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Item 7. Management’s Discussion and Analysis

2022-11-22 compared with 2021-11-23 · 307 added, 251 removed, 323 unchanged (63% of the section changed)

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We deliver innovative programs and services designed to increase the effectiveness and efficiency of the pharmaceutical supply chain in both human and animal health.

We are organized based upon the products and services we provide to our customers.

Our operations are comprised of the Pharmaceutical Distribution Services reportable segment and other operating segments that are not significant enough to require separate reportable segment disclosure and, therefore, have been included in Other for the purpose of our reportable segment presentation.

Pharmaceutical Distribution Services Segment

The Pharmaceutical Distribution Services reportable segment distributes a comprehensive offering of brand-name, specialty brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, and other customers.

Through a number of operating businesses, the Pharmaceutical Distribution Services reportable segment provides pharmaceutical distribution (including plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty pharmaceutical products) and additional services to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics.

Additionally, the Pharmaceutical Distribution Services reportable segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers.

The Pharmaceutical Distribution Services reportable segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers.

Additionally, it delivers packaging solutions to institutional and retail healthcare providers.

Other consists of operating segments that focus on global commercialization services, animal health (MWI Animal Health or "MWI"), and international pharmaceutical wholesale and related service operations (Alliance Healthcare).

The operating segments that focus on global commercialization services include AmerisourceBergen Consulting Services ("ABCS") and World Courier.

Alliance Healthcare supplies pharmaceuticals, other healthcare products, and related services to healthcare providers, including pharmacies, doctors, health centers and hospitals in 10 countries, primarily in Europe.

MWI is a leading animal health distribution company in the United States and in the United Kingdom.

MWI sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets.

Additionally, MWI offers demand-creating sales force services to manufacturers.

ABCS, through a number of operating businesses, provides a full suite of integrated manufacturer services that range from clinical trial support to product post-approval and commercialization support.

World Courier, which operates in over 50 countries, is a leading global specialty transportation and logistics provider for the biopharmaceutical industry.

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Recent Developments

Alliance Healthcare Acquisition

On June 1, 2021, we acquired a majority of Walgreens Boots Alliance, Inc.'s ("WBA") Alliance Healthcare businesses ("Alliance Healthcare") for $6,602.0 million in cash, subject to certain purchase price adjustments, $229.1 million of our common stock (2 million shares at the Company's June 1, 2021 opening stock price of $114.54 per share), $96.9 million of estimated accrued consideration, and $6.1 million of other equity consideration.

The net cash payment was $5,536.7 million, as we acquired $922.0 million of cash and cash equivalents and $143.3 million of restricted cash (see Note 2 of the Notes to Consolidated Financial Statements for the allocation of the purchase price).

The shares issued were from our treasury stock on a first-in, first-out basis and were originally purchased for $149.1 million.

We funded the cash purchase price through a combination of cash on hand and new debt financing (see Note 7 of the Notes to Consolidated Financial Statements).

The acquisition expands our reach and solutions in pharmaceutical distribution and adds to our depth and breadth of global manufacturer services.

Other Strategic Transactions with Walgreens

We agreed to a three-year extension of our existing pharmaceutical distribution agreement with WBA and the arrangement pursuant to which we have access to generic drugs and related pharmaceutical products through Walgreens Boots Alliance Development GmbH (both through 2029), as well as a distribution agreement pursuant to which we will supply branded and generic pharmaceutical products to WBA’s Boots UK Ltd.

subsidiary (through 2031).

In January 2021, we also entered into an agreement with WBA to pursue a series of strategic initiatives designed to create incremental growth and efficiencies in sourcing, logistics, and distribution.

Risk Factors beginning on page 11 of this Annual Report on Form 10-K for additional risk factors related to our strategic transactions with WBA.

Opioid Litigation

On July 21, 2021, it was announced that we and the two other national pharmaceutical distributors have negotiated a comprehensive proposed settlement agreement that, if all conditions are satisfied, would result in the resolution of a substantial majority of opioid lawsuits filed by state and local governmental entities (see Note 14 of the Notes to Consolidated Financial Statements).

New Reporting Structure

Recently, we undertook a strategic evaluation of our reporting structure to reflect our expanded international presence as a result of the June 2021 acquisition of Alliance Healthcare.

As a result of this review, beginning in the first quarter of fiscal 2022, we have re-aligned our reporting structure under two reportable segments:

We are organized geographically based upon the products and services we provide to our customers.

At the beginning of fiscal 2022, we re-aligned our reporting structure under two reportable segments:

Healthcare Solutions and International Healthcare Solutions.

Healthcare Solutions will consist of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma Distribuidora de Produtos Farmacêuticos S.A.

("Profarma")), MWI Animal Health, Xcenda, Lash Group, and ICS 3PL.

International Healthcare Solutions will consist of Alliance Healthcare, World Courier, Innomar, Profarma, and Profarma Specialty.

Healthcare Solutions consists of the legacy Pharmaceutical Distribution Services reportable segment (excluding Profarma Distribuidora de Produtos Farmacêuticos S.A.("Profarma")), MWI Animal Health ("MWI"), Xcenda, Lash Group, and ICS 3PL.

International Healthcare Solutions consists of Alliance Healthcare, World Courier, Innomar, Profarma, and Profarma Specialty (until it was divested in June 2022).

Profarma had previously been included in the Pharmaceutical Distribution Services reportable segment.

Profarma Specialty had previously been reported in Other.

Beginning in the first quarter of fiscal 2022, we will report our results under this new structure.

Our previously reported segment results have been revised to conform to our re-aligned reporting structure.

Healthcare Solutions Segment

Healthcare Solutions reportable segment distributes a comprehensive offering of brand-name, specialty brand-name and generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to a wide variety of healthcare providers, including acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, medical clinics, long-term care and alternate site pharmacies, and other customers.

Healthcare Solutions reportable segment also provides pharmaceutical distribution (including plasma and other blood products, injectable pharmaceuticals, vaccines, and other specialty pharmaceutical products) and additional services to physicians who specialize in a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics.

Additionally, the U.S.

Healthcare Solutions reportable segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers.

Healthcare Solutions reportable segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers.

It also provides a full suite of integrated manufacturer services that ranges from clinical trial support to product post-approval and commercialization support.

Additionally, it delivers packaging solutions to institutional and retail healthcare providers.

Through its animal health business, the U.S.

Healthcare Solutions reportable segment sells pharmaceuticals, vaccines, parasiticides, diagnostics, micro feed ingredients, and various other products to customers in both the companion animal and production animal markets.

It also offers demand-creating sales force services to manufacturers.

International Healthcare Solutions Segment

The International Healthcare Solutions reportable segment consists of businesses that focus on international pharmaceutical wholesale and related service operations and global commercialization services.

The International Healthcare Solutions reportable segment distributes pharmaceuticals, other healthcare products, and related services to healthcare providers, including pharmacies, doctors, health centers and hospitals primarily in Europe.

It also is a leading global specialty transportation and logistics provider for the biopharmaceutical industry.

In Canada, the business drives innovative partnerships with manufacturers, providers, and pharmacies to improve product access and efficiency throughout the healthcare supply chain.

Recent Development

PharmaLex Acquisition

In September 2022, we entered into a definitive agreement to acquire PharmaLex Holding GmbH ("PharmaLex"), a leading provider of specialized services for the life sciences industry, for €1.28 billion in cash, subject to customary adjustments.

PharmaLex's services include regulatory affairs, development consulting and scientific affairs, pharmacovigilance, and quality management and compliance.

The acquisition will advance our role as a partner of choice for biopharmaceutical manufacturers by enhancing our global portfolio of solutions to support manufacturer partners across the pharmaceutical development and commercialization journey.

PharmaLex will be a component of our International Healthcare Solutions reportable segment.

The acquisition is expected to close by March 2023 and is subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals.

Executive Summary

This executive summary provides highlights from the results of operations that follow:

• Revenue increased by 12.7% from the prior fiscal year, primarily due to the revenue growth in our Pharmaceutical Distribution Services segment and our June 2021 acquisition of Alliance Healthcare.

The Pharmaceutical Distribution Services segment grew its revenue 8.6% from the prior fiscal year, primarily due to increased sales of specialty products (which generally have higher selling prices), including COVID-19 treatments and overall market growth principally driven by unit volume growth.

Revenue in Other increased by 112.3% from the prior fiscal year, primarily due to the June 2021 acquisition of Alliance Healthcare;

• Total gross profit increased 33.7% from the prior fiscal year.

Gross profit was favorably impacted by increases in gross profit in Other of 63.4% and Pharmaceutical Distribution Services of 12.3% from the prior fiscal year, a last-in, first-out ("LIFO") credit in the current fiscal year in comparison to a LIFO expense in the prior fiscal year, and an increase in gains from antitrust litigation settlements.

Pharmaceutical Distribution Services' gross profit increased from the prior fiscal year primarily due to revenue growth, including an increase in specialty product

Table of Con t ents

Gross profit in Other increased from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and revenue growth at World Courier and MWI;

• Total operating expenses declined by 55.6% from the prior fiscal year primarily due to a decrease in legal accruals primarily related to our proposed opioid litigation settlement and related obligations and other opioid-related litigation and a decrease in the impairment of assets.

These expense reductions were offset in part by a 29.9% increase in distribution, selling, and administrative expenses compared to the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and increases in payroll-related operating costs to support current and future revenue growth;

• Operating income increased by 145.8%, from the prior fiscal year due to the decrease in total operating expenses and the increase in total gross profit;

• Revenue increased by $24.6 billion, or 11.5%, from the prior fiscal year, primarily due to our June 2021 acquisition of Alliance Healthcare and revenue growth in our U.S.

Healthcare Solutions segment.

Revenue in International Healthcare Solutions increased by $15.0 billion, or 129.8%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions segment grew its revenue $9.6 billion, or 4.8%, from the prior fiscal year primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments);

• Total gross profit increased by $1,353.1 million, or 19.5%, from the prior fiscal year.

Gross profit was favorably impacted by increases in gross profit in International Healthcare Solutions of $1,404.7 million, or 91.1%, and U.S.

Healthcare Solutions of $425.8 million, or 8.5%, from the prior fiscal year.

Gross profit in International Healthcare Solutions increased from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions' gross profit increased from the prior fiscal year primarily due to overall revenue growth and fees earned relating to the distribution of government-owned COVID-19 treatments.

These increases were offset in part by last-in, first-out ("LIFO") expense in comparison to a LIFO credit in the prior year, decreases in gains from antitrust litigation settlements, and the Turkey highly inflationary economy's unfavorable impact on the current fiscal year;

• Total operating expenses increased by $1,341.0 million, or 29.2%, from the prior fiscal year primarily as a result of increases in distribution, selling, and administrative expenses and depreciation and amortization expense primarily due to the June 2021 acquisition of Alliance Healthcare, as well as a $75.9 million goodwill impairment of our Profarma reporting unit, offset in part by lower expense accruals related to opioid litigation settlements in the current fiscal year;

• Total segment operating income increased by $515.2 million, or 19.5%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and 8.8% operating income growth in the U.S.

Healthcare Solutions segment;

• Our effective tax rates were 23.7% and 30.5% for the fiscal years ended September 30, 2022 and 2021, respectively.

The effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S.

statutory rate primarily due to U.K.

Tax Reform (see Note 5 of the Notes to Consolidated Financial Statements).

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statutory rate primarily due to U.S.

state income taxes, offset in part by the benefit of non-U.S.

income taxed at rates lower than the U.S.

statutory rate.

Our effective tax rate in the fiscal year ended September 30, 2021 was higher than the current year tax rate primarily due to UK and Swiss tax reforms (see Note 4 of the Notes to Consolidated Financial Statements).

Results of Operations

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(dollars in thousands) 2022 2021 Change

Pharmaceutical Distribution Services $ 198,153,202 $ 182,467,189 8.6%

MWI Animal Health 4,684,417 4,216,462 11.1%

Healthcare Solutions

Human Health 207,284,444 197,777,128 4.8%

Animal Health 4,815,758 4,684,417 2.8%

Healthcare Solutions 212,100,202 202,461,545 4.8%

International Healthcare Solutions

Alliance Healthcare 21,890,402 7,373,365 196.9%

Global Commercialization Services 3,917,017 3,308,640 18.4%

Total Other 15,974,799 7,525,102 112.3%

Other Healthcare Solutions 4,601,271 4,156,264 10.7%

Total International Solutions 26,491,673 11,529,629 129.8%

Intersegment eliminations (4,869) (2,331)

Revenue $ 238,587,006 $ 213,988,843 11.5%

We expect our revenue growth percentage to be in the high-single to low-double digits in fiscal 2022.

Our future revenue growth will continue to be affected by various factors, such as industry growth trends, including drug utilization, the introduction of new, innovative brand therapies, the likely increase in the number of generic drugs and biosimilars that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs and biosimilars, price inflation and price deflation, general economic conditions in the United States and Europe, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third-party reimbursement rates to our customers, changes in government rules and regulations, and the impact of the COVID-19 pandemic.

Revenue increased by 12.7% from the prior fiscal year primarily due to the revenue growth of our Pharmaceutical Distribution Services segment and our June 2021 acquisition of Alliance Healthcare.

The Pharmaceutical Distribution Services segment grew its revenue by 8.6%, or $15.7 billion, from the prior fiscal year, primarily due to increased sales of specialty products (which generally have higher selling prices) including COVID-19 treatments and overall market growth principally driven by unit volume growth.

More specifically, the increase in the Pharmaceutical Distribution Services segment revenue was largely attributable to the following (in billions):

Increased sales to Walgreens, our largest customer $1.8

Revenue increased by 11.5% from the prior fiscal year primarily due to our June 2021 acquisition of Alliance Healthcare and the revenue growth of our U.S.

Healthcare Solutions segment.

Healthcare Solutions segment grew its revenue by $9.6 billion, or 4.8%, from the prior fiscal year, primarily due to overall market growth principally driven by unit volume growth and increased sales to specialty physician practices, offset in part by a decline in sales of COVID-19 treatments (primarily commercial treatments).

More specifically, the increase in the U.S.

Healthcare Solutions segment revenue was largely attributable to the following (in billions):

Increased sales to specialty physician practices $2.9

Increased sales of COVID-19 treatments $3.2

Decreased sales of COVID-19 treatments ($2.0)

Increased sales to other customers $8.7

Revenue in Other increased 112.3%, or $8.4 billion, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and due to growth in the other operating segments:

MWI, ABCS, and World Courier.

The continued decline of sales relating to COVID-19 treatments and fees earned from the distribution of government-owned COVID-19 treatments could adversely impact our results of operations.

Revenue in International Healthcare Solutions increased by $15.0 billion, or 129.8%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

A number of our contracts with customers, including group purchasing organizations, are typically subject to expiration each year.

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During the fiscal year ended September 30, 2022, no significant contracts expired.

The only significant customer contract scheduled to expire in the next twelve months is our contract with Express Scripts, which expires in September 2022.

In January 2022, we extended our agreement with Express Scripts through September 2026.

Over the next twelve months, there are no significant contracts scheduled to expire.

Additionally, from time to time, significant contracts may be terminated in accordance with their terms or extended, renewed, or replaced prior to their expiration dates.

If those contracts are extended, renewed, or replaced at less favorable terms, they may also negatively impact our revenue, results of operations, and cash flows.

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Fiscal Year Ended

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(dollars in thousands) 2022 2021 Change

Pharmaceutical Distribution Services $ 4,294,992 $ 3,824,129 12.3%

Other 2,287,021 1,399,553 63.4%

Healthcare Solutions $ 5,454,735 $ 5,028,950 8.5%

International Healthcare Solutions 2,947,190 1,542,456 91.1%

Intersegment eliminations (189) —

Gains from antitrust litigation settlements 1,835 168,794

LIFO (expense) credit (67,171) 203,028

Turkey highly inflationary impact (40,033) —

Gross profit $ 8,296,367 $ 6,943,228 19.5%

Gross profit increased by $1,353.1 million, or 19.5%, from the prior fiscal year.

Gross profit in the current fiscal year was favorably impacted by increases in gross profit in International Healthcare Solutions and U.S.

Healthcare Solutions.

These increases were offset in part by LIFO expense in comparison to a LIFO credit in the prior year, decreases in gains from antitrust litigation settlements, and the Turkey highly inflationary economy's unfavorable impact on the current fiscal year.

Healthcare Solutions gross profit increased by $425.8 million, or 8.5%, from the prior fiscal year due to overall revenue growth and fees earned from the distribution of government-owned COVID-19 treatments.

As a percentage of revenue, U.S.

Healthcare Solutions gross profit margin of 2.57% in the current fiscal year increased 9 basis points compared to the prior fiscal year primarily due to fees earned from the distribution of government-owned COVID-19 treatments.

Gross profit in International Healthcare Solutions increased $1,404.7 million, or 91.1%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $1.8 million and $168.8 million in the fiscal years ended September 30, 2022 and 2021, respectively.

The gains were recorded as reductions to Cost of Goods Sold (see Note 14 of the Notes to Consolidated Financial Statements).

Our cost of goods sold includes a LIFO provision that is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory quantities, and product mix, many of which are difficult to predict.

Changes to any of the above factors may have a material impact to our annual LIFO provision.

The LIFO expense in the current fiscal year was primarily due to lower generic pharmaceutical deflation and inventory product mix.

We recognized an expense of $40.0 million in the fiscal year ended September 30, 2022 in Cost of Goods Sold related to the impact of Turkey highly inflationary accounting (see Note 1 of the Notes to Consolidated Financial Statements).

Operating Expenses

Fiscal Year Ended

September 30,

(dollars in thousands) 2022 2021 Change

Distribution, selling, and administrative $ 4,848,962 $ 3,594,251 34.9%

Depreciation and amortization 693,895 505,172 37.4%

Litigation and opioid-related expenses 123,191 272,623

Acquisition, integration, and restructuring expenses 183,059 199,288

Goodwill impairment 75,936 6,373

Impairment of assets 4,946 11,324

Total operating expenses $ 5,929,989 $ 4,589,031 29.2%

Distribution, selling, and administrative expenses increased by $1,254.7 million, or 34.9%, from the prior fiscal year.

The increase from the prior fiscal year was primarily due to the June 2021 acquisition of Alliance Healthcare.

As a percentage of revenue, distribution, selling, and administrative expenses were 2.03% in the current fiscal year and represents a 35-basis point increase compared to the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Depreciation expense increased 18.3% from the prior fiscal year primarily due to depreciation of property and equipment originating from the June 2021 acquisition of Alliance Healthcare.

Amortization expense increased 72.3% from the prior fiscal year primarily due to amortization of intangible assets originating from the June 2021 acquisition of Alliance Healthcare.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2022 included a $36.6 million accrual related to opioid litigation settlements and $86.6 million of legal fees in connection with opioid lawsuits and investigations.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2021 included a $147.7 million accrual related to opioid litigation settlements and $124.9 million of legal fees in connection with opioid lawsuits and investigations.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2022 included $119.6 million of acquisition-related deal and integration costs primarily related to the integration of Alliance Healthcare, $35.5 million of severance and other restructuring initiatives primarily related to the write down of assets in connection with our office optimization plan, and $28.0 million related to our business transformation efforts.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2021 included $117.0 million of acquisition-related deal and integration costs primarily related to the June 2021 acquisition of Alliance Healthcare, $46.1 million of severance and other restructuring initiatives primarily related to the disposal of assets in connection with our office optimization plan, and $36.3 million related to our business transformation efforts.

We recorded goodwill impairments of $75.9 million and $6.4 million in our Profarma reporting unit in the fiscal years ended September 30, 2022 and 2021, respectively (see Note 5 of the Notes to Consolidated Financial Statements).

Operating Income

Fiscal Year Ended

September 30,

(dollars in thousands) 2022 2021 Change

Healthcare Solutions $ 2,456,972 $ 2,257,918 8.8%

International Healthcare Solutions 706,458 390,286 81.0%

Total segment operating income 3,163,430 2,648,204 19.5%

Gains from antitrust litigation settlements 1,835 168,794

LIFO (expense) credit (67,171) 203,028

Turkey highly inflationary impact (40,033) —

Acquisition-related intangibles amortization (304,551) (176,221)

Litigation and opioid-related expenses (123,191) (272,623)

Acquisition, integration, and restructuring expenses (183,059) (199,288)

Goodwill impairment (75,936) (6,373)

Impairment of assets (4,946) (11,324)

Operating income $ 2,366,378 $ 2,354,197 0.5%

Segment operating income is evaluated before gains from antitrust litigation settlements;

LIFO (expense) credit;

Turkey highly inflationary impact;

acquisition-related intangibles amortization;

litigation and opioid-related expenses;

acquisition, integration, and restructuring expenses;

goodwill impairment;

and impairment of assets.

Healthcare Solutions operating income increased $199.1 million, or 8.8%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses.

As a percentage of revenue, U.S.

Healthcare Solutions operating income margin was 1.16% and represented an increase of 4 basis points compared to the prior fiscal year.

The increase from the prior year fiscal year was primarily due to fees earned from the distribution of government-owned COVID-19 treatments.

Operating income in International Healthcare Solutions increased by $316.2 million, or 81.0%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare.

Other Income, Net

We recognized a gain of $56.2 million from the sale of non-core businesses, a $14.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform, an $11.9 million expense related to the impact of Turkey highly inflationary accounting, and a $4.8 million gain on the remeasurement of an equity investment in the fiscal year ended September 30, 2022.

We recorded a $64.7 million gain on the remeasurement of an equity investment, a $14.0 million impairment of a non-customer note receivable related to a start-up venture, and a $3.4 million foreign currency loss on the remeasurement of deferred tax assets relating to Swiss tax reform in the fiscal year ended September 30, 2021.

Interest Expense, Net

Interest expense, net and the respective weighted average interest rates were as follows:

Fiscal Year Ended September 30,

(dollars in thousands) Amount Weighted Average

Interest Rate Amount Weighted Average

Interest Rate

Interest expense $ 231,982 2.69% $ 182,544 2.62%

Interest income (21,309) 1.08% (8,470) 0.28%

Interest expense, net $ 210,673 $ 174,074

Interest expense, net increased $36.6 million, or 21.0%, from the prior fiscal year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000 million of 2.700% senior notes in March 2021, and the $500 million variable-rate term loan that was issued in June 2021, all of which were used to finance a portion of the June 2021 acquisition of Alliance Healthcare, and the incremental interest expense associated with Alliance Healthcare's debt in certain countries, offset in part by the increase in interest income.

The increase in interest income was primarily due to higher investment interest rates, offset in part by lower average invested cash balances.

The increase in interest expense as a result of the above-mentioned debt issuances was offset in part by repayments of $250 million in September 2021 and again in March 2022 on the above-mentioned $500 million variable-rate term loan, and payments of $500 million in June 2022 and $350 million in September 2022 on the above-mentioned $1,525 million of 0.737% senior notes.

Our interest expense in future periods may vary significantly depending upon changes in net borrowings, interest rates, amendments to our current borrowing facilities, and strategic decisions to deploy our invested cash.

Income Tax Expense

Our effective tax rates were 23.7% and 30.5% in the fiscal years ended September 30, 2022 and 2021, respectively.

Our effective tax rate in the fiscal year ended September 30, 2022 was higher than the U.S.

statutory rate primarily due to U.S.

state income taxes, offset in part by the benefit of non-U.S.

income taxed at rates lower than the U.S.

statutory rate.

Fiscal Year Ended September 30, 2021 compared to the Fiscal Year Ended September 30, 2020

Fiscal Year Ended

September 30,

(dollars in thousands) 2021 2020 Change

Healthcare Solutions:

Human Health $ 197,777,128 $ 182,171,487 8.6%

Animal Health 4,684,417 4,216,462 11.1%

Healthcare Solutions 202,461,545 186,387,949 8.6%

International Healthcare Solutions:

Alliance Healthcare 7,373,365 —

Other Healthcare Solutions 4,156,264 3,508,106 18.5%

Total International Healthcare Solutions 11,529,629 3,508,106 228.7%

Intersegment eliminations (2,331) (2,129)

Revenue $ 213,988,843 $ 189,893,926 12.7%

Revenue increased by 12.7% from the prior fiscal year primarily due to the revenue growth of our U.S.

Healthcare Solutions segment and our June 2021 acquisition of Alliance Healthcare.

Healthcare Solutions segment grew its revenue by $16.1 billion, or 8.6%, from the prior fiscal year, primarily due to increased sales of specialty products (which generally have higher selling prices) including COVID-19 treatments, overall market growth principally driven by unit volume growth, and growth in our animal health business.

More specifically, the increase in the U.S.

Healthcare Solutions segment revenue was largely attributable to the following (in billions):

Increased sales to Walgreens, our largest customer $1.8

Increased sales to specialty physician practices $2.3

Increased sales of COVID-19 treatments $3.2

Increased sales to other customers $8.8

Revenue in International Healthcare Solutions increased by $8.0 billion, or 228.7%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and due to growth in our Canadian business and our specialty transportation and logistics business.

Fiscal Year Ended

(dollars in thousands) 2021 2020 Change

Healthcare Solutions $ 5,028,950 $ 4,504,040 11.7%

International Healthcare Solutions 1,542,456 713,546 116.2%

Gains from antitrust litigation settlements 168,794 9,076

LIFO credit (expense) 203,028 (7,422)

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Gross profit $ 6,943,228 $ 5,191,884 33.7%

Gross profit increased 33.7%, or $1,751.3 million, from the prior fiscal year.

Gross profit in the current fiscal year was favorably impacted by increases in gross profit in Other and Pharmaceutical Distribution Services, a LIFO credit in the current year period in comparison to a LIFO expense in the prior year period, and an increase in gains from antitrust litigation settlements.

Pharmaceutical Distribution Services gross profit increased 12.3%, or $470.9 million, from the prior fiscal year due to revenue growth, including an increase in specialty product sales.

As a percentage of revenue, Pharmaceutical Distribution Services gross profit margin of 2.17% in the current fiscal year increased 7 basis points compared to the prior fiscal year primarily due to an increase in specialty product sales, including COVID-19 treatments.

Gross profit in Other increased 63.4%, or $887.5 million, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and revenue growth at World Courier and MWI.

As a percentage of revenue, gross profit margin in Other of 14.32% in the current fiscal year decreased from 18.60% in the prior fiscal year.

The decline in gross profit margin in the current fiscal year was primarily due to the June 2021 acquisition of Alliance Healthcare, which has a lower gross profit margin than the other operating segments within Other.

Gross profit increased by $1,751.3 million, or 33.7%, from the prior fiscal year.

Gross profit in fiscal 2021 was favorably impacted by increases in gross profit in U.S.

Healthcare Solutions and International Healthcare Solutions, a LIFO credit in the current year period in comparison to a LIFO expense in the prior year period, and an increase in gains from antitrust litigation settlements.

Healthcare Solutions gross profit increased by $524.9 million, or 11.7%, from the prior fiscal year due to revenue growth, including an increase in specialty product sales.

As a percentage of revenue, U.S.

Healthcare Solutions' gross profit margin of 2.48% in fiscal 2021 increased 6 basis points compared to the prior fiscal year primarily due to an increase in specialty product sales, including COVID-19 treatments.

Gross profit in International Healthcare Solutions increased by $828.9 million, or 116.2%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and revenue growth in our specialty transportation and logistics business.

As a percentage of revenue, gross profit margin in International Healthcare Solutions of 13.38% in fiscal 2021 decreased from 20.34% in the prior fiscal year.

The decline in gross profit margin in fiscal 2021 was primarily due to the June 2021 acquisition of Alliance Healthcare, which has a lower gross profit margin than the other operating segments within International Healthcare Solutions.

We recognized gains from antitrust litigation settlements with pharmaceutical manufacturers of $168.8 million and $9.1 million in the fiscal years ended September 30, 2021 and 2020, respectively.

The gains were recorded as reductions to Cost of Goods Sold (see Note 14 of the Notes to Consolidated Financial Statements).

Changes to any of the above factors may have a material impact to our annual LIFO provision.

The LIFO credit in the current fiscal year was largely driven by an increase in generic pharmaceutical deflation.

In the prior fiscal year, we incurred remediation costs in connection with the suspended production activities at PharMEDium.

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In September 2020, the United States Court of Appeals for the Second Circuit reversed the District Court’s decision, and, as a result, we accrued $14.8 million in the fiscal year ended September 30, 2020 related to our ratable share of the assessment.

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Operating Expenses

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Depreciation and amortization 505,172 391,062 29.2%

Employee severance, litigation, and other 471,911 6,807,307

Litigation and opioid-related expenses 272,623 6,722,346

Acquisition, integration, and restructuring expenses 199,288 84,961

Goodwill impairment 6,373 —

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Total operating expenses $ 4,589,031 $ 10,327,238 (55.6)%

Distribution, selling, and administrative expenses increased 29.9%, or $827.0 million, from the prior fiscal year.

Distribution, selling, and administrative expenses increased by $827.0 million, or 29.9%, from the prior fiscal year.

The increase from the prior fiscal year was primarily due to the June 2021 acquisition of Alliance Healthcare and an increase in payroll-related operating costs to support current and future revenue growth.

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Amortization expense increased 60.9% from the prior fiscal year primarily due to amortization of intangible assets originating from the June 2021 acquisition of Alliance Healthcare.

Employee severance, litigation, and other in the fiscal year ended September 30, 2021 included a $147.7 million accrual related to opioid litigation settlements and $124.9 million of legal fees and opioid related costs in connection with opioid lawsuits and investigations, $117.0 million of acquisition-related deal and integration costs primarily related to the June 2021 acquisition of Alliance Healthcare, $46.1 million of severance and other restructuring initiatives primarily related to the disposal of assets related to our return to office plan, and $36.3 million related to our business transformation efforts.

Employee severance, litigation, and other in the fiscal year ended September 30, 2020 included a $6.6 billion legal accrual (see Note 14 of the Notes to Consolidated Financial Statements) and $115.4 million of legal fees in connection with opioid lawsuits and investigations, $34.4 million of severance costs primarily related to position eliminations resulting from our decision to permanently exit the PharMEDium compounding business, $38.0 million related to our business transformation efforts, and $12.6 million of acquisition-related deal and integration costs and other restructuring initiatives.

Litigation and opioid-related expenses in the fiscal year ended September 30, 2020 included a $6.6 billion legal accrual and $115.4 million of legal fees in connection with opioid lawsuits and investigations.

Acquisition, integration, and restructuring expenses in the fiscal year ended September 30, 2020 included $38.0 million related to our business transformation efforts, $34.4 million of severance costs primarily related to position eliminations resulting from our decision to permanently exit the PharMEDium compounding business, and $12.6 million of acquisition-related deal and integration costs and other restructuring initiatives.

We recorded a goodwill impairment of $6.4 million in our Profarma reporting unit in the fiscal year ended September 30, 2021 in connection with our fiscal 2021 annual impairment test (see Note 5 of the Notes to Consolidated Financial Statements).

We recorded an $11.3 million loss on the remeasurement of a disposal group held for sale to fair value less cost to sell in Impairment of Assets in the fiscal year ended September 30, 2021 (see Note 2 of the Notes to Consolidated Financial Statements).

We recorded a $361.7 million impairment of PharMEDium's assets in Impairment of Assets in the fiscal year ended September 30, 2020 (see Note 1 of the Notes to Consolidated Financial Statements).

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Operating Income (Loss)

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(dollars in thousands) 2021 2020 Change

Pharmaceutical Distribution Services $ 2,041,072 $ 1,807,001 13.0%

Other 614,973 400,139 53.7%

Intersegment eliminations (7,841) (2,693)

Healthcare Solutions $ 2,257,918 $ 2,020,067 11.8%

International Healthcare Solutions 390,286 184,380 111.7%

Total segment operating income 2,648,204 2,204,447 20.1%

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Acquisition-related intangibles amortization (176,221) (110,478)

Employee severance, litigation, and other (471,911) (6,807,307)

Litigation and opioid-related expenses (272,623) (6,722,346)

Acquisition, integration, and restructuring expenses

(199,288) (84,961)

Goodwill impairment (6,373) —

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acquisition-related intangibles amortization;

employee severance, litigation, and other;

litigation and opioid-related expenses;

acquisition, integration, and restructuring expenses;

goodwill impairment;

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and contingent consideration adjustment.

Pharmaceutical Distribution Services operating income increased 13.0%, or $234.1 million, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses.

As a percentage of revenue, Pharmaceutical Distribution Services operating income margin was 1.03% and represented an increase of 4 basis points compared to the prior fiscal year.

Healthcare Solutions operating income increased by $237.9 million, or 11.8%, from the prior fiscal year primarily due to the increase in gross profit, as noted above, and was offset in part by an increase in operating expenses.

As a percentage of revenue, U.S.

Healthcare Solutions operating income margin was 1.12% and represented an increase of 4 basis points compared to the prior fiscal year.

The increase from the prior year fiscal year was primarily due to the increase in specialty product sales, including COVID-19 treatments.

Operating income in Other increased 53.7%, or $214.8 million, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and the increases in operating income at MWI and World Courier.

Operating income in International Healthcare Solutions increased by $205.9 million, or 111.7%, from the prior fiscal year primarily due to the June 2021 acquisition of Alliance Healthcare and an increase in operating income at World Courier.

One of our non-wholly-owned subsidiaries, Profarma, which we consolidate based on certain governance rights (see Note 3 of the Notes to Consolidated Financial Statements), adjusted its previous estimate of contingent consideration in the prior fiscal year related to the purchase price of one of its prior business acquisitions.

We recorded a $64.7 million gain on the remeasurement of an equity investment, a $14.0 million impairment of a non-customer note receivable related to a start-up venture, and a foreign currency loss of $3.4 million on the remeasurement of deferred tax assets relating to Swiss tax reform in the fiscal year ended September 30, 2021.

Other Income, Net

Interest Expense, Net

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Interest expense, net $ 174,074 $ 137,883

Interest expense, net increased 26.2%, or $36.2 million, from the prior fiscal year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000 million of 2.700% senior notes in March 2021, and the $500 million variable-rate term loan that was issued in June 2021, all of which were used to finance a portion of the June 2021 acquisition of Alliance

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Healthcare, the incremental interest expense associated with Alliance Healthcare's debt in certain countries, and the decrease in interest income resulting from a decrease in investment interest rates.

The increase in interest expense as a result of the above-mentioned debt issuances was offset in part by a lower weighted-average borrowing interest rate and the repayment of our $400 million term loan upon its maturity in October 2020.

Interest expense, net increased by $36.2 million, or 26.2%, from the prior fiscal year due to the issuance of our $1,525 million of 0.737% senior notes, $1,000 million of 2.700% senior notes in March 2021, and the $500 million variable-rate term loan that was issued in June 2021, all of which were used to finance a portion of the June 2021 acquisition of Alliance Healthcare, the incremental interest expense associated with Alliance Healthcare's debt in certain countries, and the decrease in interest income resulting from a decrease in investment interest rates.

Income Tax Expense (Benefit)

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Net Income (Loss) Attributable to AmerisourceBergen Corporation and Diluted Earnings Per Share

Net income attributable to AmerisourceBergen and diluted earnings per share were significantly lower in the prior fiscal year primarily due to the legal accrual recognized in connection with opioid lawsuits.

Fiscal Year Ended September 30, 2020 compared to the Fiscal Year Ended September 30, 2019

For a discussion of the comparison of our results of operations for the fiscal years ended September 30, 2020 and 2019, refer to the Management's Discussion and Analysis of Financial Condition and Results of Operations section in our previously filed Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Net income attributable to AmerisourceBergen and diluted earnings per share were significantly lower in fiscal 2020 due to the legal accrual recognized in connection with opioid lawsuits.

Critical Accounting Policies and Estimates

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Each business unit performs formal, documented reviews of the allowance at least quarterly, and our largest business units perform such reviews monthly.

There were no significant changes to this process during the fiscal years ended September 30, 2021, 2020, and 2019 bad debt expense was computed in a consistent manner during these periods.

There were no significant changes to this process during the fiscal years ended September 30, 2022, 2021, and 2020, and bad debt expense was computed in a consistent manner during these periods.

The bad debt expense for any period presented is equal to the changes in the period end allowance for credit losses, net of write-offs, recoveries, and other adjustments.

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The allowance for credit losses was $94.7 million and $85.1 million as of September 30, 2022 and 2021, respectively.

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Schedule II of this Form 10-K sets forth a rollforward of allowances for returns and credit losses.

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We evaluate whether the components within our operating segments have similar economic characteristics, which include the similarity of long-term gross margins, the nature of the components' products, services, and production processes, the types of customers and the methods by which products or services are delivered to customers, and the components' regulatory environment.

Our reporting units include Pharmaceutical Distribution Services, Profarma, ABCS, World Courier, MWI, and Alliance Healthcare.

We announced a strategic reorganization of our business and began reporting externally under the new structure as of October 1, 2021.

As of September 30, 2022, our reporting units include Pharmaceutical Distribution Services, U.S.

Consulting Services, MWI, Alliance Healthcare, Innomar, World Courier, and Profarma.

Goodwill and other intangible assets with indefinite lives, such as certain trademarks and trade names, are not amortized;

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If we conclude based on its qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, it performs a quantitative analysis.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of fiscal 2021, with the exception of our testing of goodwill in the ABCS and Profarma reporting units.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of fiscal 2020, with the exception of our testing of goodwill and indefinite-lived intangibles in the MWI and Profarma reporting units.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of fiscal 2019, with the exception of our testing of goodwill in the Profarma reporting unit.

We elected to perform a quantitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2022.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2021, with the exception of our testing of goodwill in the AmerisourceBergen Consulting Services (the sum of U.S.

Consulting Services and Innomar reporting units, under our prior reporting structure) and Profarma reporting units.

We elected to perform a qualitative impairment assessment of goodwill and indefinite-lived intangible assets in fiscal 2020, with the exception of our testing of goodwill and indefinite-lived intangibles in the MWI and Profarma reporting units.

The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit.

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The discount rate is an estimate of the overall after-tax rate of return required by a market participant whose weighted average cost of capital includes both debt and equity, including a risk premium.

While we use the best available information to prepare our cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.

While we use the best available information to prepare our forecasted cash flows and discount rate assumptions, actual future cash flows and/or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.

While there are always changes in assumptions to reflect changing business and market conditions, our overall methodology and the population of assumptions used have remained unchanged.

The quantitative impairment test for indefinite-lived intangibles other than goodwill (certain trademarks and trade names) consists of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of

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the impairment testing date.

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The fair value derived from the relief from royalty method is measured as the discounted cash flow savings realized from owning such indefinite-lived trademarks and trade names and not having to pay a royalty for their use.

We completed our required annual impairment tests relating to goodwill and indefinite-lived intangible assets in the fourth quarter of the fiscal years ended September 30, 2021, 2020, and 2019.

We recorded a goodwill impairment of $6.4 million in our Profarma reporting unit in connection with its fiscal 2021 annual impairment test (see Note 6 of the Notes to Consolidated Financial Statements).

No indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2021, 2020, and 2019 and no goodwill impairments were recorded in the fiscal years ended September 30, 2020 and 2019.

We completed our required annual impairment tests relating to goodwill and indefinite-lived intangible assets in the fiscal years ended September 30, 2022, 2021, and 2020.

We recorded goodwill impairments of $75.9 million and $6.4 million in our Profarma reporting unit in connection with our fiscal 2022 and 2021 impairment tests, respectively (see Note 5 of the Notes to Consolidated Financial Statements).

No goodwill impairments were recorded in the fiscal years ended September 30, 2020, and no indefinite-lived intangible asset impairments were recorded in the fiscal years ended September 30, 2022, 2021, or 2020.

Finite-lived intangible assets are amortized using the straight-line method over the estimated useful lives of the assets.

We perform a recoverability assessment of our long-lived assets when impairment indicators are present.

Food and Drug Administration ("FDA") inspections of PharMEDium Healthcare Holdings, Inc.'s ("PharMEDium") compounding facilities, we voluntarily suspended production activities in December 2017 at its largest compounding facility located in Memphis, Tennessee pending execution of certain remedial measures.

As a result of the suspension of production activities at PharMEDium's compounding facility located in Memphis, Tennessee and the regulatory matters, we performed a recoverability assessment of PharMEDium's long-lived assets and recorded a $570.0 million impairment loss in the quarter ended March 31, 2019 for the amount that the carrying value of the PharMEDium asset group exceeded its fair value.

Prior to the impairment, the carrying value of the asset group was $792 million.

The fair value of the asset group was $222 million as of March 31, 2019.

As a result of the continued suspension of the production activities at PharMEDium's compounding facility located in Memphis, Tennessee, certain regulatory matters, ongoing operational challenges, and lower-than-expected operating results, we updated our recoverability assessment of PharMEDium’s long-lived assets as of December 31, 2019.

The recoverability assessment was based upon comparing PharMEDium's forecasted undiscounted cash flows to the carrying value of its asset group.

Using forecasted undiscounted cash flows that were based on the weighted average of multiple strategic alternatives, we concluded that the carrying value of the PharMEDium long-lived asset group was not recoverable as of December 31, 2019 and recorded an impairment loss of $138.0 million in the three months ended December 31, 2019.

We allocated $123.2 million of the impairment to finite-lived intangibles, $11.6 million of the impairment to property and equipment, and $3.2 million to ROU assets.

In January 2020, we decided to permanently exit the PharMEDium compounding business, and, as a result, we ceased all commercial and administrative operations related to this business in fiscal 2020.

The decision to permanently exit the PharMEDium business was due to a number of factors including, but not limited to, ongoing operational, regulatory, and commercial challenges, such as PharMEDium's decision in January 2020 to suspend production at the compounding facility in New Jersey pending facility upgrades related to the air handling and filtration systems.

In connection with the decision to exit the PharMEDium business, we recorded an impairment of PharMEDium's assets of $223.7 million in the three months ended March 31, 2020, which included impairments of the remaining finite-lived intangible assets and the majority of the remaining tangible assets.

We recorded impairments of intangible and tangible assets totaling $361.7 million in the fiscal year ended September 30, 2020 in connection with the permanent shutdown of our compounding business.

Our income tax expense, deferred tax assets and liabilities, and uncertain tax positions reflect management's assessment of estimated future taxes to be paid on items in the financial statements.

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Significant judgment is exercised in applying complex tax laws and regulations across multiple global jurisdictions where we conduct our operations.

We recognize the tax benefit

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from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based upon the technical merits of the position.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, including resolutions of any related appeals or litigation processes, based upon the technical merits of the position.

We believe that our estimates for the valuation allowances against deferred tax assets and the amount of benefits recognized in our financial statements for uncertain tax positions are appropriate based upon current facts and circumstances.

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Inventories are stated at the lower of cost or market.

Cost for approximately 66% and 70% of our inventories as of September 30, 2021 and 2020, respectively, has been determined using the LIFO method.

Cost for approximately 66% of our inventories as of September 30, 2022 and 2021 has been determined using the LIFO method.

If we had used the first-in, first-out method of inventory valuation, which approximates current replacement cost, inventories would have been approximately $1,383.4 million and $1,316.2 million higher than the amounts reported as of September 30, 2022 and 2021, respectively.

We recorded LIFO credits of $203.0 million and $22.5 million in the fiscal years ended September 30, 2021 and 2019, respectively.

We recorded a LIFO expense of $7.4 million in the fiscal year ended September 30, 2020.

The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory quantities, and product mix, many of which are difficult to predict.

We recorded LIFO expense of $67.2 million and $7.4 million in the fiscal years ended September 30, 2022 and 2020, respectively.

We recorded a LIFO credit of $203.0 million in the fiscal year ended September 30, 2021.

The annual LIFO provision is affected by manufacturer pricing practices, which may be impacted by market and other external influences, changes in inventory

quantities, and product mix, many of which are difficult to predict.

Changes to any of the above factors can have a material impact to our annual LIFO provision.

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Our primary ongoing cash requirements will be to finance working capital, fund the repayment of debt, fund the payment of interest on debt, fund the payment of dividends, fund purchases of our common stock, finance acquisitions, and fund capital expenditures and routine growth and expansion through new business opportunities.

Future cash flows from operations and borrowings are expected to be sufficient to fund our ongoing cash requirements, including the opioid litigation payments that are expected to be made over 18 years (see below).

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Future cash flows from operations and borrowings are expected to be sufficient to fund our ongoing cash requirements, including the opioid litigation payments that will be made over 18 years (see below).

As of September 30, 2022 and 2021, our cash and cash equivalents held by foreign subsidiaries were $688.4 million and $725.4 million, respectively.

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During the fiscal years ended September 30, 2022 and 2021, our operating activities provided cash of $2,703.1 million and $2,666.6 million, respectively.

Cash provided by operations in the fiscal year ended September 30, 2021 was principally the result of an increase in accounts payable of $2,049.2 million, net income of $1,544.6 million, and non-cash items of $754.7 million, offset in part by an increase in inventories of $1,116.3 million and an increase in accounts receivable of $930.1 million.

The increase in accounts payable was primarily driven by the increase in inventories and the timing of scheduled payments to suppliers.

Non-cash items were primarily comprised of the provision for deferred income taxes of $334.9 million, depreciation expense of $326.7 million, amortization expense of $188.1 million, and a LIFO credit of $203.0 million.

The increase in inventories reflects the increase in business volume.

The increase in accounts receivable was the result of our revenue growth and the timing of payments from our customers.

Cash provided by operations in the fiscal year ended September 30, 2022 was principally the result of the following:

• An increase in accounts payable of $3,320.7 million primarily due to the increase in our inventory balances and the timing of scheduled payments to our suppliers;

• Net income of $1,666.5 million;

• Positive non-cash items of $1,176.2 million, which is primarily comprised of depreciation expense of $390.6 million, amortization expense of $319.2 million, and the provision for deferred income taxes of $196.2 million, offset in part by:

◦ An increase in accounts receivable of $1,659.5 million primarily due to an increase in sales and the timing of scheduled payments from our customers;

◦ An increase in inventories of $665.4 million to support the increase in business volume;

◦ A decrease in long-term accrued litigation liability of $500.2 million due to opioid litigation settlement payments;

◦ A decrease in accrued expenses of $457.2 million;

◦ A decrease in income taxes payable and other liabilities of $330.1 million.

During the fiscal years ended September 30, 2021 and 2020, our operating activities provided cash of $2,666.6 million and $2,207.0 million, respectively.

Cash provided by operations in the fiscal year ended September 30, 2020 was principally the result of an increase in the accrued litigation liability of $6,198.9 million, an increase in accounts payable of $3,300.8 million, and an increase in accrued expenses of $524.0 million, largely offset in part by a net loss of $3,399.6 million, an increase in accounts receivable of $1,629.0 million, an increase in inventories of $1,621.1 million, non-cash items of $662.4 million, and an increase in income taxes receivable of $482.6 million.

The increases in the accrued litigation liability and accrued expenses were primarily due to a legal accrual for litigation relating to the distribution of prescription opioid pain medications (see Note 14 of the Notes to Consolidated Financial Statements).

The increase in accounts payable was primarily driven by the increase in inventories and the timing of scheduled payments to suppliers.

The increase in accounts receivable was the result of our revenue growth and the timing of payments from our customers.

The increase in inventories was due to an increase in business volume.

Non-cash items were comprised primarily of a deferred income tax benefit of $1,545.0 million primarily related to a legal accrual in connection with opioid lawsuits and Swiss Tax Reform, offset in part by a $361.7 million impairment of PharMEDium's long-lived assets (see Note 1 of the Notes to Consolidated Financial Statements), $290.7 million of depreciation expense, and $117.3 million of amortization expense.

The increase in income taxes receivable was the result of a benefit recorded in connection with certain discrete items (see Note 5 of the Notes to Consolidated Financial Statements).

Cash provided by operations in the fiscal year ended September 30, 2021 was principally the result of the following:

• An increase in accounts payable of $2,049.2 million primarily driven by the increase in inventories and the timing of scheduled payments to our suppliers;

• Net income of $1,544.6 million;

• Net positive non-cash items totaling $754.7 million, which is primarily comprised of the provision for deferred income taxes of $334.9 million, depreciation expense of $326.7 million, amortization expense of $188.1 million, and a LIFO credit of $203.0 million, offset in part by:

◦ An increase in inventories of $1,116.3 million to support the increase in business volume;

◦ An increase in accounts receivable of $930.1 million primarily due to our revenue growth and the timing of payments from our customers.

We use days sales outstanding, days inventory on hand, and days payable outstanding to evaluate our working capital performance.

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The acquisition of Alliance Healthcare increased our days sales outstanding and days payable outstanding as it has longer payment terms with customers and manufacturers.

Our ratios could increase in fiscal 2022 as a result of a full year's impact of Alliance Healthcare.

Operating cash flows during the fiscal year ended September 30, 2022 included $219.8 million of interest payments and $244.4 million of income tax payments, net of refunds.

Operating cash flows during the fiscal year ended September 30, 2021 included $170.9 million of interest payments and $93.5 million of income tax payments, net of refunds.

Operating cash flows during the fiscal

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year ended September 30, 2019 included $167.4 million of interest payments and $117.7 million of income tax payments, net of refunds.

Operating cash flows during the fiscal year ended September 30, 2020 included $150.7 million of interest payments and $139.4 million of income tax payments, net of refunds.

Capital expenditures in the fiscal years ended September 30, 2022, 2021, and 2020 were $496.3 million, $438.2 million, and $369.7 million, respectively.

Significant capital expenditures in fiscal 2022 included investments in various technology initiatives, including technology initiatives at Alliance Healthcare.

Significant capital expenditures in fiscal 2021 and 2020 included costs associated with facility expansions, and various technology initiatives, including costs related to enhancing and upgrading our primary information technology operating systems.

Significant capital expenditures in fiscal 2019 included costs associated with the construction of a new support facility and technology initiatives, including costs related to enhancing and upgrading our information technology systems.

We currently expect to spend approximately $500 million for capital expenditures during fiscal 2023.

Larger 2022 capital expenditures will include investments relating to various technology initiatives, including technology investments at Alliance Healthcare.

Net cash used in investing activities in the fiscal year ended 2021 included $5,563.0 million of costs to acquire companies, which principally related to the June 2021 acquisition of Alliance Healthcare, net of cash acquired, and $162.6 million for equity investments.

We acquired a business to support our animal health business for $54.0 million in the fiscal year ended September 30, 2019.

Net cash used in financing activities in the fiscal year ended September 30, 2021 principally resulted from the issuance of senior notes and the February 2021 Term Loan (see above) and $198.8 million of exercises of stock options, offset in part by $650 million of repayments of our term loans, $366.6 million in cash dividends paid on our common stock, and $82.2 million in purchases of our common stock.

Net cash used in financing activities in the fiscal year ended September 30, 2020 principally related to $420.4 million in purchases of our common stock and $343.6 million in cash dividends paid on our common stock.

Larger 2023 capital expenditures will include investments relating to various technology initiatives, including technology investments at Alliance Healthcare and those required to comply with new regulatory requirements.

In addition to capital expenditures, net cash used in investing activities in the fiscal year ended September 30, 2022 included $133.8 million of cash to acquire companies, including $60.0 million that was paid to settle accrued consideration related to the Alliance Healthcare acquisition (see Note 2 of the Notes to Consolidated Financial Statements), and was offset in part by $272.6 million in proceeds from the sale of non-core businesses.

In addition to capital expenditures, net cash used in investing activities in the fiscal year ended 2021 included $5,563.0 million of cash to acquire companies, which principally related to the June 2021 acquisition of Alliance Healthcare, net of cash acquired, and $162.6 million for equity investments.

Net cash used in financing activities in the fiscal year ended September 30, 2022 principally resulted from an $850 million repayment of our 0.737% senior notes that mature in 2023, the repayment of our $250 million term loan, $391.7 million in cash dividends paid on our common stock, and $483.7 million in purchases of our common stock.

Net cash provided by financing activities in the fiscal year ended September 30, 2021 principally resulted from the issuance of senior notes and the February 2021 Term Loan (see above) and $198.8 million of exercises of stock options, offset in part by $650 million of repayments of our term loans, $366.6 million in cash dividends paid on our common stock, and $82.2 million in purchases of our common stock.

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Debt and Credit Facility Availability

The following illustrates our debt structure as of September 30, 2021, including availability under the multi-currency revolving credit facility, the receivables securitization facility, the revolving credit note, the 364-day revolving credit facility, Alliance Healthcare debt, and the overdraft facility:

The following illustrates our debt structure as of September 30, 2022, including availability under the multi-currency revolving credit facility, the receivables securitization facility, the revolving credit note, the money market facility, Alliance Healthcare debt, and the overdraft facility:

(in thousands) Outstanding

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Revolving credit note — 75,000

Money market facility — 100,000

Receivables securitization facility due 2025 350,000 1,100,000

364-day revolving credit facility — 1,000,000

Term loan due June 2023 249,640 —

Overdraft facility due 2024 (£10,000) — 11,169

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The 2031 Notes were sold at 99.79% of the principal amount and have an effective yield of 2.706%.

Interest on the 2031 Notes is payable semi-annually in arrears, commencing on September 15, 2021.

The 2023 Notes and 2031 Notes rank pari passu to our other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, and the Overdraft Facility.

Interest on the 2031 Notes is payable semi-annually in arrears and commenced on September 15, 2021.

The 2023 Notes and 2031 Notes rank pari passu to our other senior notes, the Multi-Currency Revolving Credit Facility, the Revolving Credit Note, the Overdraft Facility, and the Money Market Facility.

We used the proceeds from the 2023 Notes and 2031 Notes to finance a portion of the June 2021 Alliance Healthcare acquisition.

In fiscal 2022, we elected to repay $850 million of the 2023 Notes due in March 2023.

In addition to the 2023 Notes, the 2030 Notes, and the 2031 Notes, we have $500 million of 3.40% senior notes due May 15, 2024, $500 million of 3.25% senior notes due March 1, 2025, $750 million of 3.45% senior notes due December 15, 2027, $500 million of 4.25% senior notes due March 1, 2045, and $500 million of 4.300% senior notes due December 15, 2047 (collectively, the "Notes").

Interest on the Notes is payable semiannually in arrears.

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We have a $1.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire in September 2024, with a syndicate of lenders.

In November 2021, we increased the capacity of the Multi-Currency Revolving Credit Facility by $1.0 billion to $2.4 billion and extended the expiration to November 2026.

Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon our debt rating and ranges from 70 basis points to 112.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee, as applicable (101.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2021) and from 0 basis points to 12.5 basis points over the alternate base rate and Canadian prime rate, as applicable.

We have a $2.4 billion multi-currency senior unsecured revolving credit facility ("Multi-Currency Revolving Credit Facility"), which was scheduled to expire in November 2026, with a syndicate of lenders.

In October 2022, we amended and restated the Multi-Currency Revolving Credit Facility to extend the expiration to October 2027 and to make changes to effect a transition from the LIBOR interest rate benchmark to Term SOFR.

Interest on borrowings under the Multi-Currency Revolving Credit Facility accrues at specified rates based upon our debt rating and ranges from 80.5 basis points to 122.5 basis points over SOFR/EURIBOR/CDOR/RFR, as applicable (101.5 basis points over CDOR/LIBOR/EURIBOR/Bankers Acceptance Stamping Fee as of September 30, 2022) and from 0 basis points to 22.5 basis points over the alternate base rate and Canadian prime rate, as applicable.

We pay facility fees to maintain the availability under the Multi-Currency Revolving Credit Facility at specified rates based upon our debt rating, ranging from 7 basis points to 15 basis points, annually, of the total commitment (11 basis points as of September 30, 2022).

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There were no borrowings outstanding under our commercial paper program as of September 30, 2022 and 2021.

We have a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire in September 2022.

In November 2021, we amended the Receivables Securitization Facility to extend the maturity to November 2024.

We have a $1,450 million receivables securitization facility ("Receivables Securitization Facility"), which was scheduled to expire in November 2024.

In October 2022, we amended the Receivables Securitization Facility ("Receivables Amendment") to extend the expiration for an additional one year until October 2025.

In addition, the Receivables Amendment made changes to (i) substitute Term SOFR for LIBOR as a benchmark and establish procedures to choose a new benchmark if Term SOFR becomes unavailable, (ii) provide for the return of erroneous payments, if any, by purchasers, (iii) update provisions regarding compliance with sanctions and anti-money laundering laws, and (iv) implement certain other technical amendments.

We have available to us an accordion feature whereby the commitment on the Receivables Securitization Facility may be increased by up to $250 million, subject to lender approval, for seasonal needs during the December and March quarters.

Interest rates are based upon prevailing market rates for short-term commercial paper or LIBOR plus a program fee.

Interest rates are based upon prevailing market rates for short-term commercial paper or 30-day Term SOFR plus a program fee.

We pay a customary unused fee at prevailing market rates, annually, to maintain the availability under the Receivables Securitization Facility.

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The Receivables Securitization Facility contains similar covenants to the Multi-Currency Revolving Credit Facility, with which we were compliant as of September 30, 2022.

In April 2019, we elected to repay $150.0 million of our outstanding Receivables Securitization Facility balance prior to the scheduled maturity date.

We have an uncommitted, unsecured line of credit available to us pursuant to a revolving credit note ("Revolving Credit Note").

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The Revolving Credit Note may be decreased or terminated by the bank or us at any time without prior notice.

We also have an uncommitted U.K.

overdraft facility ("Overdraft Facility") to fund short-term normal trading cycle fluctuations related to its MWI business.

In February 2021, we extended the Overdraft Facility to February 2024 and reduced the borrowing capacity from £30 million to £10 million.

In February 2021, we entered into an agreement pursuant to which we obtained a $1.0 billion senior unsecured revolving credit facility ("364-Day Revolving Credit Facility") with a syndicate of lenders, which is scheduled to expire 364 days after June 1, 2021, the closing of the Alliance Healthcare acquisition.

In November 2021, we terminated the 364-Day Revolving Credit Facility.

In October 2018, we refinanced $400 million of outstanding term loans by issuing a new $400 million variable-rate term loan ("October 2018 Term Loan").

We also have a £10 million uncommitted U.K.

overdraft facility ("Overdraft Facility"), which expires in February 2024, to fund short-term normal trading cycle fluctuations related to our MWI Animal Health business.

We have an uncommitted, unsecured line of credit available to us pursuant to a money market credit agreement ("Money Market Facility").

The Money Market Facility provides us with the ability to request short-term unsecured revolving credit loans from time to time in a principal amount not to exceed $100 million.

The Money Market Facility may be decreased or terminated by the bank or us at any time without prior notice.

Our $400 million Term Loan matured and was repaid in October 2020.

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In February 2021, we entered into a $1.0 billion variable-rate term loan (“February 2021 Term Loan”), which was available to be drawn on the closing date of the acquisition of Alliance Healthcare.

In April 2021, we reduced our commitment under the February 2021 Term Loan to $500 million.

In June 2021, we borrowed $500 million under the February 2021 Term Loan to finance a portion of the Alliance Healthcare acquisition.

The February 2021 Term Loan matures in June 2023.

In September 2021, we elected to make a principal payment, prior to the scheduled repayment date, of $250 million on the February 2021 term loan.

The February 2021 Term Loan bears interest at a rate equal either to a base rate plus a margin, or LIBOR, plus a margin.

The margin is based on the public debt ratings of us and ranges from 87.5 basis points to 137.5 basis points (112.5 basis points as of September 30, 2021) over LIBOR and 0 basis points to 37.5 basis points (12.5 basis points as of September 30, 2021) over a base rate.

The February 2021 Term Loan contains similar covenants to the Multi-Currency Revolving Credit Facility, with which we were compliant as of September 30, 2021.

In June 2021, we borrowed $500 million under the February 2021 Term Loan to finance a portion of the June 2021 Alliance Healthcare acquisition.

We elected to make principal payments of $250 million in September 2021 and again in March 2022 to repay the loan that was scheduled to mature in 2023.

Alliance Healthcare debt is comprised of uncommitted revolving credit facilities in various currencies with various rates.

A vast majority of the outstanding borrowings were held in Egypt (which is 50% owned) as of September 30, 2021.

A majority of the outstanding borrowings were held in Egypt (which is 50% owned) as of September 30, 2022 and 2021.

These facilities are used to fund its working capital needs.

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Share Purchase Programs and Dividends

In November 2016, our board of directors authorized a share repurchase program allowing us to purchase up to $1.0 billion in shares of our common stock, subject to market conditions.

During the fiscal year ended September 30, 2019, we purchased $125.8 million of our common stock under this program, which excluded $24.0 million of September 2018 purchases that cash settled in October 2018, to complete our authorization under this program.

In October 2018, our board of directors authorized a share repurchase program allowing us to purchase up to $1.0 billion of our shares of common stock, subject to market conditions.

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During the fiscal year ended September 30, 2021, we purchased $26.6 million of our common stock.

During the fiscal year ended September 30, 2022, we purchased $473.4 million of our common stock to complete our authorization under this program.

In May 2022, the Company's board of directors authorized a new share repurchase program allowing the Company to purchase up to $1.0 billion of its outstanding shares of common stock, subject to market conditions.

During the fiscal year ended September 30, 2022, we purchased $38.7 million of our common stock, which included $28.4 million of September 2022 purchases that cash settled in October 2022.

As of September 30, 2022, we had $961.3 million of availability remaining under this program.

In October 2022, under this program, we purchased 0.6 million shares of our common stock for $78.8 million.

In November 2022, under this program, we purchased 3.2 million shares of our common stock from WBA for $500.0 million.

Our board of directors approved the following quarterly dividend increases:

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Date New Rate Old Rate % Increase

November 2018 $0.400 $0.380 5%

January 2020 $0.420 $0.400 5%

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November 2021 $0.460 $0.440 5%

November 2022 $0.485 $0.460 5%

We anticipate that we will continue to pay quarterly cash dividends in the future.

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Commitments and Obligations

As discussed in Note 14 of the Notes to Consolidated Financial Statements, in the fourth quarter of fiscal 2020, with regard to litigation relating to our proposed global opioid settlement as well as other opioid-related litigation, we recorded a $6.6 billion liability ($5.5 billion, net of an income tax benefit).

The proposed settlement agreement includes a cash component, pursuant to which we would pay up to approximately

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$6.4 billion over 18 years, including a $288.4 million payment into escrow that was made in September 2021.

The $288.4 million that was paid into escrow did not reduce our short-term liability as it was recorded as restricted cash in Prepaid Expense and Other on our Consolidated Balance Sheet as of September 30, 2021.

The escrow payment related to the proposed settlement agreement will be disbursed following the effective date of the settlement, or returned to us if the settlement does not become effective.

As discussed in Note 13 of the Notes to Consolidated Financial Statements, on July 21, 2021, it was announced that we and the two other national pharmaceutical distributors had negotiated a comprehensive opioid settlement agreement.

The comprehensive settlement agreement became effective on April 2, 2022, and as of September 30, 2022, it included 48 of 49 eligible states (the “Settling States”) as well as 99% by population of the eligible political subdivisions in the Settling States.

Pursuant to the comprehensive settlement agreement and related agreements with Settling States, we will pay up to approximately $6.4 billion over 18 years.

Our estimated liability related to the State of Alabama (with whom we have not reached a settlement agreement), as well as other opioid-related litigation for which we have reached settlement agreements is approximately $0.4 billion.

Net of $0.8 billion of payments made through September 30, 2022, we have a $6.0 billion liability on our Consolidated Balance Sheet as of September 30, 2022 for litigation relating to our comprehensive opioid settlement as well as other opioid-related litigation.

The payment of the aforementioned litigation liability has not and is not expected to have an impact on our ability to pay dividends.

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Our liability for uncertain tax positions as of September 30, 2022 primarily includes an uncertain tax benefit related to the $6.8 billion legal accrual for litigation related to the distribution of prescription opioid pain medications, as disclosed in Note 13 of the Notes to Consolidated Financial Statements.

We have exposure to foreign currency and exchange rate risk from our non-U.S.

Our largest exposure to foreign exchange rates exists primarily with the U.K.

Pound Sterling, the Euro, the Turkish Lira, the Egyptian Pound, the Brazilian Real, and the Canadian Dollar.

During the quarter ended March 31, 2022, Turkey became a highly inflationary economy, as defined under U.S.

GAAP (see Note 1 of the Notes to Consolidated Financial Statements).

Also, with the June 2021 acquisition of Alliance Healthcare, our foreign currency and exchange rate risk increased;

therefore, we now use forward contracts to hedge against the foreign currency exchange rate impact on certain intercompany receivable and payable balances.

We may use derivative instruments to hedge our foreign currency exposure, but not for speculative or trading purposes.

Revenue from our foreign operations during the fiscal year ended September 30, 2022 was approximately 11% of our consolidated revenue.

We have market risk exposure to interest rate fluctuations relating to our debt.

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The amount of variable-rate debt fluctuates during the year based on our working capital requirements.

We had $0.9 billion of variable-rate debt outstanding as of September 30, 2021.

We had $746.1 million of variable-rate debt outstanding as of September 30, 2022.

We periodically evaluate financial instruments to manage our exposure to fixed and variable interest rates.

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For every $100 million of cash invested that is in excess of variable-rate debt, a 10-basis point decrease in interest rates would increase our annual net interest expense by $0.1 million.

We have exposure to foreign currency and exchange rate risk from our non-U.S.

Our largest exposure to foreign exchange rates exists primarily with the Euro, the U.K.

Pound Sterling, the Turkish Lira, the Egyptian Pound, the Brazilian Real, and the Canadian Dollar.

With the June 2021 acquisition of Alliance Healthcare, our foreign currency and exchange rate risk increased;

therefore, we now use foreign currency denominated forward contracts to hedge against changes in foreign exchange rates.

We may use derivative instruments to hedge our foreign currency exposure, but not for speculative or trading purposes.

Revenue from our foreign operations during the fiscal year ended September 30, 2021 was approximately five percent of our consolidated revenue and included four months of revenue from Alliance Healthcare.

We expect revenue from foreign operations to increase in the future as Alliance Healthcare's revenue will comprise a larger portion of our total revenue.

Deterioration of general economic conditions, among other factors, could adversely affect the number of prescriptions that are filled and the amount of pharmaceutical products purchased by consumers and, therefore, could reduce purchases by our customers.

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Reduced purchases by our customers or changes in the ability of our customers to remit payments to us could adversely affect our revenue growth, our profitability, and our cash flow from operations.

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Cautionary Note Regarding Forward-Looking Statements

Certain of the statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act").

Words such as "expect," "likely," "outlook," "forecast," "would," "could," "should," "can," "project," "intend," "plan," "continue," "sustain," "synergy," "on track," "believe," "seek," "estimate," "anticipate," "may," "possible," "assume," variations of such words, and similar expressions are intended to identify such forward-looking statements.

These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances and speak only as of the date hereof.

These statements are not guarantees of future performance and are based on assumptions and estimates that could prove incorrect or could cause actual results to vary materially from those indicated.

Among the factors that could cause actual results to differ materially from those projected, anticipated, or implied are the following:

unfavorable trends in brand and generic pharmaceutical pricing, including in rate or frequency of price inflation or deflation;

competition and industry consolidation of both customers and suppliers resulting in increasing pressure to reduce prices for our products and services;

changes in the United States healthcare and regulatory environment, including changes that could impact prescription drug reimbursement under Medicare and Medicaid;

increasing governmental regulations regarding the pharmaceutical supply channel;

declining reimbursement rates for pharmaceuticals;

continued federal and state government enforcement initiatives to detect and prevent suspicious orders of controlled substances and the diversion of controlled substances;

continued prosecution or suit by federal, state and other governmental entities of alleged violations of laws and regulations regarding controlled substances, including due to failure to achieve a global resolution of the multi-district opioid litigation and other related state court litigation, and any related disputes, including shareholder derivative lawsuits;

increased federal scrutiny and litigation, including qui tam litigation, for alleged violations of laws and regulations governing the marketing, sale, purchase and/or dispensing of pharmaceutical products or services, and associated reserves and costs;

failure to comply with the Corporate Integrity Agreement;

material adverse resolution of pending legal proceedings;

the retention of key customer or supplier relationships under less favorable economics or the adverse resolution of any contract or other dispute with customers or suppliers;

changes to customer or supplier payment terms, including as a result of the COVID-19 impact on such payment terms;

the integration of the Alliance Healthcare businesses into the Company being more difficult, time consuming or costly than expected;

the Company's or Alliance Healthcare's failure to achieve expected or targeted future financial and operating performance and results;

the effects of disruption from the acquisition and related strategic transactions on the respective businesses of the Company and Alliance Healthcare and the fact that the acquisition and related strategic transactions may make it more difficult to establish or maintain relationships with employees, suppliers and other business partners;

the acquisition of businesses, including the acquisition of the Alliance Healthcare businesses and related strategic transactions, that do not perform as expected, or that are difficult to integrate or control, or the inability to capture all of the anticipated synergies related thereto or to capture the anticipated synergies within the expected time period;

risks associated with the strategic, long-term relationship between WBA and the Company, including with respect to the pharmaceutical distribution agreement and/or the global generic purchasing services arrangement;

managing foreign expansion, including non-compliance with the U.S.

Foreign Corrupt Practices Act, anti-bribery laws, economic sanctions and import laws and regulations;

financial market volatility and disruption;

changes in tax laws or legislative initiatives that could adversely affect the Company's tax positions and/or the Company's tax liabilities or adverse resolution of challenges to the Company's tax positions;

substantial defaults in payment, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer, including as a result of COVID-19;

the loss, bankruptcy or insolvency of a major supplier, including as a result of COVID-19;

financial and other impacts of COVID-19 on our operations or business continuity;

changes to the customer or supplier mix;

malfunction, failure or breach of sophisticated information systems to operate as designed;

risks generally associated with data privacy regulation and the international transfer of personal data;

natural disasters or other unexpected events, such as additional pandemics, that affect the Company’s operations;

the impairment of goodwill or other intangible assets (including any additional impairments with respect to foreign operations), resulting in a charge to earnings;

the acquisition of businesses that do not perform as expected, or that are difficult to integrate or control, or the inability to capture all of the anticipated synergies related thereto or to capture the anticipated synergies within the expected time period;

the Company's ability to manage and complete divestitures;

the disruption of the Company’s cash flow and ability to return value to its stockholders in accordance with its past practices;

interest rate and foreign currency exchange rate fluctuations;

declining economic conditions in the United States and abroad;

and other economic, business, competitive, legal, tax, regulatory and/or operational factors affecting the Company’s business generally.

Certain additional factors that management believes could cause actual outcomes and results to differ materially from those described in forward-looking statements are set forth (i) elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, (ii) in Item 1A (Risk Factors), (iii) Item 1 (Business), (iv) elsewhere in this report, and (v) in other reports filed by the Company pursuant to the Securities Exchange Act.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by the federal securities laws.

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Recent elevated levels of inflation in the global and U.S.

economies have not had a significant impact on our results of operations.

If elevated levels of inflation persist or increase, our operations and financial results could be adversely affected, particularly in certain global markets.

We have risks from other geopolitical trends and events, such as the Russia-Ukraine war.

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in fiscal 2022 has not been material.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's most significant market risks are the effects of changing interest rates, foreign currency risk, and the changes in the price of the Company's common stock.

See discussion on page 45 under the heading "Market Risk," which is incorporated by reference herein.

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See discussion under the heading "Market Risk," which is incorporated by reference herein.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis