Exit and disposal activities

12 Months Ended

Aug. 31, 2020

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”). As of the date of this report, the Company expects annual cost savings to be in excess of $2.0 billion by fiscal 2022, an increase from the previously reported expectations of annual cost savings in excess of $1.8 billion in October 2019 and $1.5 billion in April 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 including plans to exit approximately 200 Boots stores in the United Kingdom and approximately 250 stores in the United States, as compared to the 200 stores previously reported in July 2020.

The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $2.1 billion to $2.4 billion, of which $1.8 billion to $2.1 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 1, summary of major accounting policies, for additional information.

Since the inception of the Transformational Cost Management Program to August 31, 2020, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $1.2 billion, which were primarily recorded within selling, general and administrative expenses. These charges included $242 million related to lease obligations and other real estate costs, $350 million in asset impairments, $420 million in employee severance and business transition costs and $140 million of information technology transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program for the fiscal year ended August 31, 2020 and 2019 were as follows (in millions):


Twelve Months Ended August 31, 2020	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs¹	$	204	$	10	$	2	$	217
Asset impairments²	51		21		19		90
Employee severance and business transition costs	159		95		42		295
Information technology transformation and other exit costs	72		42		4		118
Total pre-tax exit and disposal charges	$	486	$	168	$	66	$	720

¹Includes $166 million of impairments relating to operating lease right-of-use and finance lease assets. Refer to note 4, leases for additional information.

²Primarily includes write down of leasehold improvements, certain software and inventory.


Twelve Months Ended August 31, 2019	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	5	$	19	$	1	$	25
Asset impairments¹	95		67		98		260
Employee severance and business transition costs	42		34		49		125
Information technology transformation and other exit costs	5		10		7		22
Total pre-tax exit and disposal charges	$	147	$	130	$	154	$	432

¹Primarily includes write down of leasehold improvements, certain software and inventory.

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, 2018	$	—	$	—	$	—	$	—	$	—
Costs	25		260		125		22		432
Payments	(8)		—		(69)		(13)		(90)
Other - non cash	—		(260)		—		(6)		(265)
Currency	—		—		1		—		1
Balance at August 31, 2019	$	17	$	—	$	57	$	4	$	78
Costs	217		90		295		118		720
Payments	(43)		—		(142)		(102)		(286)
Other¹	(166)		(90)		13		(11)		(255)
ASC 842 Leases adoption²	(4)		—		—		—		(4)
Currency	1		—		4		—		5
Balance at August 31, 2020	$	22	$	—	$	227	$	8	$	257

¹Includes $166 million of impairments relating to operating lease right-of-use and finance lease assets. Refer to note 4, leases for additional information.

²Represents 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 1, summary of major accounting policies and note 4, leases 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. The Company closed 769 stores and related assets, as compared to its previous estimate of 750 stores and related assets. The actions under the Store Optimization Program commenced in March 2018 and were completed in the fourth quarter of fiscal 2020.

The Company recognized cumulative pre-tax charges to its GAAP financial results of approximately $349 million, primarily within selling, general and administrative expenses, including costs associated with lease obligations and other real estate costs and employee severance and other exit costs. The Company incurred approximately $160 million for lease obligations and other real estate costs, and approximately $189 million for employee severance and other exit costs. All these cumulative pre-tax charges mostly resulted in cash expenditures for the Company.

Costs related to the Store Optimization Program for the twelve months ended August 31, 2020, 2019 and 2018 were as follows (in millions):


	2020		2019		2018
Lease obligations and other real estate costs¹	$	22	$	119	$	19
Employee severance and other exit costs	31		77		81
Total costs	$	53	$	196	$	100

¹Includes $11 million operating lease right-of-use impairments for the fiscal year ended August 31, 2020. Refer to note 4, leases for additional information.

The changes in liabilities related to the Store Optimization Program for the fiscal years ended August 31, 2020 and 2019 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	119		77		196
Payments	(171)		(69)		(240)
Other - non cash¹	152		(7)		144
Balance at August 31, 2019	$	407	$	22	$	429
Costs	22		31		53
Payments	(36)		(40)		(76)
Other - non cash²	(11)		(12)		(23)
ASC 842 Leases adoption³	(378)		—		(378)
Balance at August 31, 2020	$	5	$	1	$	6

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

²Includes write down of operating lease right-of-use assets and inventory.

³Represents 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 1, summary of major accounting policies and note 4, leases for additional information.

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.

During fiscal 2020, 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 on September 1, 2019. The remaining liabilities as of August 31, 2020 were not material.