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Walgreen Co. Reports Fiscal 2013 First Quarter Results

Walgreens will hold a conference call to discuss the first quarter results beginning at 8:30 a.m. Eastern time today, Dec. 21. The conference call will be simulcast through Walgreens investor relations website at: A replay of the conference call will be archived on the website for 12 months after the call. A podcast also will be available on the investor relations website.

The replay also will be available from 11:30 a.m. Eastern time, Dec. 21 through Dec. 28 by calling 855-859-2056 within the U.S. and Canada, or 404-537-3406 outside the U.S. and Canada, using replay code 82903068.

Cautionary Note Regarding Forward-Looking Statements. Statements in this release that are not historical, including, without limitation, estimates of the amounts and timing of future accretion and synergies, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "expect," "likely," "outlook," "forecast, "would," "could," "should," "can," "will," "project," "intend," "plan," "goal," "continue," "sustain," "synergy," "on track," "believe," "seek," "estimate," "anticipate," "may," "possible," "assume," variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, including, but not limited to, those relating to the transactions contemplated by the Purchase and Option Agreement and other agreements relating to our strategic partnership with Alliance Boots and their possible effects, the parties' ability to realize anticipated synergies and achieve anticipated financial results, the risks associated with international business operations, the risks associated with governance and control matters, whether the option to acquire the remainder of the Alliance Boots equity interest will be exercised and the financial ramifications thereof, changes in vendor, payer and customer relationships and terms, changes in network participation, levels of business with Express Scripts customers, the implementation, operation and growth of our customer loyalty program, changes in economic and market conditions, competition, risks associated with new business areas and activities, risks associated with acquisitions, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, outcomes of legal and regulatory matters, and changes in legislation or regulations. These and other risks, assumptions and uncertainties are described in Item 1A (Risk Factors) of our most recent Annual Report on Form 10-K, which is incorporated herein by reference, and in other documents that we file or furnish with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, Walgreens does not undertake, and expressly disclaims, any duty or obligation to update publicly any forward-looking statement after the initial distribution of this release, whether as a result of new information, future events, changes in assumptions or otherwise.

Please refer to the supplemental information presented below for reconciliations of the non-GAAP financial measures used in this release to the most comparable GAAP financial measure and related disclosures.
(In Millions, Except Per Share Amounts)
    Three Months Ended
November 30,     November 30,
2012 2011
Net sales $ 17,316 $ 18,157
Cost of sales (1) 12,217     13,053  
Gross Profit 5,099 5,104
Selling, general and administrative expenses 4,398 4,204
Equity earnings in Alliance Boots 4     -  
Operating Income 705 900
Interest expense, net 37     17  
Earnings Before Income Tax Provision 668 883
Income tax provision 255     329  
Net Earnings $ 413   $ 554  
Net earnings per common share:
Basic $ .44   $ .63  
Diluted $ .43   $ .63  
Dividends declared $ .2750   $ .2250  
Average shares outstanding 945.3 879.7
Dilutive effect of stock options 5.9     5.5  
Average Diluted Shares 951.2     885.2  
Percent of Sales
Net sales 100.0 % 100.0 %
Cost of sales 70.6     71.9  
Gross Margin 29.4 28.1
Selling, general and administrative expenses 25.4 23.1
Equity earnings in Alliance Boots -     -  
Operating Income 4.0 5.0
Interest expense, net 0.2     0.1  
Earnings Before Income Tax Provision 3.8 4.9
Income tax provision 1.4     1.8  
Net Earnings 2.4 %   3.1 %
(1) Fiscal 2013 first quarter includes a LIFO provision of $55 million versus $45 million in the previous year.
(In Millions)
November 30, November 30,
2012 2011
Current Assets:
Cash and cash equivalents $ 1,829 $ 1,094
Accounts receivable, net 2,264 2,586
Inventories 7,821 8,231
Other current assets   248   196
Total Current Assets 12,162 12,107
Non-Current Assets:
Property and Equipment, at cost, less
accumulated depreciation and amortization 12,110 11,699
Equity investment in Alliance Boots 6,112 -
Alliance Boots call option 876 -
Goodwill 2,404 2,017
Other non-current assets   1,595   1,606
Total Non-Current Assets   23,097   15,322
Total Assets $ 35,259 $ 27,429
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 1,316 $ 11
Trade accounts payable 4,821 4,778
Accrued expenses and other liabilities 3,028 3,091
Income taxes   155   349
Total Current Liabilities 9,320 8,229
Non-Current Liabilities:
Long-term debt 5,069 2,390
Deferred income taxes 559 284
Other non-current liabilities   1,932   1,852
Total Non-Current Liabilities   7,560   4,526
Shareholders' Equity   18,379   14,674
Total Liabilities and Shareholders' Equity $ 35,259 $ 27,429
(In Millions)
    Three Months Ended November 30,
2012     2011
Cash flows from operating activities:

Net earnings
$ 413 $ 554
Adjustments to reconcile net earnings to net cash provided by
operating activities -
Depreciation and amortization 313 277
Deferred income taxes 30 21
Stock compensation expense 20 35
Earnings in equity method investments (4 ) -
Other 43 3
Changes in operating assets and liabilities -
Accounts receivable, net (98 ) (89 )
Inventories (698 ) (178 )
Other current assets 14 31
Trade accounts payable 389 (32 )
Accrued expenses and other liabilities (15 ) (28 )
Income taxes 194 163
Other non-current assets and liabilities   -     52  
Net cash provided by operating activities   601     809  
Cash flows from investing activities:
Additions to property and equipment (336 ) (419 )
Proceeds from sale of assets 10 24
Business and intangible asset acquisitions, net of cash received (471 ) (70 )
Payments made related to sale of business - (29 )
Other   (12 )   (3 )
Net cash used for investing activities   (809 )   (497 )
Cash flows from financing activities:
Net proceeds from issuance of debt 4,000 -
Payments of long-term debt (3,000 ) -
Stock purchases (50 ) (608 )
Proceeds related to employee stock plans 45 42
Cash dividends paid (260 ) (202 )
Other   5     (6 )
Net cash provided by (used for) financing activities   740     (774 )
Changes in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 532 (462 )
Cash and cash equivalents at beginning of year   1,297     1,556  
Cash and cash equivalents at end of period $ 1,829   $ 1,094  


The following information provides reconciliations of the supplemental non-GAAP financial measures, as defined under SEC rules, presented in this press release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (GAAP). The company has provided these non-GAAP financial measures in the press release, which are not calculated or presented in accordance with GAAP, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with GAAP. These supplemental non-GAAP financial measures are presented because management has evaluated the company’s financial results both including and excluding the adjusted items and believes that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the company’s business from period to period and trends in the company’s historical operating results. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented in the press release.
        Three months ended November 30,
2012     2011
Operating income (GAAP) $ 705 $ 900
Acquisition-related amortization 88 60
LIFO provision 55 45
Hurricane Sandy costs 39 -
USA Drug acquisition costs 26 -
Alliance Boots transaction and synergy costs   11   -
Adjusted operating income $ 924 $ 1,005
Net earnings (GAAP) $ 413 $ 554
Acquisition-related amortization 59 37
LIFO provision 34 28
Hurricane Sandy costs 24 -
USA Drug acquisition costs 16 -
Alliance Boots transaction and synergy costs   7   -
Adjusted net earnings $ 553 $ 619
Net earnings per common share – diluted (GAAP) $ 0.43 $ 0.63
Acquisition-related amortization 0.06 0.05
LIFO provision 0.04 0.03
Hurricane Sandy costs 0.03 -
USA Drug acquisition costs 0.02 -
Alliance Boots transaction and synergy costs   -   -
Adjusted net earnings per common share – diluted $ 0.58 $ 0.71
Three months ended
November 30, 2012
Net cash provided by operating activities (GAAP) $ 601
Less: Additions to property and equipment   336

Free cash flow(1)
$ 265

  Free cash flow is defined as net cash provided by operating activities in a period minus additions to property and equipment (capital expenditures) made in that period. This measure does not represent residual cash flows available for discretionary expenditures as the measure does not deduct the payments required for debt service and other contractual obligations or payments for future business acquisitions. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our entire statements of cash flows.

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