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 May 31, 2018
Sales to external customers	$	25,917	$	2,995	$	5,422	$	—		$	34,334
Intersegment sales	—		—		543		(543		)	—
Sales	$	25,917	$	2,995	$	5,965	$	(543	)	$	34,334

Adjusted operating income	$	1,492	$	198	$	257	$	—		$	1,947

Three months ended May 31, 2017
Sales to external customers	$	22,528	$	2,809	$	4,781	$	—		$	30,118
Intersegment sales	—		—		515		(515		)	—
Sales	$	22,528	$	2,809	$	5,296	$	(515	)	$	30,118

Adjusted operating income	$	1,463	$	193	$	253	$	5		$	1,914



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations			Walgreens Boots Alliance, Inc.
Nine months ended May 31, 2018
Sales to external customers	$	72,884	$	9,395	$	15,816	$	—		$	98,095
Intersegment sales	—		—		1,622		(1,622		)	—
Sales	$	72,884	$	9,395	$	17,438	$	(1,622	)	$	98,095

Adjusted operating income	$	4,518	$	688	$	712	$	1		$	5,919

Nine months ended May 31, 2017
Sales to external customers	$	65,001	$	8,872	$	14,192	$	—		$	88,065
Intersegment sales	—		—		1,551		(1,551		)	—
Sales	$	65,001	$	8,872	$	15,743	$	(1,551	)	$	88,065

Adjusted operating income	$	4,304	$	648	$	703	$	1		$	5,656

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 May 31, 2018
Adjusted operating income	$	1,492	$	198	$	257	$	—	$	1,947
Acquisition-related amortization									(131		)
Acquisition-related costs									(57		)
LIFO provision									(69		)
Adjustments to equity earnings in AmerisourceBergen									(60		)
Certain legal and regulatory accruals and settlements									(5		)
Store optimization									(24		)
Operating income									$	1,601

Three months ended May 31, 2017
Adjusted operating income	$	1,463	$	193	$	253	$	5	$	1,914
Acquisition-related amortization									(83		)
Acquisition-related costs									(29		)
LIFO provision									(97		)
Adjustments to equity earnings in AmerisourceBergen									(17		)
Cost transformation									(171		)
Operating income									$	1,517



	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Eliminations		Walgreens Boots Alliance, Inc.
Nine months ended May 31, 2018
Adjusted operating income	$	4,518	$	688	$	712	$	1	$	5,919
Acquisition-related amortization									(329		)
Acquisition-related costs									(173		)
LIFO provision									(166		)
Adjustments to equity earnings in AmerisourceBergen									(136		)
Certain legal and regulatory accruals and settlements									(120		)
Hurricane-related costs									(83		)
Store optimization									(24		)
Asset recovery									15
Operating income									$	4,903

Nine months ended May 31, 2017
Adjusted operating income	$	4,304	$	648	$	703	$	1	$	5,656
Acquisition-related amortization									(247		)
Acquisition-related costs									(75		)
LIFO provision									(204		)
Adjustments to equity earnings in AmerisourceBergen									(95		)
Cost transformation									(592		)
Operating income									$	4,443