Walgreens 2011 Annual Report Download - page 24

metropolitan area, as well as the corporate office and two distribution centers
for $560 million net of assumed cash; and selected other assets (primarily
prescription files). In the current year, we sold our pharmacy benefit management
business, Walgreens Health Initiatives, Inc. (WHI) and recorded net cash proceeds
of $442 million. Additionally, in the current year we established a restricted cash
account of $191 million to support certain insurance obligations. In fiscal year
2010, our insurance obligations were supported by letters of credit which were
released in the current fiscal year upon establishing the restricted cash account.
Capital expenditures for fiscal 2012 are currently expected to be approximately
$1.6 billion, excluding business acquisitions and prescription file purchases, although
the actual amount may vary depending upon a variety of factors, including, among
other things, the timing of implementation of certain capital projects. We expect new
drugstore organic growth of between 2.5% and 3.0% in fiscal 2012. During the current
fiscal year, we added a total of 297 locations, of which 269 were new or relocated
drugstores. We are continuing to relocate stores to more convenient and profitable
freestanding locations.
Net cash used for financing activities was $2.4 billion compared to the prior year’s
net cash use of $2.7 billion. We repurchased shares totaling $2.0 billion in the
current year, $1.8 billion in conjunction with our share buyback programs and
$244 million to support the needs of the employee stock plans. In the prior year,
we repurchased shares totaling $1.8 billion, $1.6 billion in conjunction with our
share buyback programs and $116 million to support the needs of the employee
stock plans. We had proceeds related to employee stock plans of $235 million
compared to $233 million last year. Cash dividends paid were $647 million
versus $541 million a year ago.
In connection with our capital policy, our Board of Directors authorized a share
repurchase program (2009 repurchase program) and set a long-term dividend payout
ratio target between 30 and 35 percent of net earnings. The 2009 repurchase
program, which was completed in September 2010, allowed for the repurchase
of up to $2.0 billion of the Company’s common stock. For the fiscal years ended
August 31, 2011 and 2010, shares totaling $360 million and $1.6 billion
were purchased in conjunction with the 2009 repurchase program, respectively.
On October 13, 2010, our Board of Directors authorized the 2011 repurchase
program, which was completed in July 2011, which allowed for the repurchase
Management’s Discussion and Analysis of Results
of Operations and Financial Condition (continued)
of up to $1.0 billion of the Company’s common stock. On July 13, 2011, our Board
of Directors authorized the 2012 repurchase program, which allows for the repurchase
of up to $2.0 billion of the Company’s common stock prior to its expiration on
December 31, 2015. Shares totaling $424 million were purchased in fiscal 2011
related to the 2012 program. We determine the timing and amount of repurchases
based on our assessment of various factors including prevailing market conditions,
alternate uses of capital, liquidity, the economic environment and other factors.
The timing and amount of these purchases may change at any time and from time
to time. The Company has, and may from time to time in the future, repurchase
shares on the open market through Rule 10b5-1 plans, which enable a company
to repurchase shares at times when it otherwise might be precluded from doing
so under insider trading laws.
We had no commercial paper outstanding at August 31, 2011. In connection with our
commercial paper program, we maintain two unsecured backup syndicated lines of
credit that total $1.1 billion. The first $500 million facility expires on July 20, 2015,
and allows for the issuance of up to $250 million in letters of credit, which reduce the
amount available for borrowing. The second $600 million facility expires on August 13,
2012. Our ability to access these facilities is subject to our compliance with the terms
and conditions of the credit facility, including financial covenants. The covenants require
us to maintain certain financial ratios related to minimum net worth and priority debt,
along with limitations on the sale of assets and purchases of investments. At August 31,
2011, we were in compliance with all such covenants. The Company pays a facility fee
to the financing banks to keep these lines of credit active. At August 31, 2011, there
were no letters of credit issued against these facilities and we do not anticipate any
future letters of credit to be issued against these facilities.
On October 25, 2011, our credit ratings were:
Long-Term Commercial
Rating Agency Debt Rating Paper Rating Outlook
Moody’s A2 P-1 Negative
Standard & Poor’s A A-1 Negative
In assessing our credit strength, both Moody’s and Standard & Poor’s consider
our business model, capital structure, financial policies and financial statements.
Our credit ratings impact our borrowing costs, access to capital markets and
operating lease costs.
Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments at August 31, 2011 (In millions):
Payments Due by Period
Total Less Than 1 Year 1– 3 Years 3 – 5 Years Over 5 Years
Operating leases (1) $ 36,205 $ 2,381 $ 4,715 $ 4,492 $ 24,617
Purchase obligations (2):
Open inventory purchase orders 1,736 1,736 — — —
Real estate development 240 155 77 8 —
Other corporate obligations 494 244 142 88 20
Long-term debt* (3) 2,353 8 1,305 9 1,031
Interest payment on long-term debt 523 116 168 105 134
Insurance* 570 226 166 76 102
Retiree health* 407 11 26 32 338
Closed location obligations* 145 33 38 23 51
Capital lease obligations* (1) 113 5 10 7 91
Other long-term liabilities reflected on the balance sheet* (4) 889 64 172 151 502
Total $ 43,675 $ 4,979 $ 6,819 $ 4,991 $ 26,886
* Recorded on balance sheet.
(1) Amounts for operating leases and capital leases do not include certain operating expenses under these leases such as common area maintenance, insurance and real estate taxes.
These expenses were $404 million for the fiscal year ended August 31, 2011.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including open purchase orders.
(3) Total long-term debt on the Consolidated Balance Sheet includes a $57 million fair market value adjustment and $6 million of unamortized discount.
(4) Includes $101 million ($40 million in 1–3 years, $45 million in 3–5 years and $16 million over 5 years) of unrecognized tax benefits recorded under Accounting Standards
Codification (ASC) Topic 740, Income Taxes.
Page 22 2011 Walgreens Annual Report