Segment reporting

The Company has aligned its operations into three reportable segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The operating segments have been identified based on the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker) to assess segment performance and allocate resources among the Company’s operating segments, which have been aggregated as described below. The chief operating decision maker uses adjusted operating income to assess segment profitability. The chief operating decision maker does not use total assets by segment to make decisions regarding resources, therefore the total asset disclosure by segment has not been included.

•

The Retail Pharmacy USA segment consists of the Walgreens business, which includes the operation of retail drugstores and convenient care clinics; and operation of mail and central specialty pharmacy services. Sales for the segment are principally derived from the sale of prescription drugs and a wide assortment of retail products, including health and wellness, beauty, personal care and consumables and general merchandise.

•

The Retail Pharmacy International segment consists of pharmacy-led health and beauty retail businesses and optical practices. These businesses include Boots branded stores in the United Kingdom, Thailand, Norway, the Republic of Ireland and the Netherlands; Benavides in Mexico and Ahumada in Chile. Sales for the segment are principally derived from the sale of prescription drugs and health and wellness, beauty, personal care and other consumer products.

•

The Pharmaceutical Wholesale segment consists of the Alliance Healthcare pharmaceutical wholesaling and distribution businesses and an equity method investment in AmerisourceBergen. Wholesale operations are located in the United Kingdom, Germany, France, Turkey, Spain, the Netherlands, Egypt, Norway, Romania, Czech Republic and Lithuania. Sales for the segment are principally derived from wholesaling and distribution of a comprehensive offering of brand-name pharmaceuticals (including specialty pharmaceutical products) and generic pharmaceuticals, health and beauty products, home healthcare supplies and equipment, and related services to pharmacies and other healthcare providers.

The results of operations for each reportable segment include procurement benefits and an allocation of corporate-related overhead costs. The “Eliminations” column contains items not allocable to the reportable segments, as the information is not utilized by the chief operating decision maker to assess segment performance and allocate resources.

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



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations			Walgreens Boots Alliance, Inc.
Three months ended February 28, 2018
Sales to external customers	$	24,478	$	3,317	$	5,226	$	—		$	33,021
Intersegment sales	—		—		529		(529		)	—
Sales	$	24,478	$	3,317	$	5,755	$	(529	)	$	33,021

Adjusted operating income	$	1,649	$	280	$	231	$	3		$	2,163

Three months ended February 28, 2017
Sales to external customers	$	21,814	$	3,101	$	4,531	$	—		$	29,446
Intersegment sales	—		—		499		(499		)	—
Sales	$	21,814	$	3,101	$	5,030	$	(499	)	$	29,446

Adjusted operating income	$	1,552	$	242	$	226	$	(4	)	$	2,016



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations			Walgreens Boots Alliance, Inc.
Six months ended February 28, 2018
Sales to external customers	$	46,967	$	6,400	$	10,394	$	—		$	63,761
Intersegment sales	—		—		1,079		(1,079		)	—
Sales	$	46,967	$	6,400	$	11,473	$	(1,079	)	$	63,761

Adjusted operating income	$	3,026	$	490	$	455	$	1		$	3,972

Six months ended February 28, 2017
Sales to external customers	$	42,473	$	6,063	$	9,411	$	—		$	57,947
Intersegment sales	—		—		1,036		(1,036		)	—
Sales	$	42,473	$	6,063	$	10,447	$	(1,036	)	$	57,947

Adjusted operating income	$	2,841	$	455	$	450	$	(4	)	$	3,742

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



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations			Walgreens Boots Alliance, Inc.
Three months ended February 28, 2018
Adjusted operating income	$	1,649	$	280	$	231	$	3		$	2,163
Acquisition-related amortization										(113		)
Acquisition-related costs										(65		)
Certain legal and regulatory accruals and settlements										(90		)
LIFO provision										(43		)
Adjustments to equity earnings in AmerisourceBergen										113
Asset recovery										15
Operating income										$	1,980

Three months ended February 28, 2017
Adjusted operating income	$	1,552	$	242	$	226	$	(4	)	$	2,016
Acquisition-related amortization										(82		)
Acquisition-related costs										(29		)
LIFO provision										(49		)
Adjustments to equity earnings in AmerisourceBergen										(37		)
Cost transformation										(340		)
Operating income										$	1,479



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations			Walgreens Boots Alliance, Inc.
Six months ended February 28, 2018
Adjusted operating income	$	3,026	$	490	$	455	$	1		$	3,972
Acquisition-related amortization										(198		)
Acquisition-related costs										(116		)
Certain legal and regulatory accruals and settlements										(115		)
LIFO provision										(97		)
Hurricane-related costs										(83		)
Adjustments to equity earnings in AmerisourceBergen										(76		)
Asset recovery										15
Operating income										$	3,302

Six months ended February 28, 2017
Adjusted operating income	$	2,841	$	455	$	450	$	(4	)	$	3,742
Acquisition-related amortization										(164		)
Acquisition-related costs										(46		)
LIFO provision										(107		)
Adjustments to equity earnings in AmerisourceBergen										(78		)
Cost transformation										(421		)
Operating income										$	2,926