Exit and disposal activities

3 Months Ended

Nov. 30, 2019

Restructuring and Related Activities [Abstract]

Transformational Cost Management Program

On December 20, 2018, the Company announced a transformational cost management program that was expected to deliver in excess of $1.0 billion of annual cost savings by fiscal 2022 (the “Transformational Cost Management Program”). In April 2019, the Company announced that it had increased the expected annual cost savings to in excess of $1.5 billion by fiscal 2022, which was further increased to in excess of $1.8 billion in October 2019. The Transformational Cost Management Program, which is multi-faceted and includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the Company’s information technology (IT) capabilities, is designed to help the Company achieve increased cost efficiencies. To date, the Company has taken actions across all aspects of the Transformational Cost Management Program. The actions under the Transformational Cost Management Program focus on all reportable segments and the Company’s global functions. Divisional optimization within each of the Company’s segments includes activities such as optimization of stores which includes plans to close approximately 200 stores in the United Kingdom and approximately 200 locations in the United States.

The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $1.9 billion to $2.4 billion, of which $1.6 billion to $2.0 billion are expected to be recorded as exit and disposal activities. In addition to these impacts, as a result of the actions related to store closures taken under the Transformational Cost Management Program, the Company recorded $508 million of transition adjustments to decrease retained earnings due to the adoption of the new lease accounting standard (Topic 842) that became effective on September 1, 2019. See note 17, new accounting pronouncements, for additional information.

Since the approval of the Transformational Cost Management Program, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $496 million, which were primarily recorded within selling, general and administrative expenses. These charges included $26 million related to lease obligations and other real estate costs, $271 million in asset impairments, $165 million in employee severance and business transition costs and $34 million of information technology transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program, which were primarily recorded in selling, general and administrative expenses included in the three months ended November 30, 2019 and November 30, 2018 were as follows (in millions):


Three months ended November 30, 2019	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	1	$	—	$	—	$	1
Asset impairments	8		3		—		11
Employee severance and business transition costs	34		1		5		40
Information technology transformation and other exit costs	7		4		1		12
Total pre-tax exit and disposal charges	$	49	$	9	$	6	$	64


Three months ended November 30, 2018	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	—	$	4	$	—	$	4
Asset impairments	—		8		—		8
Employee severance and business transition costs	—		13		—		13
Information technology transformation and other exit costs	—		1		1		2
Total pre-tax exit and disposal charges	$	—	$	27	$	1	$	28

The changes in liabilities and assets related to the exit and disposal activities under Transformational Cost Management Program include the following (in millions):


	Lease obligations and other real estate costs		Asset Impairments		Employee severance and business transition costs		Information technology transformation and other exit costs		Total
Balance at August 31, 2019	$	17	$	—	$	57	$	4	$	78
Costs	1		11		40		12		64
Payments	(1)		—		(22)		(4)		(27)
Other - non cash	—		(11)		—		(2)		(14)
Currency translation adjustments	1		—		—		—		1
ASC 842 Leases adoption¹	(4)		—		—		—		(4)
Balance at November 30, 2019	$	14	$	—	$	75	$	9	$	98

¹ Represents liability for facility closings and related lease termination charges recorded as an offset to right-of-use assets upon the adoption of ASC 842. Refer to note 4, leases and note 17, new accounting pronouncements for additional information.

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 and related assets, of which the majority have been closed as part of this program. 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, of which $305 million have been recorded to date, primarily within selling, general and administrative expenses. The Company expects to incur charges of approximately $160 million for lease obligations and other real estate costs, of which $141 million have been recorded to date and approximately $190 million for employee severance and other exit costs of which $164 million have been recorded to date. The Company estimates that substantially all of these cumulative pre-tax charges will result in cash expenditures.

Costs related to the Store Optimization Program for the three months ended November 30, 2019 and November 30, 2018 were as follows (in millions):


	Three months ended November 30,
	2019		2018
Lease obligations and other real estate costs	$	3	$	(7)
Employee severance and other exit costs	6		27
Total costs	$	9	$	20

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, 2019	$	407	$	22	$	429
Costs	3		6		9
Payments	(9)		(26)		(35)

ASC 842 Leases adoption¹	(378)		—		(378)
Balance at November 30, 2019	$	23	$	1	$	24

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 liabilities related to the Cost Transformation Program declined by $382 million representing liability for facility closings and related lease termination charges recorded as an offset to right-of-use assets upon the adoption of ASC 842. The remaining liabilities as of November 30, 2019 were not material.