Walgreens 2015 Annual Report Download - page 42

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purchase a minority equity position in AmerisourceBergen and gain associated representation on
AmerisourceBergen’s Board of Directors in certain circumstances. In addition to the information in this report,
please refer to our Current Report on Form 8-K filed on March 20, 2013, for more detailed information regarding
these agreements and arrangements. At August 31, 2015, the Company owned approximately 5.2% of the
outstanding common shares in AmerisourceBergen and had designated one member of AmerisourceBergen’s
Board of Directors.
RESTRUCTURING PROGRAMS
On April 8, 2015, the Board of Directors approved a plan to implement a new restructuring program (the “Cost
Transformation Program”) as part of an initiative to reduce costs and increase operating efficiencies. The Cost
Transformation Program implements and builds on the planned three-year, $1.0 billion cost-reduction initiative
previously announced by Walgreens on August 6, 2014 and includes a number of elements designed to help
achieve profitable growth through increased cost efficiencies. We have identified additional opportunities for
cost savings that increase the total expected cost savings of the Cost Transformation Program by $500 million to
a projected $1.5 billion by the end of fiscal 2017. Significant areas of focus include plans to close approximately
200 stores across the U.S.; reorganize divisional and field operations; drive operating efficiencies; and streamline
information technology and other functions. The actions under the Cost Transformation Program focus primarily
on our Retail Pharmacy USA division, and are expected to be substantially completed by the end of fiscal 2017.
We currently estimate that we will recognize cumulative pre-tax charges to our GAAP financial results of
between $1.6 billion and $1.8 billion, including costs associated with lease obligations and other real estate
payments, asset impairments and employee termination and other business transition and exit costs. We expect to
incur pre-tax charges of between $525 million and $600 million for real estate costs, including lease obligations
(net of estimated sublease income), between $650 million and $725 million for asset impairment charges relating
primarily to asset write-offs from store closures, information technology, inventory and other non-operational
real estate asset write-offs, and between $425 million and $475 million for employee severance and other
business transition and exit costs. We estimate that approximately 60% of the cumulative pre-tax charges will
result in immediate or future cash expenditures, primarily related to lease and other real estate payments and
employee separation costs.
We incurred pre-tax charges of $542 million ($223 million related to asset impairment charges, $202 million in
real estate costs and $117 million in severance and other business transition and exit costs) related to the Cost
Transformation Program in fiscal 2015. The majority of the charges incurred in fiscal 2015 related to activities
within the Retail Pharmacy USA division but also included activities within Retail Pharmacy International. All
charges related to the Cost Transformation Program have been recorded within selling, general and
administrative expenses. We closed 84 stores in the United States related to the Cost Transformation Program in
fiscal 2015.
On March 24, 2014, the Board of Directors approved a plan to close underperforming stores in efforts to
optimize and focus resources within our Retail Pharmacy USA operations in a manner intended to increase
shareholder value. As of August 31, 2015, we have closed 68 locations, one of which was closed in fiscal 2015.
In fiscal 2015, we incurred total pre-tax charges related to this plan of $17 million primarily related to lease
termination costs. In fiscal 2014, we incurred pre-tax charges of $209 million ($137 million from lease
termination costs, $71 million from asset impairments and $1 million of other charges). All charges related to
this plan have been recorded within selling, general and administrative expenses. We expect to incur no
additional costs related to this plan.
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