Walgreens 2012 Annual Report Download

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2012 Annual Report
At the Corner of
Happy and Healthy

Table of contents

  • Page 1
    At the Corner of Happy and Healthy 2012 Annual Report

  • Page 2
    ... additional infusion and specialty pharmacy services to its portfolio. • Walgreens continued the expansion of its Well Experience pilot format with nearly 350 stores opened across the chain by the end of fiscal 2012. In addition, the Company now has flagship stores in Chicago, New York, Las Vegas...

  • Page 3
    ...drugstores, worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. (2) In thousands of square feet. (3) Based on store scanning information. Walgreens Fiscal Year Stock Performance Fiscal year-end closing price per share...

  • Page 4
    ...for growth and long-term value creation, both globally and in expanded lines of business. The most powerful accelerant of our growth strategies this year was the strategic partnership we announced in June 2012 with the Swiss-based Alliance Boots GmbH, to create the world's first pharmacy-led, health...

  • Page 5
    ... such as getting flu shots and exercise. Balance Rewards will take our Well Experience to a new level. Customers can enroll easily at the store counter, online, or with a mobile device, redeem points instantly for nearly all store or Transform the traditional drugstore: Walgreens continued to...

  • Page 6
    ... and wellness services, from prevention and screening services to chronic stores, we expanded Web Pickupâ„¢ services at pilot locations, allowing care management. Walgreens acquired BioScrip, Inc.'s community specialty consumers to shop online at Walgreens.com and pick up orders at their pharmacy...

  • Page 7
    ... daily living products; 3) goods purchased not for resale; and 4) revenue synergies from introducing Alliance Boots product brands to Walgreens and Duane Reade stores. We also expect revenue synergies from sharing best practices, particularly in pharmacy operations, health and wellness services and...

  • Page 8
    ... be owned by Alliance Boots for the benefit of its shareholders other than Walgreens. Back in 2007, Walgreens primary growth driver was opening new stores. That year, the Company cut the ribbon on a new store every 17 hours. Today, with nearly 8,000 retail health and daily living stores on the best...

  • Page 9
    ... regarded product lines include No7, the U.K.'s leading skincare brand and a favorite among customers like Gemma Gardner, left. In stores, Boots beauty advisor Geraldine Freer helps Gemma and other customers find the perfect shade to help them look and feel their best. 2012 Walgreens Annual Report...

  • Page 10
    ... Well Experience pilot in the Indianapolis market, the Company has also evolved alongside Steve's growing family to meet the needs of today's consumers. Several new features of Walgreens Well Experience store format, such as a fresh food section, upgraded beauty department, enhanced private brand...

  • Page 11
    ... market with its new pilot concept called the "Well Experience." This new concept is fresh, inviting and customized to meet the unique needs of local communities. Well Experience combines products and services that help customers get, stay and live well, creating a health and daily living store...

  • Page 12
    ..., accessible community care that has the potential to transform patients' lives and our nation's healthcare system. Walgreens pharmacies and clinics are already part of customers' daily routines. Building on those relationships, the Company's goal is to "own the strategic territory of Well" by...

  • Page 13
    ... Well Experience format to more markets, the Company is poised to help patients take charge of their health through enhanced services in the pharmacy and Take Care Clinic. The Company is leading the way to transform the traditional drugstore into a retail health and daily living destination. 2012...

  • Page 14
    ...high-profile, high-traffic areas of large cities, and although they offer some products and services you won't find in every store - such as sushi, manicures, and locally baked treats - they showcase the outstanding customer service people can expect at any Walgreens. 12 2012 Walgreens Annual Report

  • Page 15
    ... treat its best customers even better. Through Balance Rewards, customers enjoy exclusive savings. They also earn points on thousands of in-store items and activities that help them stay well, such as filling a prescription or participating in Walk with Walgreens. 2012 Walgreens Annual Report 13

  • Page 16
    .... The Company is also improving work processes in the pharmacy. By centralizing tasks such as data entry and phone calls, Walgreens has been able to give community pharmacists more time to spend with customers, elevating their work to a new level of consultative care for patients. Customer feedback...

  • Page 17
    ... by aisle, saving even more time. Walgreens estimates these carts save 2.5 hours per week in the average store, which upon chainwide rollout, is expected to translate to $11 million in workload efficiencies. The Company recently expanded an internal campaign encouraging team members to submit more...

  • Page 18
    ... President - Corporate Financial Operations, Controller and Chief Accounting Officer Robert G. Zimmerman Reuben E. Slone Senior Vice President, International and International Kevin P. Walgreen Chief Administration Officer W. Bryan Pugh Vice President, Well Experience 2012 Walgreens Annual Report

  • Page 19
    ... a positive adjustment of $79 million pre-tax, $50 million after tax, relating to an adjustment of the Company's vacation liability. (7) Locations include drugstores, worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities...

  • Page 20
    ... have prescriptions filled in retail pharmacies as well as through the mail, and customers may also place orders by telephone and online. At August 31, 2012, we operated 8,385 locations in 50 states, the District of Columbia, Guam and Puerto Rico. Total locations do not include 360 Take Care Clinics...

  • Page 21
    ... products and services closer to patients. The Company also grew its infusion business in select markets through the acquisition of Crescent Pharmacy Holdings, LLC (Crescent). On September 17, 2012, the Company completed its acquisition of USA Drug, which includes 144 drugstore locations operating...

  • Page 22
    ...the Express Scripts pharmacy provider network, partially offset by sales gains in existing stores and added sales from new stores, each of which included an indeterminate amount of market-driven price changes. Sales in comparable drugstores were down 3.6% in 2012 and up 3.3% and 1.6% in fiscal years...

  • Page 23
    ... as an equity method investment. Business acquisitions this year were $490 million versus $630 million in fiscal 2011. Business acquisitions in fiscal 2012 included certain assets from BioScrip's community specialty pharmacies and centralized specialty and mail services pharmacy businesses for $144...

  • Page 24
    ... 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. On September 13, 2012, we completed the issuance and sale via an underwritten public...

  • Page 25
    ... 31, 2012 (In millions) : Total Operating leases (1) Purchase obligations (2) : Open inventory purchase orders Real estate development Other corporate obligations Long-term debt* (3) Interest payment on long-term debt Insurance* Retiree health* Closed location obligations* Capital lease obligations...

  • Page 26
    ... based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations. In connection with the Alliance Boots Purchase and Option Agreement dated June 18, 2012, we have...

  • Page 27
    ..., levels of business with Express Scripts customers, estimates of the impact of developments on our earnings and earnings per share, network participation, cough/cold and flu season, prescription volume, pharmacy sales trends, prescription margins, number and location of new store openings, vendor...

  • Page 28
    ...for the years ended August 31, 2012, 2011 and 2010 (In millions, except per share amounts) 2012 Net sales Cost of sales Gross Profit Selling, general and administrative expenses Gain on sale of business Operating Income Interest expense, net Earnings Before Income Tax Provision Income tax provision...

  • Page 29
    ...the years ended August 31, 2012, 2011 and 2010 (In millions, except shares and per share amounts) Common Stock Shares Balance, August 31, 2009 Net earnings Dividends declared ($.5875 per share) Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Employee stock...

  • Page 30
    ...,462 2011 $ 1,556 2,497 8,044 225 12,322 11,526 - - 2,017 1,589 15,132 $ 27,454 Liabilities and Shareholders' Equity Current Liabilities Short-term borrowings Trade accounts payable Accrued expenses and other liabilities Income taxes Total Current Liabilities Non-Current Liabilities Long-term debt...

  • Page 31
    ... acquisitions, net of cash received (Payments) proceeds from sale of business Investment in Alliance Boots Other Net cash used for investing activities Cash Flows from Financing Activities Payments of long-term debt Issuance of long-term debt Stock purchases Proceeds related to employee stock plans...

  • Page 32
    ...) to the first lease option date. The reserve for store closings was $117 million, $145 million and $151 million in fiscal 2012, 2011 and 2010, respectively. See Note 3 for additional disclosure regarding the Company's reserve for future costs related to closed locations. Financial Instruments The...

  • Page 33
    .... The Company's liability for unrecognized tax benefits, including accrued penalties and interest, is included in other long-term liabilities on the Consolidated Balance Sheets and in income tax expense in the Consolidated Statements of Comprehensive Income. 2012 Walgreens Annual Report 31

  • Page 34
    ... cost and improve productivity through strategic sourcing of indirect spend, reducing corporate overhead and work throughout the Company's stores, rationalization of inventory categories, and realignment of pharmacy operations. These initiatives were completed in fiscal 2011. The Company recorded...

  • Page 35
    ... contracts. The acquisition is a strategic investment to expand the Company's infusion services in select California markets. The aggregate purchase price of all business and intangible asset acquisitions, excluding BioScrip and Crescent, was $259 million in fiscal 2012. These acquisitions added...

  • Page 36
    ... 2010. The weighted-average amortization period for purchased prescription files was seven years for fiscal 2012 and 2011. The weighted-average amortization period for favorable lease interests was 11 years for fiscal 2012 and 2011. The weighted-average amortization 34 2012 Walgreens Annual Report

  • Page 37
    ... 10 years for fiscal 2012 and 2011. Expected amortization expense for intangible assets recorded at August 31, 2012, not including amounts related to Alliance Boots that will be amortized through equity method investment income, is as follows (In millions) : 2013 $252 2014 $217 2015 $182 2016 $144...

  • Page 38
    ...financial Less current maturities (9) (8) ratios related to minimum net worth and priority debt, along with limitations on the Total long-term debt $ 4,073 $ 2,396 sale of assets and purchases of investments. At August 31, 2012, the Company was in compliance with all such covenants. The Company pays...

  • Page 39
    ...simulation using assumptions surrounding Walgreens equity value as well as the potential impacts of the certain provisions of the Purchase and Option Agreement dated June 18, 2012, by and among the Company, Alliance Boots and AB Acquisitions Holdings Limited. The Company reports its debt instruments...

  • Page 40
    ... fiscal 2012, 2011 and 2010 have a three-year vesting period. The Walgreen Co. Broad Based Employee Stock Option Plan provides for the granting of options to eligible non-executive employees to purchase common stock over a 10-year period, at a price not less than the fair market value on the date of...

  • Page 41
    ...-half in cash and one-half in Walgreen Co. common stock. A summary of total stock-based compensation expense follows: 2012 Stock options Restricted stock units Performance share plans Employee stock purchase plan $ 62 24 7 6 $ 99 2011 $ 85 20 25 5 $135 2010 $ 78 13 6 5 $102 14. Retirement Benefits...

  • Page 42
    ... Estimated Future Benefit Payments 2013 2014 2015 2016 2017 2018-2022 $ 10 12 13 15 16 107 Estimated Federal Subsidy $- - - - - 1 15. Supplementary Financial Information Non-cash transactions in fiscal 2012 include $2,981 million in stock issuance relating to the investment in Alliance Boots, a $53...

  • Page 43
    ..., or $.30 per diluted share, after tax, from the sale of Walgreens Health Initiatives, Inc., a pharmacy benefit management business. Common Stock Prices Below is the Consolidated Transaction Reporting System high and low sales price for each quarter of fiscal 2012 and 2011. November $ 36.27 30...

  • Page 44
    ... Drug, Super D Drug, May's Drug, Med-X and Drug Warehouse names located in Arkansas, Kansas, Mississippi, Missouri, New Jersey, Oklahoma and Tennessee. The acquisition also includes corporate offices, a distribution center located in Pine Bluff, Arkansas, and a wholesale and private brand business...

  • Page 45
    ...") as of August 31, 2012 and 2011, and the related consolidated statements of comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 2012. We also have audited the Company's internal control over financial reporting as of August 31...

  • Page 46
    ...share amounts) 2012 Net cash provided by operating activities Additions to property and equipment Free cash flow (Non-GAAP) $ 4,431 (1,550) $ 2,881 2011 2010 2009 2008 2007 Net Earnings - as reported Alliance Boots transaction costs Acquisition-related amortization LIFO provision Gain on sale...

  • Page 47
    ... of Directors, quarterly reports, press releases, proxy statements, the Company's Code of Ethics for Financial Executives, Code of Business Conduct and the 2012 Annual Report. These and other reports may also be obtained without charge upon request to: Shareholder Relations Walgreen Co. - Mail Stop...

  • Page 48
    ... at State and Randolph streets in Chicago (right). This store caters to busy businesspeople and includes a LOOK boutique beauty area, manicure counter and extensive beer and wine selection - just to name a few products and services that take Walgreens flagship locations beyond traditional drugstores...