Equity method investments

12 Months Ended

Aug. 31, 2023

Equity Method Investments and Joint Ventures [Abstract]

Equity method investments as of August 31, 2023 and 2022 were as follows (in millions, except percentages):


	2023			2022
	Carrying value		Ownership percentage	Carrying value		Ownership percentage
Cencora	$	2,534	16%	$	3,916	25%
Others	963		8% - 50%	1,579		8% - 50%
Total	$	3,497		$	5,495

Cencora investment

As of August 31, 2023 and 2022, the Company owned 31.8 million and 52.9 million shares of Cencora common stock, respectively, representing approximately 15.9% and 25.4% of its outstanding common stock based on the share count publicly reported by Cencora in its most recent filings with the SEC.

In fiscal 2023 and 2022, the Company sold shares of Cencora common stock for total consideration of approximately $3.4 billion and $900 million, respectively. These transactions resulted in the Company recording pre-tax gains of $1.6 billion and $417 million, respectively, in Other income, net in the Consolidated Statements of Earnings, including $160 million and $32 million of losses, respectively, reclassified from within Accumulated other comprehensive loss in the Consolidated Balance Sheets.

As of August 31, 2023, the Company has pledged 17.3 million shares of Cencora common stock as collateral upon entering into variable prepaid forward (“VPF”) transactions. See Note 9. Financial instruments for further information.

The Company accounts for its equity investment in Cencora using the equity method of accounting, with the net earnings (loss) attributable to the Company’s investment being classified within the operating income of its U.S. Retail Pharmacy segment. Due to the timing and availability of financial information of Cencora, the Company accounts for this equity method investment on a financial reporting lag of two months. Equity earnings (loss) in Cencora are reported as a separate line in the Consolidated Statements of Earnings. In fiscal 2023, 2022 and 2021, the Company recognized equity earnings (losses) in Cencora of $252 million, $418 million and $(1.1) billion, respectively. The equity losses for fiscal 2021 were primarily due to Cencora's recognition of a loss of $5.6 billion, net of tax, related to its ongoing opioid litigation in its financial statements for the three months ended September 30, 2020.

The Level 1 fair market value of the Company’s equity investment in Cencora common stock at August 31, 2023 and 2022 was $5.6 billion and $7.7 billion, respectively. As of August 31, 2023, the carrying value of the Company’s investment in Cencora exceeded its proportionate share of the net assets of Cencora by $2.4 billion. This premium of $2.4 billion was recognized as part of the carrying value in the Company’s equity investment in Cencora. The difference is primarily related to goodwill and the fair value of Cencora intangible assets.

Option Care Health investment

In fiscal 2021, the Company recorded a gain of $290 million in Other income, net in the Consolidated Statements of Earnings, due to the partial sale of ownership interest in Option Care Health by the Company's then equity method investee HC Group Holdings. As a result of these sales HC Group Holdings lost the ability to control Option Care Health and, therefore, deconsolidated Option Care Health in its financial statements. As a result of this deconsolidation, HC Group Holdings recognized a gain of $1.2 billion and the Company recorded its share of equity earnings in HC Group Holdings of $576 million in Post-tax earnings from other equity method investments.

During fiscal 2022, the Company sold additional shares of Option Care Health common stock for total consideration of approximately $363 million. During fiscal 2023, the Company sold its remaining investment in Option Care Health for total consideration of approximately $798 million. These transactions resulted in the Company recording pre-tax gains of $186 million and $145 million, respectively, in Other income, net in the Consolidated Statements of Earnings. As of May 31, 2023, the Company no longer exercised significant influence over the operating and financial policies of Option Care Health and reclassified its investment from an equity method investment to an investment in equity securities at fair value, recognizing a pre-tax gain of $76 million included in Other income, net within the Consolidated Statement of Earnings.

Other investments

At August 31, 2023, the Company’s other equity method investments primarily include its U.S. investment in BrightSpring Health Services, and the Company’s investments in China in Sinopharm Medicine Holding Guoda Drugstores Co., Ltd and Nanjing Pharmaceutical Company Limited. On December 15, 2022, the Company sold its ownership interest in Guangzhou Pharmaceuticals Corporation for total consideration of approximately $150 million.

In fiscal 2022, the Company acquired majority equity interests in VillageMD and Shields, both formerly accounted for as equity method investments. The Company accounted for these acquisitions as business combinations resulting in the remeasurement of its previously held minority equity interests and convertible debt securities at fair value resulting in pre-tax gains of $2.2 billion and $402 million for VillageMD and Shields, respectively, recognized in Other income, net in the Consolidated Statements of Earnings. As a result of these transactions, the Company consolidated VillageMD and Shields within the U.S. Healthcare segment in its financial statements. In fiscal 2022, the Company recognized an other-than-temporary impairment of $124 million related to an equity method investment in China. The impairment was derived using Level 3 inputs, including financial projections and market multiples of comparable companies.

Summarized financial information

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

Balance sheet (in millions)


	August 31,
	2023		2022
Current assets	$	48,185	$	50,985
Non-current assets	25,618		26,497
Current liabilities	52,093		52,083
Non-current liabilities	17,999		19,712
Shareholders’ equity 1	3,711		5,687

1Shareholders’ equity at August 31, 2023 and 2022 includes $520 million and $564 million, respectively, related to non-controlling interests.

Statements of earnings (in millions)



	2023		2022		2021
Sales	$	279,118	$	268,189	$	232,719
Gross profit	12,457		13,248		10,889
Net earnings (loss)	1,799		1,988		(3,475)
Share of earnings (loss) from equity method investments	286		468		(512)

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