Exit and disposal activities

Transformational Cost Management Program

On December 20, 2018, the Company announced a multi-faceted program (the “Transformational Cost Management Program”), which includes divisional optimization initiatives, global smart spending, global smart organization and digitalization of the enterprise to transform long-term capabilities. Divisional optimization within each of our segments include activities such as optimization of stores, distribution centers and offices and efficient supply chain. Additionally, the Company has initiated global smart spending and smart organization programs and digitalization, initially focused on the Company’s Retail Pharmacy USA division, its retail business in the UK and its global functions. Actions under the Transformational Cost Management Program announced on December 20, 2018 are expected to be complete by fiscal 2022.

As of the date of this report, the Company is not able to make a determination of the total estimated charge or range of charges that may be incurred for each major type of cost nor the future cash expenditures or charges, including non-cash impairment charges, it may incur.

Costs related to the Transformational Cost Management Program, which were primarily recorded within selling, general and administrative expenses were as follows (in millions):



Three months ended May 31, 2019	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Employee severance and other exit costs	$	7	$	5	$	11	$	24
Asset impairments¹	5		16		11		32
Total costs	$	13	$	21	$	22	$	56



Nine months ended May 31, 2019	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Employee severance and other exit costs	$	24	$	39	$	22	$	86
Asset impairments¹	5		48		96		149
Total costs	$	29	$	88	$	119	$	235


¹	Primarily includes write down of certain software and inventory.

The changes in liabilities related to the Transformational Cost Management Program include the following (in millions):



	Employee severance and other exit costs			Asset impairments			Total
Balance at August 31, 2018	$	—		$	—		$	—
Costs	86			149			235
Payments	(57		)	—			(57		)
Other - non cash	—			(149		)	(149		)
Balance at May 31, 2019	$	28		$	—		$	28

Store Optimization Program

On October 24, 2017, the Company’s Board of Directors approved a plan to implement a program (the “Store Optimization Program”) to optimize store locations through the planned closure of approximately 600 stores and related assets within the Company’s Retail Pharmacy USA segment upon completion of the acquisition of certain stores and related assets from Rite Aid. As of the date of this report, the Company expects to close approximately 750 stores. The actions under the Store Optimization Program commenced in March 2018 and are expected to be complete by end of fiscal 2020.

The Company currently estimates that it will recognize cumulative pre-tax charges to its GAAP financial results of approximately $350 million, including costs associated with lease obligations and other real estate costs and employee severance and other exit costs. The Company expects to incur pre-tax charges of approximately $160 million for lease obligations and other real estate costs and approximately $190 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.

Since approval of the Store Optimization Program, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP totaling $200 million, which were primarily recorded within selling, general and administrative expenses. These charges included $64 million related to lease obligations and other real estate costs and $136 million in employee severance and other exit costs.

Costs related to the Store Optimization Program were as follows (in millions):



	Three months ended May 31, 2019		Nine months ended May 31, 2019
Lease obligations and other real estate costs	$	44	$	45
Employee severance and other exit costs	5		54
Total costs	$	49	$	99

The changes in liabilities related to the Store Optimization Program include the following (in millions):



	Lease obligations and other real estate costs			Employee severance and other exit costs			Total
Balance at August 31, 2018	$	308		$	21		$	329
Costs	45			54			99
Payments	(125		)	(69		)	(194		)
Other - non cash¹	104			—			104
Balance at May 31, 2019	$	332		$	6		$	338


¹	Primarily represents unfavorable lease liabilities from acquired Rite Aid stores.

Cost Transformation Program

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 United States; 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 include the following (in millions):



	Real estate costs			Severance and other business transition and exit costs			Total
Balance at August 31, 2018	$	414		$	7		$	421
Payments	(67		)	(3		)	(70		)
Other - non cash	51			—			51
Balance at May 31, 2019	$	399		$	4		$	403