Walgreens 2009 Annual Report Download - page 6

Page 4 2009 Walgreens Annual Report
Since it usually takes two to three years for a store to
return positive earnings before interest and taxes (EBIT),
we are balancing the pace of new store openings with
other growth opportunities. We believe allowing our stores
to matureand drive greater returns on invested capital
(ROIC) is the right strategy in this economic environment.
Weexpect to increase revenue through continued organic
store growth, increased comparable store sales and pre-
scription file purchases. We also will evaluate potential
value-creating acquisitions that reinforce our core strategies.
Meanwhile, we are making substantial progress on our
Rewiring for Growth initiative, which is expected to
reduce pre-tax costs by $1 billion annually by fiscal 2011
through greater efficiencies across the Company.
We are transforming our community pharmacies to provide
patients increased access to their local pharmacists while
improving store productivity and overall efficiencies.
In our Florida and Arizona stores, a new system transfers
the retail pharmacy’s administrative work to a centralized
facility that handles about one-third of all refill orders
and ships them to stores overnight. This frees up much
moretime for pharmacists to spend with their patients.
Expanding this relationship between patients and a trusted
health care professional results in greater medication
adherence and better health outcomes by avoiding
expensive treatments for more advanced disease states
and costly emergency room visits.
Summary
Walgreens is moving rapidly to execute our growth
strategy and create value for our shareholders. History
proves that challenging times can present significant
business opportunities for strong companies like ours,
and we believe we are well-positioned to emerge from
the current period of uncertainty and change as a
leader in pharmacy and health care services.
Weended fiscal 2009 with a strong balance sheet and
liquidity position. We generated a record $4.1 billion in
cash flow from operations and had $2.6 billion in cash and
short-term investments. Given expectations of continued
strong cash flow as we execute our strategy, we recently
communicated our capital allocation policy to our share-
holders. We are committed to maintaining a strong credit
profile and financial flexibility to invest in the right strategic
opportunities. We also believe it is important to return
surplus cash flow to shareholders. To this end, we increased
our quarterly dividend in July by 22.2 percent – the 34th
consecutive year we have raised the dividend. In October,
we increased our share repurchase authorization to
$2 billion and set a long-term dividend payout target
of 30 to 35 percent.
We believe our value-creating initiatives stand to benefit
investors not only through future dividend increases, but
also in the form of accelerating earnings growth. Our goal
is to return Walgreens to strong double-digit EPS growth,
improved ROIC and top-tier shareholder returns.
In closing, 2009 was truly a transformative year in the
leadership of Walgreens. Greg Wasson was appointed
Chief Executive Officer and joined the Board of Directors.
He has assembled an outstanding management team
blending Walgreen experience, external hires and leader-
ship from acquired health care companies. Also joining
the Board were Steven A. Davis, Chairman and CEO of
Bob Evans Farms Inc., and Mark P.Frissora, Chairman and
CEO of Hertz Global Holdings, Inc. As well, three long-
serving Board members announced plans to retire at our
annual shareholders’ meeting in January. Cordell Reed
and Marilou M. von Ferstel have provided deep insight
and broad perspectives, and enriched the Board’s delib-
erations for many years. Charles R. “Cork” Walgreen III
is also retiring, and we pay tribute to his 46 years of
leadership on the Board on the following page. We are
grateful, indeed, to each of these outstanding directors
for their dedicated service.
We thank our 238,000 employees for their hard work and
commitment to serving our customers well. And to you,
our shareholders, we thank you for your continued
interest in Walgreens and for your belief in the Company’s
ongoing success.
Sincerely,
Alan G. McNally Gregory D. Wasson
Chairman of the Board President and Chief Executive Officer
November 16, 2009
* Striped portion represents pre-tax
restructuring costs of $162 million
Expenses
In percent of growth
*
Cash Flow from Operations
In billions of dollars