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 Part I, Item 1A, Risk factors, 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 an integrated healthcare, pharmacy and retail leader with a 170-year heritage of caring for customers and patients. Its operations are conducted through three reportable segments:
• U.S. Retail Pharmacy,
• International, and
• U.S. Healthcare.
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 opioid-related claims and litigation settlements; the impact of adverse global macroeconomic conditions caused by factors including, among others, inflation, high interest rates, labor shortages, supply chain disruptions and pandemics like COVID-19 on our operations and financial results; the financial performance of our equity method investees, including Cencora, Inc. (“Cencora”); the financial performance of our consolidated subsidiaries in the United States (“U.S.”) Healthcare segment; the amount of goodwill impairment charges (which are based in part on estimates of future performance); the influence of certain holidays; seasonality; foreign currency rates; changes in National Average Drug Acquisition Cost (“NADAC”) benchmark pricing; changes in vendor, payor and customer relationships and terms and associated reimbursement pressure; strategic transactions and acquisitions, dispositions, joint ventures and other strategic collaborations; changes in laws and regulations, including the tax law changes in the U.S. and the United Kingdom (“UK”); changes in recoverability of deferred tax assets; 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 expected execution and effect of our business strategies, including the breadth, timing and impact of the actions related to our strategic review; the timing and magnitude of cost reduction initiatives, including under our Transformational Cost Management Program and Footprint Optimization Program (each, as defined below); the timing and of the cough, cold and flu season; fluctuations in variable costs; adjustments to Centers for Medicare and Medicaid Services, Medicare and Medicare rates; shifts in consumer behavior and buying preferences; the impacts of looting, natural , war, terrorism and other events, and changes to management, including turnover of our top executives and our ability to attract and retain qualified associates in the markets in which the Company operates.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Strategic Initiatives
In fiscal 2024, the Company initiated a strategic and operational review of its business and strategy. In connection with the strategic review, the Company expects to focus on areas that build its core retail and specialty pharmacy business, leverage its current assets through capital-efficient businesses, and expand its relationships with business partners. As such, the Company is analyzing opportunities that may impact the future results of operations and cash flows, including the Company’s recently approved plan to implement a significant multi-year U.S. Footprint Optimization Program to close certain underperforming stores, primarily in the U.S.; launching a U.S. Retail Pharmacy action plan to invest in and deliver an improved customer and patient experience across channels, including broadening and deepening our services by assessing provider status and exploring other new payment arrangements, responding to an anticipated challenging retail environment by adjusting pricing and promotional strategies; re-evaluating the U.S. Retail Pharmacy sales strategy, including the merchandising strategy, in an effort to offer a refreshed assortment of products, with a planned focus of being more selective with national brands and expanding owned brands in key categories; stabilizing pharmacy margins by and negotiating with pharmacy managers (“PBMs”) in an attempt to bring more and predictability to retail pharmacy reimbursement models; aligning U.S. Pharmacy and Healthcare organizations for go-to-market capabilities; re-evaluating capital allocation priorities, including an assessment of our dividend policy; continuing to focus on monetizing non-core assets to generate cash flow and harvesting from our portfolio of investments, such as Cencora and BrightSpring Health Services; and simplifying and focusing the U.S. Healthcare portfolio. The Company continues to evaluate its overall portfolio of assets and investments and may take action in line with the Company’s strategic direction.
The Company is currently evaluating a variety of options with respect to Village Practice Management Company, LLC (“VillageMD”) in light of ongoing investments by the Company in VillageMD’s businesses and VillageMD’s substantial ongoing and expected future cash requirements. These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities.
In fiscal 2023, we provided VillageMD senior secured credit facilities (the “VillageMD Secured Loan”) in the aggregate amount of $2.25 billion, consisting of (i) a senior secured term loan in an aggregate principal amount of $1.75 billion and (ii) a senior secured credit facility in an aggregate original committed amount of $500 million. On August 2, 2024, the Company and VillageMD acknowledged the existence of defaults under the VillageMD Secured Loan. On August 6, 2024, we entered into a forbearance agreement whereby the Company has agreed not to exercise certain remedies available to it under the terms of the VillageMD Secured Loan, subject to VillageMD’s compliance with the conditions set forth in the forbearance agreement. The Company is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD.
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.
Opioid litigation settlements
On December 9, 2022, the Company entered into a Multistate Settlement Agreement (the “Multistate Agreement”) which resolved a substantial majority of opioid-related lawsuits filed against the Company by the attorneys general of participating states and political subdivisions (the “Settling States”) and litigation brought by counsel for tribes. The Multistate Agreement, which became effective on August 7, 2023, included no admission of wrongdoing or liability by the Company. As of August 31, 2024, the Company has accrued a total of $6.6 billion liability associated with the Multistate Agreement and other opioid-related claims and litigation settlements. The cost of the settlements is reflected in the Consolidated Statements of Earnings within Selling, general and administrative expenses as part of the U.S. Retail Pharmacy segment.
See Note 10. Commitments and contingencies, to the Consolidated Financial Statements included in Part II, Item 8 for further information.
COVID-19
Since 2020, COVID-19 has impacted global economies, including the U.S., the UK, and other countries, causing public health concerns, economic and supply chain disruptions and volatility in financial markets. The Company has been pivotal in combating COVID-19 by collaborating with the Centers for Disease Control and Prevention, the U.S. Department of Health and Human Services, and the U.S. government to administer vaccines. The federal Public Health Emergency for COVID-19 expired on May 11, 2023. Fiscal 2022 results included significant contributions from COVID-19 vaccinations and related sales, net of incremental labor and other costs related to the vaccination program. In fiscal 2023 and 2024, the Company has seen significantly lower COVID-19 vaccine and testing volume. The Company continues to monitor the potential impacts of COVID-19. The financial and operational impacts of COVID-19 on the Company and its operating results, cash flows, and financial condition are discussed throughout this Form 10-K. The Company’s current expectations are forward-looking statements and actual results may differ due to various factors, as discussed under “Cautionary note regarding forward-looking statements” below and in Item 1A, Risk factors.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Specialty pharmacy
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 (“Prime”), 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, PBMs 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 owns 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.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
RECENT DEVELOPMENTS
Change of Executive Leadership
On October 10, 2023, the Company announced that its board of directors (the “Board of Directors”) appointed Timothy C. Wentworth as Chief Executive Officer (“CEO”) of the Company and a member of the Board of Directors, effective as of October 23, 2023. Mr. Wentworth has previously served as CEO of Evernorth Health Services, a division of The Cigna Group (“Cigna”); as President, Health Services of Cigna; and as President and CEO of Express Scripts.
On February 6, 2024, the Company announced that its Board of Directors appointed Manmohan Mahajan as Executive Vice President and Global Chief Financial Officer (“CFO”), effective as of March 1, 2024. Mr. Mahajan has previously served as the Company’s Interim Global CFO since July 2023. Prior to such interim appointment, Mr. Mahajan served as the Company’s Senior Vice President, Global Controller and Chief Accounting Officer from July 2021 to July 2023.
Boots Plan Annuitization
On November 23, 2023, with financial support from the Company, Boots Pensions Limited (“Trustee”), in its capacity as trustee of the Boots Pension Plan (the “Boots Plan”), entered into a Bulk Purchase Annuity Agreement (“BPA”) with Legal & General Assurance Society Limited (“Legal & General”) to insure the benefits of all 53,000 of its members.
See Note 13. Retirement benefits to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.
Sale of Farmacias Ahumada
On October 31, 2023, the Company completed the sale of the Farmacias Ahumada business in Chile.
Sale of Cencora common stock
On November 9, 2023, the Company entered into the variable prepaid forward (“VPF”) derivative contracts with third-party financial institutions and received prepayments of $424 million related to the forward sale of up to 2.7 million shares of Cencora common stock.
In fiscal 2024, the Company sold shares of Cencora common stock for total consideration of approximately $2.7 billion.
See Note 5. Equity method investments, to the Consolidated Financial Statements included in Part II, Item 8 for further information.
Prescription files and pharmacy inventory acquisitions
On May 8, 2024, the Company executed an asset purchase agreement to acquire prescription files and related pharmacy inventory. On August 26, 2024, the Company completed the acquisition for $293 million.
$750 million Note Issuance
On August 12, 2024, the Company issued, in an underwritten public offering, $750 million of 8.125% notes due 2029.
See Note 7. Debt, to the Consolidated Financial Statements included in Part II, Item 8 for further information
Footprint Optimization Program
On October 14, 2024, the Company’s Board of Directors approved a plan to optimize its footprint and close approximately 900 to 1,000 additional underperforming stores primarily across the U.S. (the “Footprint Optimization Program”). See “Footprint Optimization Program” below for further information.
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 Item 1A, Risk factors and “Cautionary note regarding forward-looking statements.”
WBA Fiscal 2024 Form 10-K
Table of Co n tents
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. The program was subsequently expanded and extended, with the most recent update in fiscal 2023, when the Company increased its annual cost savings target from $3.5 billion to $4.5 billion by the end of fiscal 2024. The Company achieved this goal by the end of fiscal 2024, concluding the Transformational Cost Management Program with annual cost savings of $4.5 billion. While most of the initiatives under the program were completed by the end of fiscal 2024, certain initiatives are expected to extend into fiscal 2025. The Company does not expect to incur material exit and disposal charges related to the finalization of these initiatives.
The Transformational Cost Management Program, which was multi-faceted and included divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company’s information technology (“IT”) capabilities, was designed to help the Company achieve increased cost efficiencies. The Company took actions across all aspects of the Transformational Cost Management Program, which focused primarily on the U.S. Retail Pharmacy and International reportable segments along with the Company’s global functions. Divisional optimization within the Company’s segments included activities such as optimization of stores. The Transformational Cost Management Program resulted in the approval to close approximately 650 Boots stores in the United Kingdom (“UK”) and approximately 950 stores in the U.S. As of August 31, 2024, the Company has closed 624 and 676 stores in the UK and U.S., respectively.
Cumulative pre-tax charges to the Company’s GAAP financial results for the Transformational Cost Management Program were $4.3 billion, of which pre-tax charges for exit and disposal activities were $4.0 billion.
The Company recognized aggregate pre-tax charges to its GAAP financial results related to the Transformational Cost Management Program as follows (in millions):
Transformational Cost Program Activities
Charges
Lease obligations and other real estate costs 1
Asset impairments 2
Employee severance and business transition costs
Information technology transformation and other exit costs
Total cumulative pre-tax exit and disposal charges
Other IT transformation costs
Total estimated pre-tax charges
1. Includes impairments relating to operating lease right-of-use and finance lease assets.
2. Primarily related to store closures and other asset impairments.
Approximately 75% of the cumulative pre-tax charges relating to the Transformational Cost Management Program represented current or future cash expenditures, primarily related to employee severance and business transition costs, IT transformation and lease and other real estate payments.
The total pre-tax charges under the Transformational Cost Management Program, which were primarily recorded in Selling, general and administrative expenses were as follows (in millions):
Fiscal 2024
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Total exit and disposal charges
Other IT transformation costs
Total pre-tax charges
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Fiscal 2023
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Total exit and disposal charges
Other IT transformation costs
Total pre-tax charges
Fiscal 2022
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Total exit and disposal charges
Other IT transformation costs
Total pre-tax charges
See Note 3. Exit and disposal activities to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.
FOOTPRINT OPTIMIZATION PROGRAM
On October 14, 2024, the Company’s Board of Directors approved a plan to optimize its footprint and close underperforming stores, primarily within the Company’s U.S. Retail Pharmacy segment (the “Footprint Optimization Program”). Execution of this program realigns the Company’s footprint with evolving demographic trends and enhances its capacity to respond more effectively to shifts in consumer behavior and buying preferences. This increased agility in adapting to a changing environment is a key objective of the Company’s strategic review, and a critical area in which the Company aims to close the competitive gap with peers that have taken similar initiatives over the past years.
The Footprint Optimization Program includes plans to close approximately 900 to 1,000 stores primarily across the U.S. by the end of fiscal 2027. The cadence of store closures prioritizes estimated cash flow benefits, underperforming locations, and lease expirations. The program is expected to be accretive to adjusted operating income and cash flows beginning in fiscal 2025. Considering the remaining approximately 300 stores approved, but not yet closed under the Transformational Cost Management Program, the Company expects to close 1,200 to 1,300 stores over the next three years.
The Company currently estimates that it will recognize cumulative pre-tax charges to its GAAP financial results of approximately $2.2 billion to $2.4 billion, including costs associated with lease obligations and other real estate costs, asset impairments, and employee severance and other exit costs. The Company expects to incur pre-tax charges of approximately $1.8 billion to $2.0 billion for lease obligations and other real estate costs including runoff costs associated with location optimization under prior programs, approximately $300 million of asset impairments, and approximately $100 million for employee severance and other exit costs. The Company estimates that approximately 90% of these cumulative pre-tax charges will result in future cash expenditures.
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 Part I, Item 1A Risk factors and Item 7 “Cautionary note regarding forward-looking statements” below.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
EXECUTIVE SUMMARY
The following table presents certain key financial statistics for the Company for fiscal 2024, 2023 and 2022:
(in millions, except per share amounts)
Sales
Gross profit
Selling, general and administrative expenses
Impairment of goodwill
Equity earnings in Cencora
Operating (loss) income (GAAP)
Adjusted operating income (Non-GAAP measure) 1
(Loss) earnings before interest and income tax provision (benefit)
Net (loss) earnings attributable to Walgreens Boots Alliance, Inc. (GAAP)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. (Non-GAAP measure) 1
Diluted net (loss) earnings per common share (GAAP)
Adjusted diluted net earnings per common share (Non-GAAP measure) 1
Percentage increases (decreases)
Sales
Gross profit
Selling, general and administrative expenses 2
Impairment of goodwill
Operating (loss) income (GAAP)
Adjusted operating income (Non-GAAP measure) 1
(Loss) earnings before interest and income tax provision (benefit)
Net (loss) earnings attributable to Walgreens Boots Alliance, Inc. (GAAP)
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. (Non-GAAP measure) 1
Diluted net (loss) earnings per common share (GAAP)
Adjusted diluted net earnings per common share (Non-GAAP measure) 1
Percent to sales
Gross margin
Selling, general and administrative expenses
1 See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
2 Fiscal 2024 includes goodwill impairment of $12.7 billion.
NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
WALGREENS BOOTS ALLIANCE RESULTS OF OPERATIONS
The following information summarizes our results of operations for fiscal 2024 compared to fiscal 2023. For discussion related to our results of operations for fiscal 2023 compared to fiscal 2022, refer to Part II, Item 7. Management ’ s discussion and analysis of financial condition and results of operations in our fiscal 2023 Form 10-K, as amended by Form 10-K/A which was filed with the United States Securities and Exchange Commission on November 22, 2023.
Net loss attributable to Walgreens Boots Alliance, Inc. (GAAP) fiscal 2024 compared to fiscal 2023
Net loss attributable to the Company in fiscal 2024 was $8.6 billion, an increase of 180.4 percent compared with the year-ago period. Net loss per share was $10.01, an increase of 180.4 percent compared with the year-ago period. Net loss and net loss per share in the current period reflects a higher operating loss, a $2.2 billion non-cash charge related to a valuation allowance on certain deferred tax assets primarily related to opioid liabilities recognized in prior periods, a $717 million after tax charge for fair value adjustments on VPF derivatives related to the monetization of Cencora shares, and a non-cash impairment charge related to an equity method investment in China. Prior year period net loss and net loss per share reflects a $5.5 billion after-tax charge for opioid-related claims and litigation, partially offset by a $1.7 billion after-tax gain on the sale of Cencora and Option Care Health shares.
Operating loss was $14.1 billion in fiscal 2024 compared to operating loss of $6.9 billion for the year-ago period, an increase in operating loss of 104.5 percent. Operating loss in the current period reflects a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest and non-cash impairment charges related to certain long-lived assets in the U.S. Retail Pharmacy segment and CCX Next, LLC (“CareCentrix”) goodwill, a challenging U.S. retail environment, net reimbursement pressure, lower sale-leaseback gains and higher incentive accruals than in the prior year, partially offset by cost savings and improved profitability in the U.S. Healthcare segment. Prior year operating loss reflects a $6.8 billion pre-tax charge for opioid-related claims and and a $431 million non-cash of pharmacy license intangible assets in Boots UK.
Other income, net was $340 million and $2.0 billion in fiscal 2024 and 2023, a decrease of $1.7 billion. The decrease in Other income, net is mainly due to a $946 million charge for fair value adjustments on financial derivatives related to the monetization of Cencora shares, a non-cash impairment charge related to an equity investment in China, and lower gains from the partial sale of the Company’s equity method investment in Cencora in the current period.
Interest expense, net was $482 million and $580 million in fiscal 2024 and 2023, respectively, a decrease of $98 million. The decrease in interest expense was primarily the result of gains on early extinguishment of debt and lower net borrowings in the current period, partly offset by higher interest rates in the current period.
The Company’s effective tax rate for fiscal 2024 and 2023 was an expense of 8.8% compared to a benefit of 34.3% in the year-ago period. Fiscal 2024 tax expense includes the impact of a non-cash expense to record a valuation allowance on certain U.S. federal and state deferred tax assets primarily related to opioid liabilities recognized in prior periods, VillageMD earnings not taxable to the Company, and goodwill impairment, which is primarily not deductible for tax purposes.
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. (Non-GAAP measure) fiscal 2024 compared to fiscal 2023
Adjusted net earnings attributable to the Company in fiscal 2024 was $2.5 billion, a decrease of 27.6 percent compared with the year-ago period. Adjusted diluted net earnings per share in fiscal 2024 was $2.88, a decrease of 27.6 percent to compared with the year-ago period.
The decrease in adjusted net earnings primarily reflects lower adjusted operating income due to a challenging U.S. retail environment, net reimbursement pressure, lower sale-leaseback gains, and higher incentive accruals in the current period, partly offset by cost savings and improved profitability in the U.S. Healthcare segment, lower interest expense, and a lower adjusted effective tax rate due to the recognition of deferred tax assets in foreign jurisdictions in the second quarter of fiscal 2024.
See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
RESULTS OF OPERATIONS BY SEGMENT
The following information summarizes our results of operations by segment for fiscal 2024 compared to fiscal 2023.
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 Cencora. Sales for the segment are principally derived from the sale of prescription drugs and a wide assortment of retail products, including health and wellness, beauty, personal care and consumables and general merchandise.
FINANCIAL PERFORMANCE
(in millions, except location amounts)
Sales
Gross profit
Selling, general and administrative expenses
Equity earnings in Cencora
Operating (loss) income
Adjusted operating income 1
Number of prescriptions 2
30-day equivalent prescriptions 2,3
Number of locations at period end 5
Percentage increases (decreases)
Sales
Gross profit
Selling, general and administrative expenses
Operating (loss) income
Adjusted operating income 1
Comparable sales 4
Pharmacy sales
Comparable pharmacy sales 4
Retail sales
Comparable retail sales 4
Comparable number of prescriptions 2,4
Comparable 30-day equivalent prescriptions 2,3,4
Percent to sales
Gross margin
Selling, general and administrative expenses
1 See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
2 Includes vaccinations, including COVID-19. Total prescriptions represents total prescription volume dispensed at Walgreens’ retail drugstores, health and wellness services, and specialty and home delivery pharmacy services.
3 Includes 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.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
4 Comparable sales are defined as sales from stores that have been open for at least twelve consecutive months without closure for seven or more consecutive days, including due to looting or store damage, and without a major remodel or being subject to a natural disaster, in the past twelve months as well as e-commerce sales. E-commerce sales include digitally initiated sales online or through mobile applications. Relocated stores are not included as comparable sales for the first twelve months after the relocation. Acquired stores are not included as comparable sales for the first twelve months after acquisition or conversion, when applicable, whichever is later. Comparable sales, comparable pharmacy sales, comparable retail sales, comparable number of prescriptions and comparable number of 30-day equivalent prescriptions refer to total sales, pharmacy sales, retail sales, number of prescriptions and number of 30-day equivalent prescriptions, respectively. The method of calculating comparable sales varies across the retail industry and our method of calculating comparable sales may not be the same as other retailers’ methods. Fiscal 2024 figures include an adjustment to remove February 29, 2024 results due to the leap year.
5 Locations include retail stores, specialty pharmacy facilities, prescription mailing facilities, and prescription micro-fulfillment centers.
NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.
Sales fiscal 2024 compared to fiscal 2023
Sales for fiscal 2024 increased by 5.0 percent to $115.8 billion, driven almost entirely by pharmacy sales. Comparable sales increased by 6.2 percent in fiscal 2024.
Pharmacy sales increased by 8.2 percent in fiscal 2024, and were 76.8 percent of the segment’s sales. Pharmacy sales benefited from higher branded drug inflation, mix impacts, and strong execution in pharmacy services. Comparable pharmacy sales increased 9.8 percent in fiscal 2024, compared to an increase of 7.2 percent in the year-ago period. Within comparable pharmacy sales, 30-day equivalent prescriptions filled in fiscal 2024 increased by 2.0 percent compared to the year-ago period. Total prescriptions filled in fiscal 2024, including immunizations, adjusted to 30-day equivalents, increased 1.2 percent to 1.2 billion.
Retail sales decreased by 4.6 percent in fiscal 2024 and were 23.2 percent of the segment’s sales reflecting a challenging retail environment, channel shift, a weaker respiratory season, and lower seasonal sales. Comparable retail sales decreased 3.4 percent in fiscal 2024 and decreased 0.8 percent in fiscal 2023.
Operating loss fiscal 2024 compared to fiscal 2023
Gross profit was $20.7 billion for fiscal 2024, compared to $22.1 billion in the year-ago period. Gross profit decreased 6.2 percent, primarily driven by lower retail scan volume driven by softer US market trends, elevated shrink levels, and continued net reimbursement pressure including brand inflation and mix impacts.
Selling, general and administrative expenses as a percentage of sales were 18.4 percent in fiscal 2024 compared to 25.1 percent in fiscal 2023. The decrease was almost entirely driven by the $6.8 billion charge for opioid-related claims and litigation settlements in the year-ago period, partly offset by the $455 million non-cash impairment charge related to certain long-lived assets, and lower sale-leaseback gains in the current period coupled with impacts from reduced incentive accrual in the year-ago period.
Operating loss for fiscal 2024 was $385 million, including income of $213 million from the Company’s share of equity earnings in Cencora. This result compared to $5.3 billion of operating loss in the year-ago period, including, $252 million from the Company’s share of equity earnings in Cencora. The improvement in operating loss was primarily driven by a $6.8 billion pre-tax charge for opioid-related claims and litigation settlements in the year-ago period, partly offset by lower pharmacy and retail gross profit and a $455 million non-cash impairment charge related to certain long-lived assets in the current period.
Adjusted operating income fiscal 2024 compared to fiscal 2023
Adjusted operating income for fiscal 2024 decreased 41.3 percent to $2.2 billion. The decrease reflects lower pharmacy and retail gross profit due to a challenging retail environment and continued pharmacy reimbursement pressure, lower sale-leaseback gains, lower Cencora equity income and lower incentive accruals in the prior year, partially offset by cost savings initiatives.
See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
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, and the Benavides brand in Mexico. Sales for these businesses are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products. In fiscal 2024, the Company completed the sale of the Farmacias Ahumada business in Chile.
The International segment operates in currencies other than the U.S. dollar, including the British pound sterling, euro 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)
Sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Adjusted operating income 1
Number of locations at period end 3
Percentage increases (decreases)
Sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
Adjusted operating income 1
Comparable sales in constant currency 2
Pharmacy sales
Comparable pharmacy sales in constant currency 2
Retail sales
Comparable retail sales in constant currency 2
Percent to sales
Gross margin
Selling, general and administrative expenses
1 See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
2 Comparable 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 and sales from dispositions in the current period. 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. Fiscal 2024 figures include an adjustment to remove February 29, 2024 results due to the leap year.
3 Includes only retail stores.
NM - Not meaningful. Percentage increases above 200% or when one period includes income and other period includes loss are considered not meaningful.
Sales fiscal 2024 compared to fiscal 2023
Sales for fiscal 2024 increase d 6.1 percent to $23.6 billion. The favorable impact of currency translation on sales was 2.9 p ercentage points. Sales increased 3.2 percent on a constant currency basis, with the Germany wholesale business growing 5.6 percent and Boots UK sales growing 3.2 percent.
Pharmacy sales decreased 1.8 percent in fiscal 2024 and were 15.3 percent of the segment’s sales. The favorable impact of currency translation on pharmacy sales was 3.9 percentage points. Comparable pharmacy sales in constant currency increased 4.9 percent compared to the year-ago period, reflecting an increase of 4.9 percent in Boots UK comparable pharmacy sales in constant currency driven by stronger demand for pharmacy services.
Retail sales increased 7.7 percent for fiscal 2024 and were 33.5 percent of the segment’s sales, reflecting growth across all categories in Boots UK, and increased total retail market share in the UK. The favorable impact of currency translation on retail sales was 3.7 percentage points. Comparable retail sales in constant currency increased 6.5 percent driven by Boots UK comparable retail sales in constant currency increasing 6.9 percent reflecting higher retail sales in the UK, including market share gains and increased store footfall.
Pharmaceutical wholesale sales increased 7.6 percent for fiscal 2024 and were 51.2 percent of the segment’s sales. The favorable impact of currency translation on pharmaceutical wholesale sales was 2.1 percentage points. Excluding the impact of currency translation, the increase in sales represents market growth in Germany.
Operating income fiscal 2024 compared to fiscal 2023
Gross profit increased 6.8 percent in fiscal 2024. Gross profit was favorably impacted by 3.4 percentage points, or $162 million, as a result of currency translation. Excluding the impact of currency translation, the increase was primarily due to higher retail sales in the UK, and market growth in the Germany wholesale business.
Selling, general and administrative expenses for fiscal 2024 increase d 0.4 percent from the year-ago period to $4.3 billion, reflecting an adverse currency impact of 3.4 percentage points, or $148 million. Excluding the impact of currency translation, the decrease reflects the pharmacy license intangible assets impairment in the UK in the year-ago period, partially offset by real estate gains in the year-ago period and higher inflation and increased investment in information technology in the UK in the current period.
Operating income for fiscal 2024 increased 80.1 percent to $682 million. Operating income was favorably impacted by 3.5 percentage points or $13 million, as a result of currency translation. Excluding the impact of currency translation, the increase in operating income reflects pharmacy license intangible assets impairment in the UK in the year-ago period, higher retail sales in the UK, and market growth in the Germany wholesales business, partially offset by real estate gains in the year-ago period, and higher inflation and increased investment in information technology in the UK in the current period.
Adjusted operating income fiscal 2024 compared to fiscal 2023
Adjusted operating income for fiscal 2024 decreased 15.2 percent to $793 million. Adjusted operating income was favorably impacted by 1.8 percentage points, or $17 million, as a result of currency translation. Excluding the impact of currency translation, the decrease in adjusted operating income reflects real estate gains in the year-ago period, and higher inflation and increased investment in information technology in the UK, partially offset by higher retail sales in the UK .
WBA Fiscal 2024 Form 10-K
Table of Co n tents
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 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 national provider of value-based care with primary, multi-specialty, and urgent care providers serving patients in traditional clinic settings, in patients’ homes and online appointments; as well as Shields Health Solutions Parent, LLC (“Shields”), a specialty pharmacy integrator and accelerator for hospitals; and CareCentrix, a participant in the post-acute and home care management sectors, and the Walgreens Health organic business that contracts with different participants in the healthcare ecosystem to provide commercial and clinical healthcare services.
FINANCIAL PERFORMANCE
(in millions)
Sales
Gross profit (loss)
Selling, general and administrative expenses
Impairment of goodwill
Operating loss (GAAP)
Adjusted operating loss 1
Adjusted EBITDA (Non-GAAP measure) 1
1 See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
Sales fiscal 2024 compared to fiscal 2023
Sales for fiscal 2024 increased $1.8 billion to $8.3 billion, reflecting the acquisition of WP CityMD TopCo (“Summit”) by VillageMD, and growth led by VillageMD and Shields compared to the year-ago period. VillageMD sales, inclusive of Summit, increased $1.6 billion to $6.2 billion driven by growth in full-risk lives and fee for service revenue, partly offset by the impact of clinic closures. Shields sales increased $106 million to $573 million, driven by further growth within existing partnerships.
Operating loss fiscal 2024 compared to fiscal 2023
Gross profit for fiscal 2024 was $734 million compared to $252 million in fiscal 2023. The increase primarily reflects the acquisition of Summit by VillageMD and growth led by VillageMD and Shields.
Selling, general and administrative expenses were $15.0 billion for fiscal 2024 compared to $2.0 billion in fiscal 2023. The increase was primarily driven by a $12.4 billion non-cash impairment charge related to VillageMD goodwill and planned clinic closures, and a $332 million non-cash goodwill impairment charge related to CareCentrix.
Operating loss for fiscal 2024 was $14.2 billion compared to a loss of $1.7 billion in fiscal 2023. The decrease was primarily driven by the $12.4 billion non-cash impairment charge related to VillageMD goodwill and planned clinic closures and the $332 million non-cash goodwill impairment charge related to CareCentrix.
Adjusted operatin g loss for fiscal 2024 compared to fiscal 2023
Adjusted operating loss was $134 million for fiscal 2024, compared to a loss of $566 million in fiscal 2023. The improvement compared to the year-ago period was driven by growth from Shields and cost discipline at VillageMD.
Adjusted EBITDA (Non-GAAP measure) for fiscal 2024 compared to fiscal 2023
Adjusted EBITDA was $66 million for fiscal 2024, compared to a loss of $376 million in fiscal 2023 driven by cost discipline at VillageMD and growth from Shields.
See “--Non-GAAP Measures” below for a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP and related disclosures.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
NON-GAAP MEASURES
The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under the 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. See notes to the “Net (loss) earnings to Adjusted net earnings & Diluted net (loss) earnings per share to Adjusted diluted net earnings per share” and “Operating loss to Adjusted EBITDA for the U.S. Healthcare segment” reconciliation tables for definitions of non-GAAP financial measures and related adjustments presented below.
These supplemental non-GAAP financial measures are presented because management has evaluated the Company’s financial results both including and excluding the adjusted items or the effects of foreign currency translation, as applicable, and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in the Company’s historical operating results. We also use non-GAAP financial measures as a basis for certain compensation programs sponsored by the Company. 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 also presents certain information related to current period operating results in “constant currency,” which is a non-GAAP financial measure. These amounts are calculated by translating current period results at the foreign currency exchange rates used in the comparable period in the prior year. The Company presents such constant currency financial information because it has significant operations outside of the U.S. reporting in currencies other than the U.S. dollar and such presentation provides a framework to assess how its business performed excluding the impact of foreign currency exchange rate fluctuations.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
NON-GAAP RECONCILIATIONS
Operating (loss) income to Adjusted operating income (loss) by segments (in millions)
The following are reconciliations of segment GAAP operating (loss) income to segment adjusted operating income (loss), as well as reconciliations of consolidated operating (loss) income (GAAP measure) to consolidated adjusted operating income (Non-GAAP measure):
Fiscal 2024
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Operating (loss) income (GAAP)
Impairment of goodwill, intangibles and long-lived assets
Acquisition-related amortization
Transformational cost management
Certain legal and regulatory accruals and settlements
Acquisition-related costs
Adjustments to equity earnings in Cencora
LIFO provision
Adjusted operating income (loss) (Non-GAAP measure)
Fiscal 2023
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Operating (loss) income (GAAP)
Certain legal and regulatory accruals and settlements
Transformational cost management
Acquisition-related amortization
Acquisition-related costs
Impairment of intangible assets
Adjustments to equity earnings in Cencora
LIFO provision
Store damage and inventory loss insurance recovery
Adjusted operating income (loss) (Non-GAAP measure)
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Fiscal 2022
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Walgreens Boots Alliance, Inc.
Operating income (loss) (GAAP)
Acquisition-related amortization
Impairment of intangible assets
Certain legal and regulatory accruals and settlements
Transformational cost management
Acquisition-related costs
Adjustments to equity earnings in Cencora
LIFO provision
Adjusted operating income (loss) (Non-GAAP measure)
The Company uses adjusted operating income as its principal measure of segment performance as it enhances the Company’s ability to compare past financial performance with current performance and analyze underlying business performance and trends. Non-GAAP financial measures the Company discloses, such as consolidated adjusted operating income, should not be considered a substitute for, or superior to, financial measures determined or calculated in accordance with GAAP.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Net (loss) earnings to Adjusted net earnings & Diluted net (loss) earnings per share to Adjusted diluted net earnings per share (in millions):
Net (loss) earnings attributable to Walgreens Boots Alliance, Inc. (GAAP)
Adjustments to operating (loss) income:
Impairment of goodwill, intangibles and long-lived assets 1
Certain legal and regulatory accruals and settlements 2
Transformational cost management 3
Acquisition-related amortization 4
Acquisition-related costs 5
Adjustments to equity earnings in Cencora 6
LIFO provision 7
Store damage and inventory loss insurance recovery 8
Total adjustments to operating (loss) income
Adjustments to other income, net:
Impairment of equity method investment and investments in debt and equity securities 9
Loss on disposal of business 10
Loss (gain) on certain non-hedging derivatives 11
Gain on investments, net 12
Gain on sale of equity method investment 13
Total adjustments to other income, net
Adjustments to interest expense, net:
Interest expense on debt 14
Early debt extinguishment 15
Total adjustments to interest expense, net
Adjustments to income tax provision (benefit):
Equity method non-cash tax 16
Discrete tax items and tax impact of adjustments 16
Total adjustments to income tax provision (benefit)
Adjustments to post-tax earnings from other equity method investments:
Adjustments to earnings in other equity method investments 17
Total adjustments to post-tax earnings from other equity method investments
Adjustments to net loss attributable to non-controlling interests:
Impairment of goodwill, intangibles and long-lived assets 1
Transformational cost management 3
Early debt extinguishment 15
Loss on disposal of business 10
Acquisition-related costs 5
Discrete tax items 16
Acquisition-related amortization 4
Total adjustments to net loss attributable to non-controlling interests
Adjusted net earnings attributable to Walgreens Boots Alliance, Inc. (Non-GAAP measure)
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Diluted net (loss) earnings per common share (GAAP) 18
Adjustments to operating (loss) income
Adjustments to other income, net
Adjustments to interest expense, net
Adjustments to income tax provision (benefit)
Adjustments to post-tax earnings from other equity method investments
Adjustments to net loss attributable to non-controlling interests
Adjusted diluted net earnings per common share (Non-GAAP measure) 19
Weighted average common shares outstanding, diluted (in millions) 19
Operating loss to Adjusted EBITDA for the U.S. Healthcare segment (in millions)
Operating loss (GAAP) 20
Impairment of goodwill, intangibles and long-lived assets 1
Acquisition-related amortization 4
Acquisition-related costs 5
Transformational cost management 3
Adjusted operating loss
Depreciation expense
Stock-based compensation expense 21
Adjusted EBITDA (Non-GAAP measure)
In the second quarter of fiscal 2024, the Company recorded $12.4 billion of non-cash impairment charges related to VillageMD goodwill. In the fourth quarter of fiscal 2024, the Company recorded $332 million of non-cash impairment charges related to CareCentrix goodwill. These charges are recorded within Selling, general and administrative expenses and Impairment of goodwill within the Consolidated Statements of Earnings. In fiscal 2023, the Company recognized a $431 million impairment of pharmacy license intangible assets in Boots UK of which $132 million was attributed to additional store closures recognized as part of the Transformational Cost Management Program. In fiscal 2022, the Company recorded an impairment loss of $783 million, related to indefinite-lived pharmacy license and trade name intangible assets in the Boots reporting unit, part of the International segment. These charges are recorded within Selling, general and administrative expenses within the Consolidated Statements of Earnings. 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.
Certain legal and regulatory accruals and settlements relate to significant charges associated with certain legal proceedings, including legal defense costs. 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 in Selling, general and administrative expenses within the Consolidated Statements of Earnings. In fiscal 2024 and 2023, the Company recorded charges related to the opioid litigation Multistate Agreement and certain other legal matters. In fiscal 2022, the Company recorded charges 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.
Transformational Cost Management Program charges are costs associated with a formal restructuring plan. These charges are primarily recorded in Selling, general and administrative expenses within the Consolidated Statements of Earnings. These costs do not reflect current operating performance and are impacted by the timing of restructuring activity.
Acquisition-related amortization includes amortization of acquisition-related intangible assets 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 in Selling, general and administrative expenses within the Consolidated Statements of Earnings. 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.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Acquisition-related costs are transaction and integration costs associated with certain merger, acquisition and divestitures related activities recorded in Operating (loss) income within the Consolidated Statements of Earnings. Examples of such costs include deal costs, severance, stock-based compensation, employee transaction success bonuses, and other integration related exit and disposal charges. These charges are primarily recorded within Selling, general and administrative expenses within the Consolidated Statements of Earnings. 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.
Adjustments to equity earnings in Cencora consist of the Company’s proportionate share of non-GAAP adjustments reported by Cencora consistent with the Company’s non-GAAP measures. Adjustments are recorded to equity earnings in Cencora within the Consolidated Statements of Earnings.
The 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. These charges are recorded within Cost of sales within the Consolidated Statements of Earnings.
Store damage and inventory loss insurance recovery for losses incurred in fiscal 2020 as a result of looting in the U.S. These charges are primarily recorded within Selling, general and administrative expenses within the Consolidated Statements of Earnings.
Impairment of equity method investment and investments in debt and 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, in the Consolidated Statements of Earnings.
Includes gains or losses related to the sale of businesses. These charges are recorded to Other income, net, in the Consolidated Statements of Earnings.
Includes fair value gains or losses on the VPF derivatives and certain derivative instruments used as economic hedges of the Company’s net investments in foreign subsidiaries. These charges are recorded within Other income, net, in the Consolidated Statements of Earnings. The Company does not believe this volatility related to the non-cash mark-to-market adjustments on the underlying derivative instruments reflects the Company’s operational performance.
Includes significant gains resulting from the change in classification of investments as well as the fair value adjustments recorded on investments in equity securities to Other income, net, in the Consolidated Statements of Earnings. In fiscal 2023, the Company recorded pre-tax gains of $109 million related to the change in classification of its previously held equity method investment in Option Care Health to an investment in equity security held at fair value and subsequent related fair value adjustments. In fiscal 2022, the Company recorded pre-tax gains of $2.2 billion and $402 million for VillageMD and Shields, respectively, related to the change in classification of previously held minority equity interests and debt securities to fair value on business combinations.
Gains on the sale of equity method investments are recorded in Other income, net within the Consolidated Statements of Earnings. The Company excludes these charges when evaluating operating performance because these do not relate to the ordinary course of the Company’s business.
Includes interest expense on external debt to fund incremental contributions to the Boots Plan required to complete the Trustee’s acquisition of a bulk annuity policy (the “Buy-In”) from Legal & General. The payments and related incremental interest expense are not indicative of normal operating performance.
In fiscal 2022, the Company incurred a $4 million loss in connection with the early extinguishment of debt related to the integration of Shields. The Company excludes these charges as related activities do not reflect the Company’s ongoing financial performance.
In fiscal 2024, the Company recorded a $2.2 billion non-cash charge due to recognition of a valuation allowance against certain U.S. and state deferred tax assets primarily related to opioid liabilities recognized in prior periods. Adjustments to income tax provision (benefit) include adjustments to the GAAP basis tax provision (benefit) commensurate with non-GAAP adjustments and certain discrete tax items including U.S. and UK tax law changes and equity method non-cash tax. These charges are recorded within Income tax provision (benefit) within the Consolidated Statements of Earnings.
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 in Post-tax earnings from other equity method investments within the Consolidated Statements of Earnings. 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.
Due to the anti-dilutive effect resulting from periods where the Company reports a net loss, the impact of potentially dilutive securities on the per share amounts has been omitted from the calculation of weighted-average common shares outstanding for diluted net loss per common share.
Includes impact of potentially dilutive securities in the calculation of weighted-average common shares, diluted for adjusted diluted net earnings per common share calculation purposes.
The Company reconciles Adjusted EBITDA for the U.S. Healthcare segment to Operating loss as the closest GAAP measure for the segment profitability. The Company does not measure Net earnings attributable to Walgreens Boots Alliance, Inc. for its segments.
Includes GAAP stock-based compensation expense excluding expenses related to acquisition-related amortization and acquisition-related costs.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
KEY PERFORMANCE INDICATORS
The Company considers certain metrics presented in this Form 10-K, such as comparable sales (in constant currency), comparable pharmacy sales (in constant currency), comparable retail sales (in constant currency), comparable number of prescriptions and comparable 30-day equivalent prescriptions to be key performance indicators because the Company’s management has evaluated its results of operations using these metrics and believes that these key performance indicators presented provide additional perspective and insights when analyzing the core operating performance of the Company from period to period and trends in its historical operating results. These key performance indicators should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented herein. These measures, which are described in more detail in this Form 10-K, may not be comparable to similarly-titled performance indicators used by other companies.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
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. The Company has paid cash dividends every quarter since 1933. In fiscal 2024 as part of an evaluation of strategic and operational options, including those related to capital allocation, the Company announced a 48 percent reduction in its quarterly dividend payment to 25 cents per share, to strengthen the Company’s long-term balance sheet and cash position, starting with the quarterly dividend payable in March 2024. This action reinforces the Company’s goals of increasing cash flow, while freeing up capital to invest in sustainable growth initiatives in the pharmacy and healthcare businesses, which the Company believes will ultimately improve shareholder value. Further, the Company is dependent on funding from its subsidiaries to pay dividends and meet its obligations. If the Company’s subsidiaries’ financial performance and earnings are not sufficient to make dividend payments to the Company while maintaining adequate capital levels, the Company may reduce or may not be able to make dividend payments timely, if at all, to its stockholders. Future dividends will be determined based on earnings, capital requirements, financial condition, and other debt obligations, and/or rulings by courts or arbitrators in legal or regulatory matters, changes in federal, state or foreign income tax law, global macroeconomic conditions, changes to the Company’s business model and other factors considered relevant by the Company’s Board of Directors at its sole discretion. For further information regarding the Company’s dependence on its subsidiaries to pay dividends and meet its obligations, please see Part I, Item 1A, Risk factors.
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 adverse global macroeconomic conditions caused by factors including, among others, inflation, high interest rates, labor shortages, supply chain disruptions, and pandemics like COVID-19. For further information regarding the impact of adverse macroeconomic conditions 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, expansion, acquisitions, dividend payments, stock repurchases and debt service obligations from liquidity sources including cash flow from operations, availability under existing credit facilities, working capital financing arrangements, debt offerings, sale of marketable securities, current cash, and monetization of investments and other assets. The Company believes that these sources, and the ability to obtain other financing, will provide adequate cash funds to meet the Company’s needs for at least the next 12 months. See Part II, Item 7A, Qualitative and quantitative disclosures about market risk, below for a discussion of certain financing and market risks. See Note 4. Leases and Note 7. 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.
In fiscal 2024, the Company reduced net debt by nearly $2.0 billion and lease obligations by over $1.0 billion. The Company also met its goals by reducing capital expenditures by over $700 million and realizing over $600 million in benefits from working capital initiatives. These factors contributed to the Company’s positive cash flow for fiscal 2024. In fiscal 2025, the Company expects to focus on improving cash flow generation and reducing net debt through a combination of operational actions and asset monetization activities. Operational actions include initiatives to reduce capital expenditures and improve working capital.
Cash, cash equivalents, marketable securities and restricted cash were $3.2 billion (including $289 million in non-U.S. jurisdictions) and $856 million (including $144 million in non-U.S. jurisdictions) as of August 31, 2024 and August 31, 2023, respectively. 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.
As of August 31, 2024, the Company has recorded a $6.6 billion liability to resolve a substantial majority of opioid-related claims and litigation settlements and is expected to make payments for remediation and legal fees over the next 15 years. See Note 10. Commitments and contingencies to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
On November 23, 2023, with financial support from the Company, Boots Pension Limited, in its capacity as trustee of the Boots Pension Plan, entered into a Bulk Purchase Annuity Agreement with Legal & General Assurance Society Limited to insure the benefits of all 53,000 of its members. The Company has committed to contributing approximately $970 million to $1.0 billion to the Boots Plan (including the acceleration of previously committed contributions) to fund the purchase of a bulk annuity policy. In fiscal 2024, the Company paid $435 million of the commitment, with the remaining amount expected to be paid within the next two years. See Note 13. Retirement benefits to the Consolidated Financial Statements i ncluded in Part II, Item 8 herein for further information.
At August 31, 2024, the Company had no guarantees outstanding and the letters of credit issued were not material. See Note 7. Debt to the Consolidated Financial Statements i ncluded in Part II, Item 8 herein for further information on the Company’s debt instruments and its recent financing actions.
Cash flows from operating activities
Net cash provided by operating activities was $1.0 billion, $2.3 billion and $3.9 billion in fiscal 2024, 2023 and 2022, respectively. The decrease in cash provided by operating activities in fiscal 2024 compared to fiscal 2023 is primarily driven by higher payments related to legal matters, the Boots Plan Annuity premium payments, changes in net working capital, and lower earnings. Changes in net working capital are primarily driven by higher levels of inventory and receivables as compared to year-ago period.
Cash flows from investing activities
Net cash provided by (used for) investing activities was $1.9 billion, $(3.1) billion and $(1.1) billion in fiscal 2024, 2023 and 2022, respectively.
Net cash provided by investing activities in fiscal 2024 includes proceeds from sale-leaseback transactions of $898 million and sale proceeds of $2.7 billion related to the Company’s sale of Cencora common stock offset by additions to property, plant and equipment of $1.4 billion and asset acquisitions, primarily from the acquisition of prescription files, of $402 million.
Net cash used for investing activities in fiscal 2023 includes cash outflows for the acquisition by VillageMD of Summit Health, net of cash acquired of $6.7 billion, offset by cash proceeds of $4.2 billion related to the Company’s sale of Cencora and Option Care Health common stock and cash proceeds of $1.8 billion from sale-leaseback transactions.
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 cash proceeds of $1.3 billion related to the Company’s sale of Cencora and Option Care Health common stock and cash proceeds of $1.3 billion from sale-leaseback transactions. See Note 2. Acquisitions and other investments and Note 5. Equity method investments to the Consolidated Financial Statement included in Part II, Item 8 for further information.
Capital Expenditure
Capital expenditure includes information technology projects and other growth initiatives. Additions to property, plant and equipment were as follows (in millions):
U.S. Retail Pharmacy
International
U.S. Healthcare
Corporate and Other
Total additions to property, plant and equipment
The decrease in capital expenditure represents the reprioritization of growth initiatives, including the reduction in VillageMD footprint expansion, the rollout of micro-fulfillment centers, and digital transformation initiatives.
Cash flows from financing activities
Net cash used for financing activities was $538 million, $887 million and $1.5 billion in fiscal 2024, 2023 and 2022, respectively.
In fiscal 2024, 2023 and 2022, proceeds from debt, primarily from revolving credit facilities, issuance of commercial paper and notes, were $31.4 billion, $6.3 billion and $11.9 billion, respectively. In fiscal 2024, 2023 and 2022 payments of debt, primarily for revolving credit facilities and commercial paper, were $30.5 billion, $9.0 billion and $8.4 billion, respectively.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
On August 12, 2024, the Company issued, in an underwritten public offering, $750 million of 8.125% notes due 2029. The Company intends to use the net proceeds from this offering, together with cash on hand, for the repayment and/or retirement of the Company’s 3.800% notes due 2024, of which the $1.2 billion aggregate principal amount is currently outstanding, and to use remaining amounts for general corporate purposes. See Note 7. Debt to the Consolidated Financial Statements included in Part II, Item 8 herein for further information.
In fiscal 2023, the Company acquired $1.3 billion of non-controlling interests related to the acquisition of the remaining equity interest in Shields and CareCentrix. In fiscal 2022, the Company acquired $2.1 billion of non-controlling interests primarily related to the acquisition of VillageMD. Financing activities in fiscal 2023 include $2.7 billion in proceeds from the issuance of preferred units in VillageMD to Cigna Health & Life Insurance Company, as part of the Summit acquisition and subsequent exercise of tranche rights. See Note 2. Acquisitions and other investments to the Consolidated Financial Statement included in Part II, Item 8 for further information.
In fiscal 2024 and 2023, the Company also entered into VPF derivative contracts with third-party financial institutions and received prepayments of $424 million and $2.6 billion related to the forward sale of up to 2.7 million and 17.3 million shares of Cencora common stock, respectively. See Note 5. Equity method investments and Note 8. Financial instruments, to the Consolidated Financial Statements included in Part II, Item 8 for further information.
The Company purchased treasury shares to support the needs of the employee stock plans totaling $69 million, $150 million and $187 million in fiscal 2024, fiscal 2023 and fiscal 2022, respectively. The Company did not repurchase stock pursuant to the stock repurchase programs described below.
Cash dividends paid were $1.3 billion, $1.7 billion and $1.7 billion in fiscal 2024, fiscal 2023 and fiscal 2022, respectively.
Financing activities in fiscal 2024 and 2022 include early debt extinguishment of $318 million and $1.6 billion driven by the early redemption of debt. The company did not extinguish debt in fiscal 2023. See Note 7. Debt, to the Consolidated Financial Statements included in Part II, Item 8 for further information.
Stock repurchase program
In June 2018, the Company’s Board of Directors approved a stock repurchase program (the “June 2018 stock repurchase program”), which authorized the repurchase of up to $10.0 billion of the Company’s common stock of which the Company had repurchased $8.0 billion as of August 31, 2024. The June 2018 stock repurchase program has no specified expiration date. In July 2020, the Company suspended repurchases under this program. The Company may continue to repurchase stock to offset anticipated dilution from equity incentive plans.
The Company determines the timing and amount of repurchases, including repurchases to offset anticipated dilution from equity incentive plans, based on its assessment of various factors, including prevailing market conditions, alternate uses of capital, liquidity and the economic environment. The Company has repurchased, and may from time to time in the future repurchase, shares on the open market through Rule 10b5-1 plans, which enable the Company to repurchase shares at times when we otherwise might be precluded from doing so under federal securities laws.
Debt covenants
Each of the Company’s credit facilities described in Note 7. Debt, to the Consolidated Financial Statements included in Part II, Item 8, 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. As of August 31, 2024, the Company was in compliance with all such applicable financial covenants.
Credit ratings
As of October 14, 2024, the credit ratings of Walgreens Boots Alliance were:
Rating agency
Long-term rating 1
Commercial
paper rating
Outlook
Moody’s
Stable outlook
Standard & Poor’s
Negative outlook
1. This long-term credit rating refers to the Company’s Corporate Family Rating issued by Moody’s.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
In assessing the Company’s credit strength, each rating agency considers various factors including the Company’s business model, capital structure, financial policies and financial performance. There can be no assurance that any particular rating will be assigned or maintained. The Company’s credit ratings impact its borrowing costs, access to capital markets and operating lease costs. The rating agency ratings are not recommendations to buy, sell or hold the Company’s debt securities or commercial paper. Each rating may be subject to revision or withdrawal at any time by the assigning rating agency and should be evaluated independently of any other rating.
In fiscal 2024, the Company’s long-term ratings were downgraded below investment to BB with a negative outlook by Standard and Poor’s and Ba3 with a stable outlook by Moody’s (with respect to the Company’s Corporate Family Rating). The reduction in the Company’s credit ratings has limited impact to the cost of interest on existing debt, but has minimally increased borrowing margins under certain credit facilities that are tied to ratings grids or similar terms. The Company’s current credit ratings significantly reduce the Company’s ability to issue commercial paper, has and may continue to increase the cost of new financing for the Company, and may decrease access to credit and debt capital markets. As of August 31, 2024, the Company had an aggregate borrowing capacity under committed revolving credit facilities of $5.8 billion, with no funds drawn under these facilities.
COMMITMENTS AND CONTINGENCIES
The information set forth in Note 10. Commitments and contingencies to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K is incorporated herein by reference.
CRITICAL ACCOUNTING ESTIMATES
The Consolidated Financial Statements are prepared in accordance with GAAP and include amounts based on management’s prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the Consolidated Statements of Earnings and corresponding Consolidated Balance Sheets accounts would be necessary. These adjustments would be made in future periods. Some of the more significant estimates include business combinations, leases, goodwill and indefinite-lived intangible asset impairment, long-lived assets impairment, cost of sales and inventory, equity method investments, pension and post-retirement benefits, legal and other contingencies and income taxes. The Company uses the following methods to determine its estimates:
Business combinations – The Company accounts for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, be recorded at their respective fair values at the date of acquisition. The determination of fair values of assets and liabilities acquired requires estimates and the use of valuation techniques when market value is not readily available.
For intangible assets, the Company generally uses the income approach to determine fair value. The income approach requires management to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: discount rates, terminal growth rates, royalty rates, forecasts of revenue, operating income, depreciation, amortization and capital expenditures. The discount rates applied to the projections reflect the risk factors associated with those projections.
Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.
Judgment is also required in determining the intangible asset’s useful life.
Leases - The Company determines if an arrangement contains a lease at the inception of a contract. The lease classification is determined at the commencement date. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease during the lease term. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the remaining future minimum lease payments during the lease term. Lease commencement is the date the Company has the right to control the property. The Company utilizes its incremental borrowing rate to discount the lease payments. The incremental borrowing rate is based on the Company’s estimated rate of interest for a collateralized borrowing over a similar term as the lease term. The operating lease right-of-use assets also include lease payments made before commencement, lease incentives and are recorded net of impairment. Operating leases are expensed on a straight line basis over the lease term.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
The lease term of real estate leases includes renewal options that are reasonably certain of being exercised. Options to extend are considered reasonably certain of being exercised based on evaluation if there are significant investments within the leased property which have useful lives greater than the non-cancelable lease term, performance of the underlying store and the Company’s economic and strategic initiatives. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheets.
The Company accounts for lease components and non-lease components as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the right-of-use assets or lease liabilities. These are expensed as incurred. The Company has real estate leases that require additional payments based on sales volume, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs and hence are not included in the lease payments used to calculate lease liability. Other real estate leases contain one fixed lease payment that includes real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. The Company does not separately account for the land portion of the leases involving land and building.
Finance leases are recognized within property, plant and equipment and as a finance lease liability within accrued expenses and other liabilities and other non-current liabilities.
Goodwill and indefinite-lived intangible asset impairment – 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 could more likely than not reduce the fair value of a reporting unit or intangible asset below its carrying value. As part of the Company’s impairment analysis, fair value of a reporting unit is generally determined using both the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping, as well as recent guideline transactions.
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. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which we compete, discount rates, terminal growth rates, forecasts of revenue, operating income, depreciation, amortization, working capital requirements and capital expenditures. The Company also compares the sum of estimated fair values of reporting units to the Company’s fair value as implied by the market value of its equity. This comparison provides an indication that, in total, assumptions and estimates are reasonable. Future declines in the overall market value of the Company’s equity securities may provide an indication that the fair value of one or more reporting units has declined below its carrying value.
Indefinite-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is written down to its estimated fair value. Indefinite-lived intangible assets fair values are estimated using the relief from royalty method and multi-period excess earnings method of the income approach. The determination of the fair value of the indefinite-lived intangibles requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: forecasts of revenue, the selection of appropriate royalty rate and discount rates.
Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions, could have a significant impact on either the fair value of the reporting units and indefinite-lived intangibles, the amount of any goodwill and indefinite-lived intangible impairment charges, or both. These estimates can be affected by a number of factors including, but not limited to, general economic conditions, availability of market information as well as the Company’s profitability. The Company continues to monitor these potential impacts and economic, industry and market trends, and the impact these may have on the reporting units.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
Impairment of long lived assets – The Company evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying value of such an asset may not be recoverable. Long-lived assets related to the Company’s retail, pharmacy and healthcare operations include property, plant and equipment, definite lived intangibles, and right of use assets. The evaluation of long-lived assets is performed at the lowest level of identifiable cash flows, typically at the store level for retail pharmacy operations. If the asset group fails the recoverability test, then an impairment charge is determined based on the difference between the fair value of the asset group compared to its carrying value. Fair value of the asset group is generally determined using a market or an income approach based on cash flows expected from the use and eventual disposal of the asset group.
The determination of the fair value of the asset group requires management to estimate a number of factors including anticipated future cash flows and discount rates. Although we believe these estimates are reasonable, actual results could differ from those estimates due to the inherent uncertainty involved in making such estimates.
Cost of sales and inventory
Retail, Pharmacy and Wholesale
Cost of sales includes the purchase price of goods and cost of services rendered, store and warehouse inventory loss, inventory obsolescence, warehousing costs for retail operations, purchasing costs, freight costs, cash discounts, vendor allowances and supplier rebates. Cost of sales is derived based upon point-of-sale scanning information with an estimate for shrinkage and is adjusted based on periodic inventory counts.
The Company values inventories on a lower of cost and net realizable value or market basis. Inventories include product costs, inbound freight, direct labor, warehousing costs for retail pharmacy operations, and distribution costs of products, and are reduced by vendor allowances not classified as a reduction of advertising expense. The Company’s U.S. Retail Pharmacy segment inventory is accounted for using the last-in-first-out (“LIFO”) method. The Company’s International segment inventory is accounted for using average cost and the first-in-first-out (“FIFO”) method.
Vendor allowances are principally received as a result of purchases, sales or promotion of vendors’ products. Allowances are generally recorded as a reduction of inventory and are recognized as a reduction of cost of sales when the related merchandise is sold. Allowances received for promoting vendors’ products, if received for a specific, incremental, identifiable cost, are offset against advertising expense and result in a reduction of Selling, general and administrative expenses to the extent of advertising costs incurred, with the excess treated as a reduction of inventory costs. Rebates or refunds received by the Company from its suppliers, mostly in cash, are considered as an adjustment of the prices of the supplier’s products purchased by the Company.
Healthcare services
For operations and activities related to the provision of healthcare, cost of services includes activities that are directly related to the provision of care, including medical claims expense, cost of care, clinic operating and support costs, and allocated depreciation and amortization.
Medical claims expense represents medical claims expenses related to fee-for-service and value-based arrangements and primarily includes costs for third-party healthcare service providers, including contracted providers, that provide medical care to patients. Medical claims expense and the liability for unpaid claims include estimates of the Company’s obligations for medical care services that have been rendered by third parties for which the Company is contractually obligated to pay, but for which claims have either not yet been received, processed or paid. The Company develops estimates for medical care services incurred but not reported (“IBNR”) utilizing actuarial models when a sufficient amount of medical claims history is available from the third-party healthcare service providers. In developing its unpaid claims liability estimates, the Company applies different estimation methods depending on which incurred claims are being estimated.
Cost of care represents the cost of employed providers and certain affiliated providers, including base compensation, quality incentive bonuses, provider benefits and share-based compensation. Clinic operating and support costs include costs incurred to operate clinics, including clinical care support staff, patient support staff, population health management employees, rent, utilities and supplies.
Equity method investments – The Company uses the equity method of accounting for equity investments if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. The Company’s proportionate share of the net income or loss of these investees is included in consolidated net earnings. Judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, legal form of the investee (e.g. limited liability partnership), representation on the board of directors, participation in policy-making decisions and material intra-entity transactions.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
The Company evaluates equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable. Factors considered by the Company when reviewing an equity method investment for impairment include the length of time (duration) and the extent (severity) to which the fair value of the equity method investment has been less than cost, the investee’s financial condition and near-term prospects, and the intent and ability to hold the investment for a period of time sufficient to allow for anticipated recovery. An impairment that is other-than-temporary is recognized in the period identified.
Pension and post-retirement benefits – The Company has various defined benefit pension plans that cover some of its non-U.S. employees. The Company also has a post-retirement healthcare plan that covers qualifying U.S. employees. Eligibility and the level of benefits for these plans vary depending on participants’ status, date of hire and or length of service. Pension and post-retirement healthcare plan expenses and valuations are dependent on assumptions used by third-party actuaries in calculating those amounts. These assumptions include discount rates, healthcare cost trends, long-term return on plan assets, retirement rates, mortality rates and other factors.
The Company funds its pension plans in accordance with applicable regulations. The post-retirement healthcare plan is not funded.
Contingencies – The Company assesses its liabilities and contingencies for outstanding legal proceedings, and reserves are established on a case-by-case basis for those legal claims for which management concludes that it is probable that a loss will be incurred and that the amount of such loss can be reasonably estimated. Substantially all of these contingencies are subject to significant uncertainties and, therefore, determining the likelihood of a loss and/or the measurement of any loss can be complex. With respect to litigation and other legal proceedings where the Company has determined that a loss is reasonably possible, the Company may be 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’s assessments are based on estimates and assumptions that have been deemed reasonable by management, but that may prove to be or , and events and circumstances may occur that might cause the Company to change those estimates and assumptions. Therefore, it is possible that an resolution of one or more pending or other contingencies could have a material effect on the Company’s Consolidated Financial Statements in a future fiscal period. Management’s assessment of current and other legal proceedings, including the corresponding accruals, could change because of the discovery of facts with respect to legal actions or other proceedings pending the Company that are not presently known. rulings or determinations by judges, juries, governmental authorities or other parties could also result in changes to management’s assessment of current liabilities and contingencies. Accordingly, the ultimate costs of resolving these may be substantially higher or lower than the amounts reserved.
Income taxes –The Company is subject to routine income tax audits that occur periodically in the normal course of business. U.S. federal, state, local and foreign tax authorities raise questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the tax benefits associated with the various tax filing positions, the Company records a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to the liability for unrecognized tax benefits in the period in which the Company determines the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when more information becomes available. The liability for unrecognized tax benefits, including accrued penalties and interest, is primarily included in other non-current liabilities and current income taxes on the Company’s Consolidated Balance Sheets and in income tax provision in its Consolidated Statements of Earnings.
In determining its provision for income taxes, the Company uses income, permanent differences between book and tax income and enacted statutory income tax rates. The provision for income taxes rate also reflects its assessment of the ultimate outcome of tax audits in addition to any foreign-based income deemed to be taxable in the U.S. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
RECENT ACCOUNTING PRONOUNCEMENTS
See “New accounting pronouncements” within Note 1. Summary of major accounting policies, to the Consolidated Financial Statements included in Part II, Item 8 for information regarding recent accounting pronouncements.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other documents that we file or furnish with the SEC contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These include, without limitation, any statements regarding the Company’s future operations, financial or operating results, capital allocation, anticipated debt levels and ratios, future earnings, planned activities, anticipated growth, goodwill impairment, market opportunities, strategies, competition, and other expectations and targets for future periods. Words such as “expect,” “outlook,” “forecast,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “opportunity,” “guidance,” “projection,” “target,” “aim,” “continue,” “extend,” “transform,” “strive,” “enable,” “create,” “position,” “accelerate,” “model,” “long-term,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” “potential,” “preliminary,” “trend,” “future,” “predict,” “assumption,” “commentary,” “focus on,” “ambition,” “vision,” “belief,” “hypothetical,” “aspire,” “confident,” “remains,” and variations of such words and similar expressions are intended to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated. These risks, assumptions and uncertainties include those described in Item 1A, Risk factors which are incorporated herein by reference, and in other documents that we file or furnish with the SEC. If one or more of these risks or uncertainties materializes, or if underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. All forward-looking statements we make or that are made on our behalf are qualified by these cautionary statements. Accordingly, you should not place undue reliance on these forward-looking statements, which speak only as of the date they are made.
We do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date of this report, whether as a result of new information, future events, changes in assumptions or otherwise.
WBA Fiscal 2024 Form 10-K
Table of Co n tents
