Leases

9 Months Ended

May 31, 2023

Leases [Abstract]

Leases

Leases

The Company leases certain retail stores, clinics, warehouses, distribution centers, office space, land, and equipment. Initial terms for leased premises in the U.S. are typically 15 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. Lease commencement is the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight line basis over the lease term. In addition to minimum fixed rentals, some leases provide for contingent rentals based on sales volume.

Supplemental balance sheet information related to leases was as follows (in millions):

Balance Sheet supplemental information:	May 31, 2023		August 31, 2022
Operating leases:
Operating lease right-of-use assets	$	22,051	$	21,259
Operating lease obligations - current	$	2,356	$	2,286
Operating lease obligations - non-current	22,181		21,517
Total operating lease obligations	$	24,537	$	23,803
Finance leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	687	$	645
Lease obligations included in:
Accrued expenses and other liabilities	$	55	$	37
Other non-current liabilities	927		899
Total finance lease obligations	$	982	$	936

Supplemental income statement information related to leases was as follows (in millions):

	Three months ended May 31,				Nine months ended May 31,
Statement of Earnings supplemental information:	2023		2022		2023		2022
Operating lease cost
Fixed	$	879	$	811	$	2,545	$	2,431
Variable 1	218		198		613		600
Finance lease cost
Amortization	$	15	$	11	$	36	$	33
Interest	14		13		38		38
Sublease income	$	29	$	24	$	87	$	76
Impairment of right-of-use assets	38		11		109		82
Gain on sale-leaseback 2
U.S. Retail Pharmacy	$	263	$	114	$	647	$	349
International 3	30		61		178		61
Total gain on sale-leaseback 2	$	293	$	175	$	825	$	410

1.Includes real estate property taxes, common area maintenance, insurance and rental payments based on sales volume.

2.Recorded within Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings.

3.Includes gain on sale-leaseback related to Germany wholesale business of $30 million and $178 million for the three and nine months ended May 31, 2023, respectively, and $61 million for Boots UK for the three and nine months ended May 31, 2022. The gain for the three and nine months ended May 31, 2023 includes $6 million and $47 million, respectively, related to the optimization of the Germany warehouse locations as part of acquisition integration activities.

	Nine months ended May 31,
Other supplemental information:	2023		2022
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	2,668	$	2,515
Operating cash flows from finance leases	35		35
Financing cash flows from finance leases	38		32
Total	$	2,741	$	2,582
Right-of-use assets obtained in exchange for new lease obligations
Operating leases	$	1,773	$	1,380
Finance leases	23		11
Total	$	1,796	$	1,391

Weighted average lease terms and discount rates for real estate leases were as follows:

Weighted average lease terms and discount rates:	May 31, 2023		August 31, 2022
Weighted average remaining lease term in years
Operating leases	9.7		10.0
Finance leases	17.6		19.0
Weighted average discount rate
Operating leases	5.29	%	4.83	%
Finance leases	5.25	%	5.19	%

The aggregate future lease payments for operating and finance leases as of May 31, 2023 were as follows (in millions):

Future lease payments (fiscal years):	Finance lease		Operating lease 1,2
2023 (Remaining period)	$	27	$	920
2024	106		3,632
2025	102		3,543
2026	100		3,452
2027	98		3,361
2028	89		3,194
Later	963		13,703
Total undiscounted minimum lease payments	$	1,486	$	31,805
Less: Present value discount	504		7,268
Lease liability	$	982	$	24,537

1.Total undiscounted minimum lease payments include approximately $3.5 billion of payments related to optional renewal periods that have not been contractually exercised, but are reasonably certain of being exercised.

2.Total undiscounted minimum lease payments exclude sublease rental income of approximately $629 million due to the Company under non-cancelable sublease terms.

Leases

Leases

The Company leases certain retail stores, clinics, warehouses, distribution centers, office space, land, and equipment. Initial terms for leased premises in the U.S. are typically 15 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. Lease commencement is the date the Company has the right to control the property. The Company recognizes operating lease rent expense on a straight line basis over the lease term. In addition to minimum fixed rentals, some leases provide for contingent rentals based on sales volume.

Supplemental balance sheet information related to leases was as follows (in millions):

Balance Sheet supplemental information:	May 31, 2023		August 31, 2022
Operating leases:
Operating lease right-of-use assets	$	22,051	$	21,259
Operating lease obligations - current	$	2,356	$	2,286
Operating lease obligations - non-current	22,181		21,517
Total operating lease obligations	$	24,537	$	23,803
Finance leases:
Right-of-use assets included in:
Property, plant and equipment, net	$	687	$	645
Lease obligations included in:
Accrued expenses and other liabilities	$	55	$	37
Other non-current liabilities	927		899
Total finance lease obligations	$	982	$	936

Supplemental income statement information related to leases was as follows (in millions):

	Three months ended May 31,				Nine months ended May 31,
Statement of Earnings supplemental information:	2023		2022		2023		2022
Operating lease cost
Fixed	$	879	$	811	$	2,545	$	2,431
Variable 1	218		198		613		600
Finance lease cost
Amortization	$	15	$	11	$	36	$	33
Interest	14		13		38		38
Sublease income	$	29	$	24	$	87	$	76
Impairment of right-of-use assets	38		11		109		82
Gain on sale-leaseback 2
U.S. Retail Pharmacy	$	263	$	114	$	647	$	349
International 3	30		61		178		61
Total gain on sale-leaseback 2	$	293	$	175	$	825	$	410

1.Includes real estate property taxes, common area maintenance, insurance and rental payments based on sales volume.

2.Recorded within Selling, general and administrative expenses within the Consolidated Condensed Statements of Earnings.

3.Includes gain on sale-leaseback related to Germany wholesale business of $30 million and $178 million for the three and nine months ended May 31, 2023, respectively, and $61 million for Boots UK for the three and nine months ended May 31, 2022. The gain for the three and nine months ended May 31, 2023 includes $6 million and $47 million, respectively, related to the optimization of the Germany warehouse locations as part of acquisition integration activities.

	Nine months ended May 31,
Other supplemental information:	2023		2022
Cash paid for amounts included in the measurement of lease obligations
Operating cash flows from operating leases	$	2,668	$	2,515
Operating cash flows from finance leases	35		35
Financing cash flows from finance leases	38		32
Total	$	2,741	$	2,582
Right-of-use assets obtained in exchange for new lease obligations
Operating leases	$	1,773	$	1,380
Finance leases	23		11
Total	$	1,796	$	1,391

Weighted average lease terms and discount rates for real estate leases were as follows:

Weighted average lease terms and discount rates:	May 31, 2023		August 31, 2022
Weighted average remaining lease term in years
Operating leases	9.7		10.0
Finance leases	17.6		19.0
Weighted average discount rate
Operating leases	5.29	%	4.83	%
Finance leases	5.25	%	5.19	%

The aggregate future lease payments for operating and finance leases as of May 31, 2023 were as follows (in millions):

Future lease payments (fiscal years):	Finance lease		Operating lease 1,2
2023 (Remaining period)	$	27	$	920
2024	106		3,632
2025	102		3,543
2026	100		3,452
2027	98		3,361
2028	89		3,194
Later	963		13,703
Total undiscounted minimum lease payments	$	1,486	$	31,805
Less: Present value discount	504		7,268
Lease liability	$	982	$	24,537

1.Total undiscounted minimum lease payments include approximately $3.5 billion of payments related to optional renewal periods that have not been contractually exercised, but are reasonably certain of being exercised.

2.Total undiscounted minimum lease payments exclude sublease rental income of approximately $629 million due to the Company under non-cancelable sublease terms.