Walgreens 2005 Annual Report Download

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We take care
of people
2005 Annual Report

Table of contents

  • Page 1
    We take care of people 2005 Annual Report

  • Page 2
    ...of prescription drugs, basic needs and managed care services. 2005 Highlights • We opened 435 new stores for a total of 4,953 Walgreens in 45 states and Puerto Rico. We filled 490 million prescriptions - 15 percent of the U.S. retail market. Pharmacy is 64 percent of our business. Our drugstores...

  • Page 3
    ... Merchandise (3) (1) Includes 29 pharmacy-only locations, three mail service facilities and stores closed as of August 31, 2005, due to Hurricane Katrina. (2) In thousands of square feet. (3) Based on store scanning information. Walgreens Stock Performance Fiscal year-end closing price per share...

  • Page 4
    ... to meet emergency needs. Katrina pushed a full-fledged test of a new workload balancing system under pilot at the time of the storm. With permission from state boards of pharmacy, we sent prescription background work from overwhelmed stores in Louisiana, Mississippi and Texas to Walgreen stores in...

  • Page 5
    ...our gross profit margins. We upgraded our Walgreens.com website, adding network capacity so customers can upload photos from home and pick up prints at nearly any store chainwide in one hour. Our PBM (pharmacy benefits manager), Walgreens Health Initiatives (WHI), controlled client drug costs better...

  • Page 6
    ...our own billion-dollar mail business. How will the Medicare plan impact Walgreens? Bernauer: We anticipate drawing a healthy share of patients - most new to our pharmacy service - who sign up for one of the new Medicare prescription drug insurance plans. Why? Because Medicare takes price out of the...

  • Page 7
    ... to making it work. Our stock closed up 27 percent for the year, but bounced around this fall. What's your prediction for WAG? Bernauer: We don't get into predictions and we don't concentrate on short-term ups and downs. We all loved seeing the share price close to $50 in the summer, but our fourth...

  • Page 8
    "Walgreens was the one place I could count on for my after-hours medical emergency." When John and Karen Wood of Waco, Texas, called our pharmacy from Cairo, Egypt, our pharmacist walked them through a potentially life-threatening situation. Karen was among millions of patients we counseled in 2005,...

  • Page 9
    ... how we counsel patients at our pharmacies, including more than 1,500 that are open 24 hours. As we continue to build our seamless network of pharmacy services, we're developing new ways to take care of people now and in the future. New technology helped us save lives in the aftermath of Hurricanes...

  • Page 10
    ...us loyal shareholders and customers." With a growing family and college tuitions on their horizon, shareholders Phuong and Jesse Herrera of San Marcos, California, look for long-term success when investing. Consistent results and financial strength attracted them to Walgreens. 8 2005 Annual Report

  • Page 11
    ... due to both our nearly 5,000 locations and cutting-edge pharmacy services, such as automatic refills, ExpressPay, multi-language labels and online personal health histories. In the managed care area, Advantage90 - a 90-day retail prescription alternative to mandatory mail programs - has made steady...

  • Page 12
    ... and the company's financial support." Lachell Wardell in Chicago, who overcame major challenges to become a pharmacist, says, "The greatest rewards are being able to support my three children (with Wardell, in photo at right) and having an opportunity to counsel patients." 10 2005 Annual Report

  • Page 13
    ..., 20.3 for district managers and 28.2 for operations vice presidents. Most training for store employees, including photo specialists, service clerks and pharmacy technicians, combines on-the-job training with computer-based skill-building modules that stress customer service essentials. Walgreens is...

  • Page 14
    ..., the senior healthcare business unit of UnitedHealth Group. Ovations chose Walgreens Health Initiatives to manage its Medicare Part D business, understanding the value seniors place on relationships with pharmacists like Zhanna LaCroix in Fox Lake, Illinois (photo right). 12 2005 Annual Report

  • Page 15
    ... of Walgreens for his second total sales volume at drugstores. But with Medicare prescription career after 31 years in the military. To help seniors find insurance, cost is no longer a jobs, Walgreens is a featured major consideration. Once employer of an AARP program participating seniors choose...

  • Page 16
    "Walgreens.com lets us upload photos so my grandparents can pick them up at one of your stores in Puerto Rico." Whether customers use our photofinishing services at home, like Chicagoans Nathaniel and Eddie Sanchez (above), or in our stores with the help of photo specialists like James Smiley (right...

  • Page 17
    ... years old and his computer savvy is helping them enter the world of online shopping. That's why they were excited to discover our new online digital photo service, featuring expanded network capacity. This allows Walgreens.com customers to upload photos from their home computer for pickup at nearly...

  • Page 18
    ... the most historic point of Wilmington, North Carolina, near the Cape Fear River. His city, chartered in 1739, is now more famous as Michael Jordan's hometown, the setting for television's "Dawson's Creek" and - for Walgreen shareholders - a successful new market of six stores. 16 2005 Annual Report

  • Page 19
    .... "We added Montana in 2005, will open West Virginia in 2006 and are seeking sites in other new areas." Today, we operate stores within two miles of 125 million Americans. Research tells us we can do more, especially in newer markets such as Dallas/Fort Worth. We opened our first location there in...

  • Page 20
    ...) from the sale of the company's long-term care pharmacy business. (4) Fiscal 1998 includes an after-tax $26.4 million ($.03 per share, diluted) charge from the cumulative effect of accounting change for system development costs. (5) Per share data have been adjusted for two-for-one stock splits in...

  • Page 21
    ....7 4,188.6 20.1% $ 5,906.7 3,449.8 19.6% $ 4,901.6 2,823.4 19.5% $ 4,207.1 2,353.7 19.7% $ 3,633.6 2,027.9 19.3% $ 3,252.6 1,781.4 18.9% 3,883 3,520 3,165 2,821 2,549 2,358 2,193 2,085 2005 Annual Report 19

  • Page 22
    ... and dollar stores. The long-term outlook for prescription sales is strong due in part to the aging population, as well as the continued development of innovative drugs that improve quality of life and control healthcare costs. As of January 1, 2006, the new Medicare Part D prescription drug program...

  • Page 23
    ... 355), which included seven home medical centers, three home infusion centers and two clinical pharmacies. New stores are owned or leased. There were 103 owned locations added during the year and 96 under construction at August 31, 2005, versus 47 owned locations added and 63 under construction as...

  • Page 24
    ...August 31, 2005 (In Millions) : Payments Due by Period Total Operating leases* Purchase obligations: Open inventory purchase orders* Real estate development* Other corporate obligations* Insurance Retiree health & life Closed location obligations Capital lease obligations Other long-term liabilities...

  • Page 25
    ...per share) Treasury stock purchases Employee stock purchase and option plans Balance, August 31, 2004 Net earnings Cash dividends declared ($.2225 per share) Treasury stock purchases Employee stock purchase and option plans Employee stock loan receivable Balance, August 31, 2005 Common Stock Shares...

  • Page 26
    ... Balance Sheets Walgreen Co. and Subsidiaries at August 31, 2005 and 2004 (Dollars in Millions) Assets Current Assets Cash and cash equivalents Short-term investments - available for sale Accounts receivable, net Inventories Other current assets Total Current Assets Non-Current Assets Property and...

  • Page 27
    ... and amortization 482.1 Deferred income taxes (70.8) Income tax savings from employee stock plans 33.9 Other 74.5 Changes in operating assets and liabilities - Inventories (854.0) Trade accounts payable 276.7 Accounts receivable, net (224.9) Accrued expenses and other liabilities 97.8 Income...

  • Page 28
    ... of Major Accounting Policies Description of Business The company is principally in the retail drugstore business and its operations are within one reportable segment. Stores are located in 45 states and Puerto Rico. At August 31, 2005, there were 4,950 retail drugstores and three mail service...

  • Page 29
    ... claimed by customers at the end of the period. Customer returns are immaterial. Impaired Assets and Liabilities for Store Closings The company tests long-lived assets for impairment whenever events or circumstances indicate. Store locations that have been open at least five years are periodically...

  • Page 30
    ... well as permanent, store closings and an estimated $5.2 million of equipment losses. Leases Although 17.7% of locations are owned, the remainder are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing cancellation options at five-year intervals, and...

  • Page 31
    ... who were employed on May 11, 2000. Each eligible employee, in conjunction with opening the company's 3,000th store, received a stock option award to purchase from 75 to 500 shares, based on years of service. The option award, issued at fair market value on May 11, 2000, was authorized to grant an...

  • Page 32
    ...certain health insurance benefits for retired employees who meet eligibility requirements, including age, years of service and date of hire. This year the company announced a change to the retiree medical and prescription drug plans, which impacts the company's benefit obligation. For a select group...

  • Page 33
    ... benefit obligation at year-end was 5.5% for 2005 and 6.5% for 2004. The discount rate assumption used to determine net periodic benefit cost was 5.5% for 2005, 6.5% for 2004 and 7.0% for 2003. Future benefit costs were estimated assuming medical costs would increase at a 10.0% annual rate...

  • Page 34
    ... effectiveness of the Company's internal control over financial reporting. David W. Bernauer Chairman of the Board and Chief Executive Officer William M. Rudolphsen Senior Vice President and Chief Financial Officer DELOITTE & TOUCHE LLP Chicago, Illinois October 21, 2005 32 2005 Annual Report

  • Page 35
    ... Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended August 31, 2005 of the Company and our report dated October 21, 2005 expressed an unqualified opinion on those financial statements. DELOITTE & TOUCHE LLP Chicago, Illinois...

  • Page 36
    ... Roberto M. Valencia Kevin P. Walgreen Stewart B. Wasson Christine D. Whelan Barry W. Zins Pharmacy Services Donald C. Huonker Walgreens Health Services Michael D. Tovian Managed Care Sales Controller Mia M. Scholz Chief Accounting Officer General Auditor Chester G. Young 34 2005 Annual Report

  • Page 37
    ... Annual Report on Form 10-K. Our Chief Executive Officer made an unqualified certification to the New York Stock Exchange ("the NYSE") with respect to our compliance with NYSE corporate governance listing standards in January 2005. Direct Stock Purchase Plan Computershare Investor Services sponsors...

  • Page 38
    ... 166 5 63 2004 5 164 471 15 1 47 88 157 4 61 Total * Includes three mail service facilities at August 31, 2005 and 2004, and stores closed as of August 31, 2005, due to Hurricane Katrina. 4,953* 4,582 Walgreen Co. 200 Wilmot Road • Deerfield, Illinois 60015 Walgreens.com • WalgreensEspañol...