Exit and disposal activities

3 Months Ended

Nov. 30, 2020

Restructuring and Related Activities [Abstract]

Exit and disposal activities

Exit and disposal activities

Transformational Cost Management Program

On December 20, 2018, the Company announced a transformational cost management program that is currently expected to deliver in excess of $2.0 billion of annual cost savings by fiscal 2022 (the “Transformational Cost Management Program”). 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 current plans to exit approximately 200 Boots stores in the United Kingdom ("UK") and approximately 250 stores in the United States ("U.S.").

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 non-cash 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.

Since the inception of the Transformational Cost Management Program to November 30, 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 $264 million related to lease obligations and other real estate costs, $354 million in asset impairments, $471 million in employee severance and business transition costs and $146 million of information technology transformation and other exit costs.

Costs related to exit and disposal activities under the Transformational Cost Management Program for the three months ended November 30, 2020 and November 30, 2019 were as follows (in millions):

Three months ended November 30, 2020	Retail Pharmacy USA		Retail Pharmacy International		Pharmaceutical Wholesale		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	22	$	—	$	—	$	22
Asset impairments	4		—		—		4
Employee severance and business transition costs	21		28		2		51
Information technology transformation and other exit costs	10		(6)		1		6
Total pre-tax exit and disposal costs	$	58	$	22	$	4	$	83

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 costs	$	49	$	9	$	6	$	64

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

Rollforward of liabilities:	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, 2020	$	22	$	—	$	227	$	8	$	257
Costs	22		4		51		6		83
Payments	(20)		—		(113)		(12)		(145)
Other	(4)		(4)		—		4		(4)
Balance at November 30, 2020	$	21	$	—	$	166	$	5	$	192

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. The actions under the Store Optimization Program commenced in March 2018 and were completed in the fourth quarter of fiscal 2020.

Costs related to the Store Optimization Program for the three months ended November 30, 2019 were $3 million for Lease obligation and other real estate costs and $6 million for employee severance and other exit costs. The liabilities related to the Store Optimization Program as of November 30, 2020 and November 30, 2019 were not material.