Exit and disposal activities

On October 24, 2017, the Company’s Board of Directors approved a plan to implement a program (the “Store Optimization Program”) as part of an initiative to optimize store locations within the Company’s Retail Pharmacy USA segment upon completion of the acquisition of certain stores and related assets from Rite Aid. The Store Optimization Program includes plans to close approximately 600 stores and related assets across the U.S. The actions under the Store Optimization Program commenced in March 2018 and are expected to take place over an 18 month period.

The Company currently estimates that it will recognize cumulative pre-tax charges to its GAAP financial results of approximately $450 million, including costs associated with lease obligations and other real estate costs, employee severance and other exit costs. The Company expects to incur pre-tax charges of approximately $270 million for lease obligations and other real estate costs and approximately $180 million for employee severance and other exit costs. The Company estimates that substantially all of these cumulative pre-tax charges will result in cash expenditures.

Costs related to the Store Optimization Program, which were primarily recorded in selling, general and administrative expenses for the Company's Retail Pharmacy USA segment included in the three and nine months ended May 31, 2018, are as follows (in millions):



Three months ended May 31, 2018
Lease obligations and other real estate costs	2
Employee severance and other exit costs	22
Total costs	$	24



Nine months ended May 31, 2018
Lease obligations and other real estate costs	2
Employee severance and other exit costs	22
Total costs	$	24

The changes in liabilities related to the Store Optimization Program for the nine months ended May 31, 2018 include the following (in millions):



	Lease obligations and other real estate costs		Employee severance and other exit costs			Total
Balance at August 31, 2017	$	—	$	—		$	—
Costs	2		22			24
Payments	—		(8		)	(8		)
Other - non cash¹	30		—			30
Balance at May 31, 2018	$	32	$	14		$	46


¹	Represents unfavorable lease liabilities from acquired Rite Aid stores.

On April 8, 2015, the Walgreens Boots Alliance Board of Directors approved a plan to implement a restructuring program (the “Cost Transformation Program”) as part of an initiative to reduce costs and increase operating efficiencies. The Cost Transformation Program implemented and built on the cost-reduction initiative previously announced by the Company on August 6, 2014 and included plans to close stores across the U.S.; reorganize corporate and field operations; drive operating efficiencies; and streamline information technology and other functions. The actions under the Cost Transformation Program focused primarily on the Retail Pharmacy USA segment, but included activities from all segments. The Company completed the Cost Transformation Program in the fourth quarter of fiscal 2017.

The changes in liabilities related to the Cost Transformation Program for the nine months ended May 31, 2018 include the following (in millions):



	Real estate costs			Severance and other business transition and exit costs			Total
Balance at August 31, 2017	$	521		$	79		$	600
Payments	(112		)	(68		)	(180		)
Other - non cash	20			(1		)	19
Currency translation adjustments	—			(1		)	(1		)
Balance at May 31, 2018	$	429		$	9		$	438

Total costs by segment, which were primarily recorded in selling, general and administrative expenses included in the three and nine months ended May 31, 2017, are as follows (in millions):



Three months ended May 31, 2017	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Asset impairments	$	96	$	18	$	—	$	114
Real estate costs	15		—		—		15
Severance and other business transition and exit costs	18		8		16		42
Total costs	$	129	$	26	$	16	$	171



Nine months ended May 31, 2017	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Asset impairments	$	207	$	21	$	1	$	229
Real estate costs	264		—		—		264
Severance and other business transition and exit costs	46		30		23		99
Total costs	$	517	$	51	$	24	$	592