Exit and disposal activities

3 Months Ended

Nov. 30, 2022

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 was expected to deliver in excess of $2.0 billion of annual cost savings by fiscal 2022 (the “Transformational Cost Management Program”). The Company achieved this goal at the end of fiscal 2021.

On October 12, 2021, the Company expanded and extended the Transformational Cost Management Program through the end of fiscal 2024 and increased its annual cost savings target to $3.3 billion by the end of fiscal 2024. In fiscal 2022, the Company increased its annual cost savings target from $3.3 billion to $3.5 billion, by the end of fiscal 2024. The Company is currently on track to achieve the savings target.

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 which focus on the U.S. Retail Pharmacy and International reportable segments along with the Company's global functions. Divisional optimization within the Company’s segments includes activities such as optimization of stores, including plans to close approximately 350 Boots stores in the UK and approximately 450 to 500 stores in the U.S. As of November 30, 2022, the Company has closed 244 and 363 stores in the UK and U.S., respectively.

The Company currently estimates that the Transformational Cost Management Program will result in cumulative pre-tax charges to its GAAP financial results of approximately $3.6 billion to $3.9 billion, of which $3.3 billion to $3.6 billion are expected to be recorded as exit and disposal activities. In addition to the impacts discussed above, 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.

From the inception of the Transformational Cost Management Program to November 30, 2022, the Company has recognized cumulative pre-tax charges to its financial results in accordance with GAAP of $2.1 billion , which were primarily recorded within Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings. These charges included $681 million related to lease obligations and other real estate costs, $461 million in asset impairments, $739 million in employee severance and business transition costs and $219 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, 2022 and 2021, respectively, were as follows (in millions):

Three months ended November 30, 2022	U.S. Retail Pharmacy		International		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	79	$	—	$	—	$	79
Asset impairments	18		—		—		18
Employee severance and business transition costs	11		1		4		16
Information technology transformation and other exit costs	11		5		—		17
Total pre-tax exit and disposal charges	$	119	$	6	$	4	$	130

Three months ended November 30, 2021	U.S. Retail Pharmacy		International		Corporate and Other		Walgreens Boots Alliance, Inc.
Lease obligations and other real estate costs	$	87	$	2	$	—	$	89
Asset impairments	15		25		—		40
Employee severance and business transition costs	20		10		7		37
Information technology transformation and other exit costs	1		7		1		9
Total pre-tax exit and disposal charges	$	123	$	44	$	9	$	175

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, 2022	$	10	$	—	$	76	$	27	$	113
Costs	79		18		16		17		130
Payments	(19)		—		(24)		(10)		(53)
Other	(59)		(18)		—		—		(78)
Balance at November 30, 2022	$	10	$	—	$	68	$	35	$	113