and August 31, 2021, respectively. Other accounts receivable balances, which consist primarily of receivables from vendors and manufacturers, including receivables from AmerisourceBergen (see Note 17 Related parties), were $1.3 billion and $1.1 billion at November 30, 2021 and August 31, 2021, respectively.

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Depreciation and amortization

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

			Three months ended November 30,
			2021						2020
Depreciation expense			$	335					$	342
Intangible asset and other amortization			165						95
Total depreciation and amortization expense			$	500					$	437

Accumulated depreciation and amortization on property, plant and equipment was $13.3 billion at November 30, 2021 and $13.1 billion at August 31, 2021.

Restricted cash

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

			November 30, 2021						August 31, 2021
Cash and cash equivalents - continuing operations			$	4,135					$	1,193
Restricted cash - continuing operations (included in other current assets)			133						77
Cash, cash equivalents and restricted cash			$	4,268					$	1,270

Redeemable noncontrolling interest

The redeemable noncontrolling interest balance as of November 30, 2021 was $2,787 million increasing primarily due to acquisitions during the three months ended November 30, 2021. See Note 3 Acquisitions for further information.

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

Redeemable noncontrolling interest roll forward:			Walgreens Boots Alliance, Inc.
August 31, 2021			$	319
Acquisitions 1			2,489
Net (loss)			(21)
Redemption value adjustment			7
Currency translation adjustments and other			(8)
November 30, 2021			$	2,787

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

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Earnings per share

The dilutive effect of outstanding stock options on earnings per share is calculated using the treasury stock method. Stock options are anti-dilutive and excluded from the earnings per share calculation if the exercise price exceeds the average market price of the common shares. There were 16.1 million weighted outstanding options to purchase common shares that were anti-dilutive and excluded from the first quarter earnings per share calculation as of November 30, 2021 compared to 18.5 million as of November 30, 2020.

Due to the anti-dilutive effect resulting from the reported net loss for the three months ended November 30, 2020, the incremental impact of potentially dilutive securities were omitted from the calculation of weighted-average common shares outstanding.

Cash dividends declared per common share

Cash dividends per common share declared were as follows:

Quarter ended						2021						2020
November						$	0.4775					$	0.4675

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