Walgreens Boots Alliance, Inc. [WBA] Filings

10-Q 1 wba-20240531.htm 10-Q wba-20240531

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended May 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From _______to _______

Commission File Number

001-36759

WALGREENS BOOTS ALLIANCE, INC.

(Exact name of registrant as specified in its charter)


Delaware			47-1758322
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

108 Wilmot Road, Deerfield, Illinois			60015
(Address of principal executive offices)			(Zip Code)

(847) 315-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	WBA	The NASDAQ Stock Market LLC

3.600% Walgreens Boots Alliance, Inc. notes due 2025	WBA25	The NASDAQ Stock Market LLC
2.125% Walgreens Boots Alliance, Inc. notes due 2026	WBA26	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ			Accelerated filer ☐
Non-accelerated filer ☐			Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares outstanding of the registrant’s Common Stock, $0.01 par value, as of May 31, 2024 was 863,275,037.


WBA Q3 2024 Form 10-Q

WALGREENS BOOTS ALLIANCE, INC.

FORM 10-Q FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2024

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Condensed Financial Statements (Unaudited)

Balance Sheets

Statements of Equity

Statements of Earnings

Statements of Comprehensive Income

Statements of Cash Flows

Notes to Financial Statements

Item 2.

Management’s discussion and analysis of financial condition and results of operations

Introduction and Segments

Factors, Trends and Uncertainties Affecting Our Results and Comparability

Recent Developments

Transformational Cost Management Program

Executive Summary

Results of Operations by Segments

Non-GAAP Measures

Liquidity and Capital Resources

Critical Accounting Estimates

New Accounting Pronouncements

Cautionary Note Regarding Forward-looking Statements

Item 3.

Quantitative and qualitative disclosure about market risk

Item 4.

Controls and procedures

PART II. OTHER INFORMATION


Item 1.	Legal proceedings	65
Item 1A.	Risk factors	65
Item 2.	Unregistered sales of equity securities and use of proceeds	65
Item 5.	Other information	65
Item 6.	Exhibits	67

Signatures		69

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Condensed Financial Statements (Unaudited)

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(UNAUDITED)

(in millions, except shares and per share amounts)


	May 31, 2024		August 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	703	$	739
Accounts receivable, net	5,949		5,381
Inventories	8,578		8,257
Other current assets	1,107		1,127
Total current assets	16,337		15,503
Non-current assets:
Property, plant and equipment, net	9,952		11,587
Operating lease right-of-use assets	21,020		21,667
Goodwill	15,821		28,187
Intangible assets, net	12,836		13,635
Equity method investments (see Note 5)	2,961		3,497
Other non-current assets	4,059		2,550
Total non-current assets	66,648		81,125
Total assets	$	82,985	$	96,628

Liabilities, redeemable non-controlling interests and equity
Current liabilities:
Short-term debt	$	1,506	$	917
Trade accounts payable (see Note 16)	13,100		12,635
Operating lease obligations	2,384		2,347
Accrued expenses and other liabilities	7,753		8,426
Income taxes	292		209
Total current liabilities	25,034		24,535
Non-current liabilities:
Long-term debt	7,407		8,145
Operating lease obligations	21,379		22,124
Deferred income taxes	1,221		1,318
Accrued litigation obligations	5,890		6,261
Other non-current liabilities	6,624		5,757
Total non-current liabilities	42,521		43,605
Commitments and contingencies (see Note 10)
Total liabilities	67,555		68,140
Redeemable non-controlling interests	173		167
Equity:
Preferred stock $.01 par value; authorized 32 million shares, none issued	—		—
Common stock $.01 par value; authorized 3.2 billion shares; issued 1,172,513,618 at May 31, 2024 and August 31, 2023	12		12
Paid-in capital	10,639		10,661
Retained earnings	26,571		33,058
Accumulated other comprehensive loss	(2,894)		(2,993)
Treasury stock, at cost; 309,238,581 shares at May 31, 2024 and 308,839,832 shares at August 31, 2023	(20,686)		(20,717)
Total Walgreens Boots Alliance, Inc. shareholders’ equity	13,642		20,020
Non-controlling interests	1,615		8,302
Total equity	15,257		28,322
Total liabilities, redeemable non-controlling interests and equity	$	82,985	$	96,628

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			1

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(UNAUDITED)

(in millions, except shares)


Three months ended May 31, 2024
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
February 29, 2024	862,713,366	$	12	$	(20,705)	$	10,627	$	(2,897)	$	26,448	$	1,708	$	15,192
Net earnings (loss)	—	—		—		—		—		344		(113)		230
Other comprehensive income, net of tax	—	—		—		—		3		—		1		5
Dividends declared and distributions	—	—		—		—		—		(220)		—		(220)
Employee stock purchase and option plans	561,671	—		19		(10)		—		—		—		9
Stock-based compensation	—	—				20		—		—		19		38
Other	—	—		—		2		—		—		—		2
May 31, 2024	863,275,037	$	12	$	(20,686)	$	10,639	$	(2,894)	$	26,571	$	1,615	$	15,257


Nine months ended May 31, 2024
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
August 31, 2023	863,673,786	$	12	$	(20,717)	$	10,661	$	(2,993)	$	33,058	$	8,302	$	28,322
Net loss										(5,631)		(6,740)		(12,371)
Other comprehensive income, net of tax	—	—		—		—		100		—		—		100
Dividends declared and distributions	—	—		—		—		—		(855)		(7)		(862)
Treasury stock purchases	(3,100,000)	—		(69)		—		—		—		—		(69)
Employee stock purchase and option plans	2,701,251	—		100		(85)		—		—		—		16
Stock-based compensation	—	—		—		53		—		—		72		126
Other	—	—		—		9		—		—		(13)		(4)
May 31, 2024	863,275,037	$	12	$	(20,686)	$	10,639	$	(2,894)	$	26,571	$	1,615	$	15,257

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			2

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EQUITY

(UNAUDITED)

(in millions, except shares)


Three months ended May 31, 2023
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
February 28, 2023	862,795,720	$	12	$	(20,747)	$	10,629	$	(2,654)	$	33,952	$	8,247	$	29,439
Net earnings (loss)	—	—		—		—		—		118		(167)		(48)
Other comprehensive income, net of tax	—	—		—		—		115		—		6		121
Dividends declared and distributions	—	—		—		—		—		(416)		(1)		(417)

Employee stock purchase and option plans	465,693	—		16		(4)		—		—		—		12
Stock-based compensation	—	—		—		13		—		—		35		48
Acquisition of non-controlling interests	—	—		—		—		—		—		14		14
Business combination	—	—		—		27		—		—		165		193
Redeemable non-controlling interests redemption price adjustments and other	—	—		—		2		—		—		(4)		(2)
May 31, 2023	863,261,413	$	12	$	(20,731)	$	10,667	$	(2,539)	$	33,654	$	8,296	$	29,359


Nine months ended May 31, 2023
	Equity attributable to Walgreens Boots Alliance, Inc.
	Common stock shares	Common stock amount		Treasury stock amount		Paid-in capital		Accumulated other comprehensive loss		Retained earnings		Non-controlling interests		Total equity
August 31, 2022	864,639,457	$	12	$	(20,683)	$	10,950	$	(2,805)	$	37,801	$	4,091	$	29,366
Net loss	—	—		—		—		—		(2,900)		(396)		(3,296)
Other comprehensive income, net of tax	—	—		—		—		266		—		9		274
Dividends declared and distributions	—	—		—		—		—		(1,247)		(51)		(1,298)
Treasury stock purchases	(4,438,228)	—		(150)		—		—		—		—		(150)
Employee stock purchase and option plans	3,060,184	—		102		(68)		—		—		—		34
Stock-based compensation	—	—		—		61		—		—		99		160
Acquisition of non-controlling interests	—	—		—		171		—		—		14		185
Business combination	—	—		—		(16)		—		—		4,534		4,518
Redeemable non-controlling interests redemption price adjustments and other	—	—		—		(430)		—		—		(4)		(434)
May 31, 2023	863,261,413	$	12	$	(20,731)	$	10,667	$	(2,539)	$	33,654	$	8,296	$	29,359

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			3

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(UNAUDITED)

(in millions, except per share amounts)


	Three months ended May 31,				Nine months ended May 31,
	2024		2023		2024		2023
Sales	$	36,351	$	35,415	$	110,111	$	103,659
Cost of sales	29,892		28,826		89,840		83,062
Gross profit	6,460		6,588		20,271		20,596
Selling, general and administrative expenses	6,393		7,123		21,165		27,215
Impairment of goodwill	—		—		12,369		—
Equity earnings in Cencora	44		58		164		187
Operating income (loss)	111		(477)		(13,099)		(6,431)
Other income, net	254		268		229		1,812
Earnings (loss) before interest and income tax provision (benefit)	365		(209)		(12,870)		(4,619)
Interest expense, net	113		173		351		425
Earnings (loss) before income tax provision (benefit)	251		(382)		(13,221)		(5,044)
Income tax provision (benefit)	20		(330)		(836)		(1,707)
Post-tax (loss) earnings from other equity method investments	(1)		4		15		18
Net earnings (loss)	230		(48)		(12,370)		(3,320)
Net loss attributable to non-controlling interests	(114)		(166)		(6,739)		(420)
Net earnings (loss) attributable to Walgreens Boots Alliance, Inc.	$	344	$	118	$	(5,631)	$	(2,900)

Net earnings (loss) per common share:
Basic	$	0.40	$	0.14	$	(6.53)	$	(3.36)
Diluted	$	0.40	$	0.14	$	(6.53)	$	(3.36)

Weighted average common shares outstanding:
Basic	863.1		863.1		862.9		863.1
Diluted	864.3		863.8		862.9		863.1

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			4

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in millions)


	Three months ended May 31,				Nine months ended May 31,
	2024		2023		2024		2023

Net earnings (loss)	$	230	$	(48)	$	(12,370)	$	(3,320)

Other comprehensive income, net of tax:
Pension/post-retirement obligations	(5)		(5)		85		(15)
Unrealized gain (loss) on cash flow hedges and other	—		(1)		5		(4)
Net investment hedges loss	(8)		(31)		(6)		(104)
Share of other comprehensive (loss) income of equity method investments	(4)		12		29		104
Cumulative translation adjustments	21		147		(14)		294
Total other comprehensive income	5		121		100		274

Total comprehensive income (loss)	235		73		(12,270)		(3,046)

Comprehensive loss attributable to non-controlling interests	(112)		(161)		(6,739)		(411)

Comprehensive income (loss) attributable to Walgreens Boots Alliance, Inc.	$	347	$	233	$	(5,532)	$	(2,634)

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			5

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)


	Nine months ended May 31,
	2024		2023
Cash flows from operating activities:
Net loss	$	(12,370)	$	(3,320)
Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
Depreciation and amortization	1,837		1,652
Deferred income taxes	(1,242)		(2,098)
Stock compensation expense	143		348
Earnings from equity method investments	(179)		(206)
Impairment of goodwill, intangibles and long-lived assets	13,618		815
Gain on sale of equity method investments	(847)		(1,691)
Gain on sale-leaseback transactions	(268)		(825)
Loss on variable prepaid forward contracts	733		26
Other	(151)		(124)
Changes in certain assets and liabilities:
Accounts receivable, net	(592)		(411)
Inventories	(315)		326
Other current assets	58		(184)
Trade accounts payable	446		627
Accrued expenses and other liabilities	(474)		(588)
Income taxes	167		216
Accrued litigation obligations	(330)		6,835
Other non-current assets and liabilities	(548)		(179)
Net cash (used for) provided by operating activities	(314)		1,219
Cash flows from investing activities:
Additions to property, plant and equipment	(1,135)		(1,633)
Proceeds from sale-leaseback transactions	773		1,549
Proceeds from sale of other assets	1,726		3,798
Business, investment and asset acquisitions, net of cash acquired	(206)		(7,072)
Other	(53)		110
Net cash provided by (used for) investing activities	1,106		(3,249)
Cash flows from financing activities:
Net change in short-term debt with maturities of 3 months or less	(1)		147
Proceeds from debt	23,074		5,240
Payments of debt	(23,128)		(5,232)
Acquisition of non-controlling interests	—		(1,316)
Proceeds from issuance of non-controlling interests	—		2,735
Proceeds from variable prepaid forward contracts	424		644
Treasury stock purchases	(69)		(150)
Cash dividends paid	(1,044)		(1,244)
Other	(168)		(251)
Net cash (used for) provided by financing activities	(912)		573
Effect of exchange rate changes on cash, cash equivalents and restricted cash	3		17
Changes in cash, cash equivalents and restricted cash:
Net decrease in cash, cash equivalents and restricted cash	(117)		(1,441)
Cash, cash equivalents and restricted cash at beginning of period	856		2,558
Cash, cash equivalents and restricted cash at end of period	$	740	$	1,117

The accompanying notes to Consolidated Condensed Financial Statements are an integral part of these Statements.


WBA Q3 2024 Form 10-Q			6

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Accounting policies

Basis of presentation

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

The Consolidated Condensed Financial Statements included herein are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited Consolidated Condensed Financial Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Walgreens Boots Alliance Annual Report on Form 10-K for the fiscal year ended August 31, 2023, as amended by Form 10-K/A for the fiscal year ended August 31, 2023 filed on November 22, 2023.

The preparation of financial statements in accordance with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. The Company bases its estimates on the information available at the time, its experiences and various other assumptions believed to be reasonable under the circumstances. Adjustments may be made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Actual results may differ.

In the opinion of management, the unaudited Consolidated Condensed Financial Statements for the interim periods presented include all adjustments necessary to present a fair statement of the results for such interim periods. Adverse global macroeconomic conditions, the impact of opioid-related claims and litigation settlements, the influence of certain holidays, seasonality, foreign currency rates, changes in vendor, payor and customer relationships and terms, strategic transactions including acquisitions and dispositions, asset impairments, changes in laws and regulations in the markets in which the Company operates and other factors on the Company’s operations and net earnings for any period may not be comparable to the same period in previous years.

Certain amounts in the Consolidated Condensed Financial Statements and accompanying notes may not sum due to rounding. Percentages have been calculated using unrounded amounts for all periods presented. Certain prior period data has been reclassified in the Consolidated Condensed Financial Statements and accompanying notes to conform to the current period presentation.

Note 2. Acquisitions and other investments

Summit acquisition

On January 3, 2023, Village Practice Management Company, LLC (“VillageMD”), through its parent company, following an internal reorganization, completed the acquisition of WP CityMD TopCo (“Summit”), a provider of primary, specialty and urgent care, in exchange for $7.0 billion aggregate consideration, consisting of $4.85 billion of cash consideration paid, $2.05 billion in preferred units of VillageMD issued to Summit equity holders and $100 million of cash to be paid one year following closing. The cash consideration includes $87 million of cash paid to fund acquisition-related bonuses to Summit employees which was recognized as a compensation expense of the Company. In addition, VillageMD paid off approximately $1.9 billion in net debt of Summit. In connection with the amended Agreement and Plan of Merger, and in order to finance the acquisition, the Company and Cigna Health & Life Insurance Company acquired preferred units of VillageMD in exchange for $1.75 billion and $2.5 billion in aggregate consideration, respectively. Following the Summit acquisition, the Company remains the largest and consolidating equity holder of VillageMD with ownership of approximately 53% of the outstanding equity interests on a fully diluted basis.


WBA Q3 2024 Form 10-Q			7

Table of Contents

WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Further, the Company entered into a credit agreement with VillageMD pursuant to which the Company provided VillageMD senior secured credit facilities in the aggregate amount of $2.25 billion, consisting of (i) a senior secured term loan facility in an aggregate original principal amount of $1.75 billion to support the acquisition of Summit; and (ii) a senior secured revolving credit facility in an aggregate original committed amount of $500 million available for general corporate purposes. In connection with the issuance of the senior secured credit facilities, the Company received a $220 million credit for certain fees payable by VillageMD in the form of preferred units of VillageMD. The intercompany facilities eliminate in consolidation.

The Company accounted for this acquisition as a business combination resulting in consolidation of Summit within the U.S. Healthcare segment in its financial statements. In the three months ended February 29, 2024, the Company completed the purchase price allocation.

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


Purchase price allocation
Cash consideration 1	$	4,778
Deferred consideration	100
Summit debt paid at closing	1,963
Fair value of equity consideration 2	1,971
Fair value of non-controlling interests	13
Total	$	8,825

Identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	69
Accounts receivable, net	381

Property, plant and equipment	607
Intangible assets 3	3,359
Operating lease right-of-use assets	756
Other assets	174

Operating lease obligations	(773)
Deferred tax liability	(735)
Other liabilities	(466)
Total identifiable net assets	$	3,372

Goodwill	$	5,454

1.Cash consideration excludes $87 million of cash paid to fund acquisition-related bonuses to Summit employees which was recognized as compensation expense of the Company.

2.The fair value of the non-controlling interests was calculated based on the implied equity value of VillageMD, allocated to all units on an as-converted basis.

3.Intangibles acquired include provider networks and trade names with fair values of $1.9 billion and $1.5 billion, respectively. Estimated useful lives are 15 years and 11 to 15 years, respectively.

The goodwill represents anticipated future growth and expansion opportunities into new healthcare offerings and new markets. $416 million of the goodwill is expected to be tax deductible.


WBA Q3 2024 Form 10-Q			8

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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Supplemental pro forma information - Summit

The following table represents unaudited supplemental pro forma consolidated sales for the three and nine months ended May 31, 2023, as if the acquisition of Summit had occurred at the beginning of each period presented. The unaudited pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's results would have been had the acquisition occurred at the beginning of each period presented or results which may occur in the future.


	Three months ended May 31,		Nine months ended May 31,
(Unaudited, in millions)	2023		2023
Sales	$	35,415	$	104,630

Actual sales of Summit, from the acquisition date, for the three and nine months ended May 31, 2023, included in the Consolidated Condensed Statements of Earnings are as follows:


	Three months ended May 31,		Nine months ended May 31,
(Unaudited, in millions)	2023		2023
Sales	$	730	$	1,193

Pro forma net earnings of the Company, assuming the Summit acquisition had occurred at the beginning of each period presented, would not be materially different from the results reported.

Shields acquisition

On December 28, 2022, the Company acquired the non-controlling interests in Shields Health Solutions Parent, LLC (“Shields”) for $1.4 billion of cash consideration.

CareCentrix acquisition

On March 31, 2023, the Company acquired the non-controlling interests in CCX Next, LLC (“CareCentrix”) for approximately $378 million of cash consideration.

Other acquisitions

On March 3, 2023, the Company completed the acquisition of Starling MSO Holdings, LLC (“Starling”), a primary care and multi-specialty group, for total consideration of $284 million. Total consideration includes $222 million of cash consideration and $62 million of VillageMD equity issued to Starling equity holders, including employees. VillageMD equity issued to employees will be recognized as compensation expense in the future. As a result of the acquisition, the Company recognized goodwill and intangible assets of $103 million and $128 million, respectively. In the three months ended May 31, 2024, the Company completed the purchase price allocation.

On May 8, 2024, the Company executed an asset purchase agreement to acquire prescription files and related pharmacy inventory for an aggregate purchase price up to $375 million. The acquisition is expected to close by the end of fiscal 2024, subject to customary closing conditions.

The Company acquired other certain prescription files and related pharmacy inventory primarily in the United States (“U.S.”) for an aggregate purchase price of $49 million and $221 million during the three and nine months ended May 31, 2024, respectively, and $37 million and $127 million during the three and nine months ended May 31, 2023, respectively.

Note 3. Exit and disposal activities

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.


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WALGREENS BOOTS ALLIANCE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

On October 12, 2021, the Company expanded and extended the Transformational Cost Management Program through the end of fiscal 2024 and increased its annual cost savings target to $3.3 billion by the end of fiscal 2024. In fiscal 2022, the Company increased its annual cost savings target from $3.3 billion to $3.5 billion, by the end of fiscal 2024. In fiscal 2023, the Company increased its annual cost savings target from $3.5 billion to $4.5 billion, by the end of fiscal 2024. We believe the Company is currently on track to achieve the savings target.

The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company’s information technology (“IT”) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program which focus 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 includes activities such as optimization of stores. Through the Transformational Cost Management Program the Company plans to reduce its presence by up to 650 Boots stores in the United Kingdom (“UK”) and approximately 650 to 700 stores in the U.S. As of May 31, 2024, the Company has closed 581 and 673 stores in the UK and U.S., respectively.

The Company estimates cumulative pre-tax charges to its GAAP financial results for the Transformational Cost Management Program to be between $4.1 billion and $4.4 billion, of which pre-tax charges for exit and disposal activities are estimated to be between $3.8 billion and $4.1 billion. In addition to the impacts discussed above, as a result of the actions related to store closures taken under the Transformational Cost Management Program, the Company recorded $508 million of transition adjustments to decrease retained earnings due to the adoption of the new lease accounting standard (Topic 842) that became effective on September 1, 2019.

From the inception of the Transformational Cost Management Program to May 31, 2024, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $3.5 billion, which were primarily recorded in Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings. These charges included $1.3 billion related to lease obligations and other real estate costs, $950 million in asset impairments, $959 million in employee severance and business transition costs and $275 million of IT transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program for the three and nine months ended May 31, 2024 and May 31, 2023, respectively, were as follows (in millions):


Three months ended May 31, 2024	U.S. Retail Pharmacy		International		U.S. Healthcare		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	37	$	1	$	—	$	—	$	38
Asset impairments	17		—		—		—		17
Employee severance and business transition costs	20		4		1		1		26
Information technology transformation and other exit costs	5		9		—		—		14
Total pre-tax exit and disposal charges	$	80	$	14	$	1	$	1	$	96


Nine months ended May 31, 2024	U.S. Retail Pharmacy		International		U.S. Healthcare		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	192	$	2	$	—	$	—	$	194
Asset impairments	45		21		—		—		66
Employee severance and business transition costs	71		4		5		6		86
Information technology transformation and other exit costs	11		10		—		—		21
Total pre-tax exit and disposal charges	$	320	$	37	$	5	$	6	$	368


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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)


Three months ended May 31, 2023	U.S. Retail Pharmacy		International		U.S. Healthcare		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	35	$	18	$	—	$	—	$	53
Asset impairments	12		150		109		—		272
Employee severance and business transition costs	50		13		4		4		71
Information technology transformation and other exit costs	7		12		—		—		19
Total pre-tax exit and disposal charges	$	104	$	193	$	113	$	4	$	414


Nine months ended May 31, 2023	U.S. Retail Pharmacy		International		U.S. Healthcare		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	133	$	18	$	—	$	—	$	151
Asset impairments	127		149		109		—		385
Employee severance and business transition costs	72		15		4		11		102
Information technology transformation and other exit costs	23		22		—		—		45
Total pre-tax exit and disposal charges	$	354	$	204	$	113	$	11	$	682

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


	Lease obligations and other real estate costs		Asset impairments		Employee severance and business transition costs		Information technology transformation and other exit costs		Total
Balance at August 31, 2023	$	10	$	—	$	70	$	22	$	102
Costs	194		66		86		21		368
Payments	(129)		—		(98)		(41)		(268)
Other	(66)		(66)		—		—		(133)
Balance at May 31, 2024	$	10	$	—	$	57	$	2	$	69

Other exit and disposal activities

During the six months ended February 29, 2024, VillageMD approved the closure of approximately 160 clinics. As a result, long-lived and intangible assets of $303 million were impaired within the U.S. Healthcare segment. The impairment charges were recorded in Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings.

During the three months ended February 29, 2024, management ceased development of, and abandoned, a multi-year internal software development project within the U.S. Retail Pharmacy segment. As a result, previously capitalized internally-developed software of $455 million was impaired. The impairment charge was recorded in Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings.


WBA Q3 2024 Form 10-Q			11

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Note 4. Leases

The Company leases certain retail stores, clinics, warehouses, distribution centers, office space, land, and equipment. Initial terms for leased premises in the U.S. are typically 10 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. Lease commencement is the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight line basis over the lease term. In addition to minimum fixed rentals, some leases provide for contingent rentals based on sales volume.

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


Balance sheet supplemental information:	May 31, 2024		August 31, 2023
Operating leases:
Operating lease right-of-use assets	$	21,020	$	21,667

Operating lease obligations - current	$	2,384	$	2,347
Operating lease obligations - non-current	21,379		22,124
Total operating lease obligations	$	23,763	$	24,472

Finance leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	675	$	678

Lease obligations included in:
Accrued expenses and other liabilities	$	71	$	57
Other non-current liabilities	917		919
Total finance lease obligations	$	988	$	976

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


	Three months ended May 31,				Nine months ended May 31,
Statement of earnings supplemental information:	2024		2023		2024		2023
Operating lease cost
Fixed	$	866	$	879	$	2,605	$	2,545
Variable 1	228		218		653		613
Finance lease cost
Amortization	$	13	$	15	$	45	$	36
Interest	12		14		38