Goodwill and Other Intangible Assets

12 Months Ended

Aug. 31, 2015

Goodwill and Other Intangible Assets [Abstract]

9. Goodwill and Other Intangible Assets

Goodwill and other indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As part of the Company’s impairment analysis for each reporting unit, the Company engaged a third party appraisal firm to assist in the determination of estimated fair value for each unit. This determination included estimating the fair value using both the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping.

The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires the Company to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which the Company competes; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures. The allocation requires several analyses to determine the fair value of assets and liabilities including, among other things, trade names and trademarks, pharmacy licenses, customer relationships and purchased prescription files. Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both. The Company also compared the sum of the estimated fair values of its reporting units to the Company’s total value as implied by the market value of its equity and debt securities. This comparison indicated that, in total, its assumptions and estimates were reasonable. However, future declines in the overall market value of the Company’s equity and debt securities may indicate that the fair value of one or more reporting units has declined below its carrying value.

Goodwill added as a result of the Second Step Transaction has been preliminarily allocated to the Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale reportable segments.

Changes in the carrying amount of goodwill by reportable segment consist of the following activity (in millions):

	Retail Pharmacy USA			Retail Pharmacy International			Pharmaceutical Wholesale			Total
August 31, 2013	$	2,410		$	-		$	-		$	2,410
Acquisitions		58			-			-			58
Sale of business⁽¹⁾		(92	)		-			-			(92	)
Other⁽³⁾		(17	)		-			-			(17	)
August 31, 2014		2,359			-			-			2,359
Acquisitions		7,290			4,036			3,646			14,972
Sale of business⁽²⁾		(706	)		-			-			(706	)
Other⁽³⁾		(3	)		-			-			(3	)
Currency translation adjustments		-			(138	)		(112	)		(250	)
August 31, 2015	$	8,940		$	3,898		$	3,534		$	16,372

⁽¹⁾	Represents goodwill associated with Walgreens Take Care Employer business which was sold in June 2014.

⁽²⁾	Represents goodwill associated with Walgreens Infusion Services business which was sold in April 2015.

⁽³⁾	Other primarily represents immaterial purchase accounting adjustments for prior year Company acquisitions.

In fiscal 2015, as a result of the Second Step Transaction, the Company recorded $14.8 billion of goodwill and $11.7 billion of intangible assets in conjunction with the preliminary purchase accounting. See Note 8, Acquisitions for additional information regarding the transaction. Additionally, in fiscal 2015 the Company completed the sale of a majority interest in its subsidiary, Walgreens Infusion Services. As a result, $706 million of goodwill allocated to this business was removed from the Consolidated Balance Sheet.

In fiscal 2014, the Company completed the sale of a majority interest in its subsidiary, Take Care Employer. As a result, $92 million of goodwill allocated to this business was removed from the Consolidated Balance Sheet. Additionally, the Company purchased certain assets of Kerr Drug and its affiliates for $170 million, subject to adjustment in certain circumstances. The Company recorded $42 million of goodwill and $54 million of intangible assets in conjunction with the purchase accounting for this acquisition.

The carrying amount and accumulated amortization of intangible assets consist of the following (in millions):

	August 31, 2015		August 31, 2014
Gross Amortizable Intangible Assets
Purchased prescription files	$	885	$	1,079
Favorable lease interests		440		382
Purchasing and payer contracts		94		301
Non-compete agreements		154		151
Trade names and trademarks		675		191
Customer relationships		1,409		-
Loyalty card holders		730		-
Other amortizable intangible assets		-		4
Total gross amortizable intangible assets		4,387		2,108

Accumulated amortization
Purchased prescription files		470		474
Favorable lease interests		207		174
Purchasing and payer contracts		65		145
Non-compete agreements		92		70
Trade names and trademarks		83		69
Customer relationships		132		-
Loyalty card holders		41		-
Other amortizable intangible assets		-		4
Total accumulated amortization		1,090		936
Total amortizable intangible assets, net	$	3,297	$	1,172

Indefinite Lived Intangible Assets
Trade names and trademarks	$	6,590	$	8
Pharmacy licenses		2,464		-
Total indefinite lived intangible assets	$	9,054	$	8

Total intangible assets, net	$	12,351	$	1,180

Amortization expense for intangible assets was $480 million, $282 million and $289 million in fiscal 2015, 2014 and 2013, respectively.

The weighted-average amortization period by intangible asset category is as follows (in years):

Intangible asset class	2015		2014
Purchased prescription files		6		6
Favorable lease interests		13		11
Purchasing and payer contracts		10		13
Non-compete agreements		5		5
Trade names and trademarks		9		12
Customer relationships		12		-
Loyalty card holders		12		-
Other amortizable intangible assets		-		8

Estimated annual amortization expense for intangible assets recorded at August 31, 2015 is as follows (in millions):

		2016				2017				2018				2019				2020
Estimated annual amortization expense		$	442			$	398			$	352			$	323			$	267

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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