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Well at Walgreens
Get LiveStay
2013 Annual Report

Table of contents

  • Page 1
    Get Stay Live Well at Walgreens 2013 Annual Report

  • Page 2
    ... commercial book of pharmacy business • through multiyear agreements reached with Express Scripts Inc., Caremark and other leading commercial payers. Walgreens strengthened its position to create the first global pharmacy-led, health and well-being enterprise by forging a game-changing strategic...

  • Page 3
    ...% Product Class Sales (1) Includes drugstores, worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. (2) In thousands of square feet. Walgreens Fiscal Year Stock Performance Fiscal year-end closing price per share in...

  • Page 4
    ...nationwide store network on the best corners in America. Today, we are establishing the first global pharmacy-led health, beauty and well-being enterprise, seizing opportunities to lead the market in the decades ahead. As we think globally and long term, Walgreens is keenly focused locally every day...

  • Page 5
    ...value to Walgreens by giving us exceptional insight into customer shopping habits and preferences - information we are putting to work to enhance pricing, promotions, product assortments and services, and to tailor our daily living strategies to meet individual community needs. Rounding out the Well...

  • Page 6
    ... of community pharmacy highlighted by our Well Experience store format - to our combination of health and technology through development of award-winning mobile applications and web tools to help people manage their health - to our public-private initiatives with the U.S. Centers for Disease Control...

  • Page 7
    Last spring, Walgreens and Alliance Boots announced a strategic, long-term relationship with the largest pharmaceutical supply chain company in America, AmerisourceBergen, to form a collaborative wholesale-retail model here in the United States. The 10-year strategic long-term contract, which will ...

  • Page 8
    6 2013 Walgreens Annual Report

  • Page 9
    ...Walgreens as the No.1 destination for health and daily living. Well Experience stores feature a new, enhanced layout, a number of new product selections and a completely revamped pharmacy and healthcare experience. The front of the store is focused on daily living needs that help customers live well...

  • Page 10
    ... essential to helping the community recover. The company's Security Operations Center in Deerfield, Illinois, monitors weather, news reports and alarm systems so it can respond immediately to natural or man-made threats. After Hurricane Sandy hit the East Coast in October 2012, Walgreens stores were...

  • Page 11
    ... loyalty program in the history of retail. In what Walgreens believes to be a retail-industry first, the company is combining technologies currently in use across the chain - such as wind turbines, solar installations and geothermal technologies - into one super-efficient store in Evanston, Illinois...

  • Page 12
    10 2013 Walgreens Annual Report

  • Page 13
    .... Walgreens pharmacy solutions revolve around improving health outcomes. Calls or text messages remind patients when their refills are ready and again, before the medication is returned to stock. Services such as new-to-therapy consultations help patients prepare for changes to their prescription...

  • Page 14
    ...to clinics inside retail stores. Employers like United Airlines and Toyota offer on-site clinic and pharmacy services at their workplaces to help employees stay well and reduce healthcare costs for the employer. And hospitals, medical groups and other health systems have contracted with Walgreens to...

  • Page 15
    ... to meet community health needs by offering fresh groceries and an in-store clinic staffed by nurse practitioners. It's also more than just a drugstore - it's a "laboratory" for exploring new ways to deliver healthcare services. This is part of a partnership the two companies announced in 2011 to...

  • Page 16
    14 2013 Walgreens Annual Report

  • Page 17
    ... and Alliance Boots closed the initial step in August 2012 to create the first global pharmacy-led, health and well-being enterprise, the two companies are making progress in their partnership and exceeded first-year synergy targets. Alliance Boots contributed 16 cents per diluted share to Walgreens...

  • Page 18
    ...effort to maximize this strategic partnership, Walgreens and Alliance Boots set up a joint venture called Walgreens Boots Alliance Development GmbH, based in Bern, Switzerland. The joint venture is focused on capturing synergies between the two companies - in other words, sharing best practices, and...

  • Page 19
    ...companies benefit from greater scale and global opportunities as they work together on new and innovative programs to improve service levels and efficiencies, while reducing costs and increasing patient access to pharmaceuticals. Together, Walgreens, Alliance Boots and AmerisourceBergen plan to help...

  • Page 20
    ... J. Heidloff Divisional Vice President, Accounting and Controller Alex Gourlay Executive Vice President, and President, Customer Experience and Daily Living Timothy J. Theriault Senior Vice President and Chief Information, Innovation and Improvement Officer 18 2013 Walgreens Annual Report

  • Page 21
    ...centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities. The foregoing does not include locations of unconsolidated partially owned entities, such as Alliance Boots, of which the Company owns 45% of the outstanding share capital. 2013 Walgreens Annual...

  • Page 22
    ... such as Alliance Boots GmbH (Alliance Boots). Number of Locations Location Type 2013 Drugstores 8,116 Worksite Health and Wellness Centers 371 Infusion and Respiratory Services Facilities 82 Specialty Pharmacies 11 Mail Service Facilities 2 Total 8,582 2012 7,930 366 76 11 2 8,385 2011 7,761 355...

  • Page 23
    ... the ability to access generics and related pharmaceutical products through Walgreens Boots Alliance Development GmbH, a global sourcing joint venture between ourselves and Alliance Boots; and agreements and arrangements pursuant to which we and Alliance Boots together have the right, but not the...

  • Page 24
    ... of our participation in the Express Scripts retail pharmacy provider network compared to fiscal 2012. The effect of generic drugs, which have a lower retail price, replacing brand name drugs reduced prescription sales by 5.3% for 2013, 3.5% for 2012 and 2.4% for 2011, while the effect on total...

  • Page 25
    ... prescription files). In fiscal 2013, we purchased $224 million of AmerisourceBergen common stock. Additionally, in the current year, we received client retention proceeds of $20 million in accordance with the June 2011 sales agreement of our pharmacy benefit management business, Walgreens Health...

  • Page 26
    ... and operating lease costs. Pursuant to our Purchase and Option Agreement with Alliance Boots GmbH, we have the right, but not the obligation, to purchase the remaining 55% interest in Alliance Boots during the period beginning February 2, 2015, and ending August 2, 2015. If we exercise this call...

  • Page 27
    ... Operating leases (1) Purchase obligations (2) : Open inventory purchase orders Real estate development Other corporate obligations Long-term debt* Interest payment on long-term debt Insurance* Retiree health* Closed location obligations* Capital lease obligations* (1) Other long-term liabilities...

  • Page 28
    ... 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 the right...

  • Page 29
    ... with Express Scripts customers, estimates of the impact of developments on our earnings, earnings per share and other financial metrics, network participation, cough/cold and flu season, prescription volume, pharmacy sales trends, prescription margins, number and location of new store openings...

  • Page 30
    ... the year ended August 31, 2013 of the Company and our report dated October 18, 2013 expressed an unqualified opinion on those financial statements based on our audit and the report of other auditors. DELOITTE & TOUCHE LLP Chicago, Illinois October 18, 2013 To the Board of Alliance Boots GmbH: We...

  • Page 31
    ... Income Walgreen Co. and Subsidiaries for the years ended August 31, 2013, 2012 and 2011 (In millions, except per share amounts) 2013 Net sales Cost of sales Gross Profit Selling, general and administrative expenses Gain on sale of business Equity earnings in Alliance Boots Operating Income...

  • Page 32
    ... 31, 2012 Net earnings Dividends declared ($1.14 per share) Treasury stock purchases Employee stock purchase and option plans Stock-based compensation Employee stock loan receivable Cumulative currency translation, net of $55 tax benefit Share of other comprehensive income of Alliance Boots, of...

  • Page 33
    ...billion shares; issued and outstanding 1,028,180,150 shares in 2013 and 2012 Paid-in capital Employee stock loan receivable Retained earnings Accumulated other comprehensive (loss) income Treasury stock at cost, 81,584,572 shares in 2013 and 84,124,816 shares in 2012 Total Shareholders' Equity Total...

  • Page 34
    ... Change in fair value of warrants and related amortization Gain on sale of business Deferred income taxes Stock compensation expense Equity earnings in Alliance Boots Other Changes in operating assets and liabilities - Accounts receivable, net Inventories Other current assets Trade accounts...

  • Page 35
    ... closing of this investment, only the ten months of August through May's results of operations are reflected in the equity earnings in Alliance Boots included in the Company's reported net earnings for year ended August 31, 2013. The financial results of the Walgreens Boots Alliance Development GmbH...

  • Page 36
    ...(net of estimated sublease rent) to the first lease option date. The reserve for store closings was $123 million and $117 million as of August 31, 2013 and 2012, respectively. See Note 3 for additional disclosure regarding the Company's reserve for future costs related to closed locations. Financial...

  • Page 37
    ... average market price of the common shares. Outstanding options to purchase common shares that were anti-dilutive and excluded from earnings per share totaled 12,316,949, 32,593,870 and 16,869,061 in fiscal 2013, 2012 and 2011, respectively. New Accounting Pronouncements In July 2012, the Financial...

  • Page 38
    ... date. In fiscal 2013, 2012 and 2011, the Company recorded charges of $43 million, $20 million and $54 million, respectively, for facilities that were closed or relocated under long-term leases. These charges are reported in selling, general and administrative expenses on the Consolidated Statements...

  • Page 39
    ...in fiscal 2013 corresponding to the three-month lag after closing the investment on August 2, 2012. Walgreens Boots Alliance Development GmbH operations are excluded from these results as the Company consolidates the joint venture. 6. Available-for-Sale Investments In conjunction with its long-term...

  • Page 40
    ... drugstore chain USA Drug from Stephen L. LaFrance Holdings, Inc. and members of the LaFrance family for $436 million net of assumed cash and selected other assets (primarily prescription files). In December 2012, the Company purchased an 80% interest in Cystic Fibrosis Foundation Pharmacy LLC...

  • Page 41
    ... risk, the Company has recorded a valuation allowance of $19 million on certain deferred tax assets relating to these net operating losses as of August 31, 2013. Income taxes paid were $1.2 billion for fiscal years 2013 and 2012 and $1.3 billion in fiscal 2011. ASC Topic 740, Income Taxes, provides...

  • Page 42
    ... fees. The fair value of the notes as of August 31, 2013 and 2012, was terminated on August 1, 2013, in conjunction with the notes maturity date. $1.1 billion and $1.2 billion, respectively. Fair value for these notes was determined based upon quoted market prices. 40 2013 Walgreens Annual Report

  • Page 43
    ... equity value as well as the potential impacts of 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 under the guidance of ASC Topic 825, Financial...

  • Page 44
    ... core strategies and meet return requirements; and return surplus cash flow to shareholders in the form of dividends and share repurchases over the long term. In connection with the Company's capital policy, the Board of Directors authorized a share repurchase program (2009 repurchase program) and...

  • Page 45
    ... directors in any of the fiscal years earned a prorated amount. Payment of the annual retainer is paid in the form of cash, which may be deferred. A summary of total stock-based compensation expense follows (In millions) : Stock options Restricted stock units Performance share plans Share Walgreens...

  • Page 46
    ..., including age, years of service and date of hire. The costs of these benefits are accrued over the service life of the employee. In fiscal 2012, the Company amended its prescription drug program for certain Medicare-eligible retirees to a group-based Company-sponsored Medicare Part D program, or...

  • Page 47
    ... Share Net Sales Gross Profit Net Earnings Per Common Share - Basic - Diluted Cash Dividends Declared Per Common Share Fiscal 2012 Common Stock Prices (Unaudited) Below is the Consolidated Transaction Reporting System high and low sales price for each quarter of fiscal 2013 and 2012. November...

  • Page 48
    ...) - as reported LIFO provision Acquisition-related amortization Acquisition-related costs Alliance Boots related tax DEA settlement costs Hurricane Sandy costs Distributor transition costs Alliance Boots share issuance effect Increase in fair market value of warrants Gain on sale of Walgreens Health...

  • Page 49
    ... http://investor.walgreens.com. This includes corporate governance guidelines, charters of all committees of the Board of Directors, quarterly reports, press releases, proxy statements, the company's Code of Ethics for Financial Executives, Code of Business Conduct and the 2013 Annual Report. These...

  • Page 50
    ... on shampoo, bread or home office supplies. "I get everything at Walgreens," she says. "They're just amazing. It means a lot that the employees there know me by name and even remember our favorite brands." Walgreen Co. 108 Wilmot Road, Deerfield, Illinois 60015 Walgreens.com • WalgreensEspañol...