Goodwill and other intangible assets

12 Months Ended

Aug. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

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.

Our reporting units’ fair values exceeded their carrying amounts ranging from 9% to more than 400%. The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. Due to the negative impact of reductions in pharmacy funding in the United Kingdom, the fair value of our Boots reporting unit, within our Retail Pharmacy International division, was impacted and is in excess of its carrying value by approximately 9%. The goodwill of the Boots reporting unit is not currently impaired and we will continue to monitor the U.K. industry trends and the impact it may have on the business.

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, 2015	$	8,940		$	3,898		$	3,534		$	16,372
Acquisitions	—			23			—			23
Sale of business	(4		)	—			—			(4		)
Other¹	100			(113		)	13			—
Currency translation adjustments	—			(439		)	(425		)	(864		)
August 31, 2016	$	9,036		$	3,369		$	3,122		$	15,527
Acquisitions	103			—			1			104
Currency translation adjustments	—			23			(22		)	1
August 31, 2017	$	9,139		$	3,392		$	3,101		$	15,632


¹	Other primarily represents the reallocation of goodwill between reporting units and purchase accounting adjustments for prior year acquisitions.

In fiscal 2017, Walgreens Boots Alliance and Prime closed a transaction to form a combined central specialty pharmacy and mail services company AllianceRx Walgreens Prime, as part of a strategic alliance resulting in an increase of $103 million to goodwill and $331 million to intangible assets. See note 6, acquisitions, for additional information.

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



	August 31, 2017		August 31, 2016
Gross amortizable intangible assets
Customer relationships and loyalty card holders	$	1,851	$	1,867
Purchased prescription files	659		932
Favorable lease interests and non-compete agreements	523		619
Trade names and trademarks	504		532
Purchasing and payer contracts	391		94
Total gross amortizable intangible assets	3,928		4,044

Accumulated amortization
Customer relationships and loyalty card holders	$	409	$	275
Purchased prescription files	371		600
Favorable lease interests and non-compete agreements	355		388
Trade names and trademarks	155		105
Purchasing and payer contracts	51		71
Total accumulated amortization	1,341		1,439
Total amortizable intangible assets, net	$	2,587	$	2,605

Indefinite-lived intangible assets
Trade names and trademarks	$	5,514	$	5,604
Pharmacy licenses	2,055		2,093
Total indefinite lived intangible assets	$	7,569	$	7,697

Total intangible assets, net	$	10,156	$	10,302

Amortization expense for intangible assets was $385 million, $396 million and $480 million in fiscal 2017, 2016 and 2015, respectively.

Estimated future annual amortization expense for the next five fiscal years for intangible assets recorded at August 31, 2017 is as follows (in millions):



	2018		2019		2020		2021		2022
Estimated annual amortization expense	$	364	$	340	$	280	$	229	$	210

- 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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