Goodwill and Other Intangible Assets

12 Months Ended

Aug. 31, 2016

Goodwill and Other Intangible Assets [Abstract]

8. Goodwill and Other Intangible Assets

Goodwill and other indefinite-lived intangible assets 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, we determined fair value for each reporting unit 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. Based on the results of our testing, the fair values of each of the reporting units and other indefinite-lived intangible assets exceeded their carrying values, therefore, no impairment was recognized.

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 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.

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			Walgreens Boots Alliance, Inc.
August 31, 2014	$	2,359		$	-		$	-		$	2,359
Acquisitions		7,290			4,036			3,646			14,972
Sale of business⁽¹⁾		(706	)		-			-			(706	)
Other⁽²⁾		(3	)		-			-			(3	)
Currency translation adjustments		-			(138	)		(112	)		(250	)
August 31, 2015	$	8,940		$	3,898		$	3,534		$	16,372
Acquisitions		-			23			-			23
Sale of business		(4	)		-			-			(4	)
Other⁽²⁾		100			(113	)		13			-
Currency translation adjustments		-			(439	)		(425	)		(864	)
August 31, 2016	$	9,036		$	3,369		$	3,122		$	15,527

⁽¹⁾	Represents goodwill associated with Walgreens Infusion Services business which was sold in April 2015.

⁽²⁾	Other primarily represents the reallocation of goodwill between reporting units and purchase accounting adjustments for prior year acquisitions.

In fiscal 2016, the Company purchased an international beauty brand and prescription files resulting in an increase of $23 million to goodwill and $95 million to intangible assets.

As a result of the Second Step Transaction, the Company recorded $14.9 billion of goodwill and $11.7 billion of intangible assets in conjunction with the purchase accounting. See Note 7, 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 Sheets.

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

	August 31, 2016		August 31, 2015
Gross Amortizable Intangible Assets
Customer relationships and loyalty card holders	$	1,867	$	2,139
Purchased prescription files		932		885
Favorable lease interests and non-compete agreements		619		594
Trade names and trademarks		532		675
Purchasing and payer contracts		94		94
Total gross amortizable intangible assets		4,044		4,387

Accumulated amortization
Customer relationships and loyalty card holders	$	275	$	173
Purchased prescription files		600		470
Favorable lease interests and non-compete agreements		388		299
Trade names and trademarks		105		83
Purchasing and payer contracts		71		65
Total accumulated amortization		1,439		1,090
Total amortizable intangible assets, net	$	2,605	$	3,297

Indefinite-Lived Intangible Assets
Trade names and trademarks	$	5,604	$	6,590
Pharmacy licenses		2,093		2,464
Total Indefinite-Lived intangible assets	$	7,697	$	9,054

Total intangible assets, net	$	10,302	$	12,351

Amortization expense for intangible assets was $396 million, $480 million and $282 million in fiscal 2016, 2015 and 2014, respectively.

Estimated annual amortization expense for intangible assets recorded at August 31, 2016 is as follows (in millions):

		2017				2018				2019				2020				2021
Estimated annual amortization expense		$	357			$	319			$	293			$	243			$	199

- 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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