þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Illinois
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36-1924025
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(State of Incorporation)
|
(I.R.S. Employer Identification No.)
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108 Wilmot Road, Deerfield, Illinois
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60015
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(Address of principal executive offices)
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(Zip Code)
|
|
Yes þ No ¨
|
Large accelerated filer þ Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨
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|
Yes ¨ No þ
|
Item 1.
|
Consolidated Condensed Financial Statements (Unaudited)
|
||
|
a)
|
Balance Sheets
|
|
|
b)
|
Statement of Equity
|
|
|
c)
|
Statements of Earnings
|
|
|
d)
|
Statements of Comprehensive Income
|
|
|
e)
|
Statements of Cash Flows
|
|
|
f)
|
Notes to Financial Statements
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosure about Market Risk
|
|
|
Item 4.
|
Controls and Procedures
|
|
Item 1.
|
Legal Proceedings
|
|
Item 1A.
|
Risk Factors
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
Item 6.
|
Exhibits
|
|
WALGREEN CO. AND SUBSIDIARIES
|
||||||||||||
CONSOLIDATED CONDENSED BALANCE SHEETS
|
||||||||||||
(UNAUDITED)
|
||||||||||||
(In millions, except per share amounts)
|
||||||||||||
November 30,
|
August 31,
|
November 30,
|
||||||||||
2013
|
2013
|
2012
|
||||||||||
Assets
|
||||||||||||
Current Assets:
|
||||||||||||
Cash and cash equivalents
|
$ | 969 | $ | 2,106 | $ | 1,829 | ||||||
Accounts receivable, net
|
2,727 | 2,632 | 2,264 | |||||||||
Inventories
|
7,729 | 6,852 | 7,821 | |||||||||
Other current assets
|
297 | 284 | 248 | |||||||||
Total Current Assets
|
11,722 | 11,874 | 12,162 | |||||||||
Non-Current Assets:
|
||||||||||||
Property and equipment, at cost, less accumulated depreciation and amortization
|
12,351 | 12,138 | 12,110 | |||||||||
Equity investment in Alliance Boots
|
6,439 | 6,261 | 6,112 | |||||||||
Alliance Boots call option
|
856 | 839 | 876 | |||||||||
Goodwill
|
2,491 | 2,410 | 2,404 | |||||||||
Other non-current assets
|
2,622 | 1,959 | 1,595 | |||||||||
Total Non-Current Assets
|
24,759 | 23,607 | 23,097 | |||||||||
Total Assets
|
$ | 36,481 | $ | 35,481 | $ | 35,259 | ||||||
Liabilities & Equity
|
||||||||||||
Current Liabilities:
|
||||||||||||
Short-term borrowings
|
$ | 571 | $ | 570 | $ | 1,316 | ||||||
Trade accounts payable
|
4,762 | 4,635 | 4,821 | |||||||||
Accrued expenses and other liabilities
|
3,210 | 3,577 | 3,028 | |||||||||
Income taxes
|
278 | 101 | 155 | |||||||||
Total Current Liabilities
|
8,821 | 8,883 | 9,320 | |||||||||
Non-Current Liabilities:
|
||||||||||||
Long-term debt
|
4,501 | 4,477 | 5,069 | |||||||||
Deferred income taxes
|
778 | 600 | 559 | |||||||||
Other non-current liabilities
|
2,325 | 2,067 | 1,932 | |||||||||
Total Non-Current Liabilities
|
7,604 | 7,144 | 7,560 | |||||||||
Commitments and Contingencies (see Note 11)
|
||||||||||||
Equity:
|
||||||||||||
Preferred stock $.0625 par value; authorized 32 million shares, none issued
|
- | - | - | |||||||||
Common stock $.078125 par value; authorized 3.2 billion shares; issued 1,028,180,150 at November 30, 2013, August 31, 2013 and November 30, 2012
|
80 | 80 | 80 | |||||||||
Paid-in capital
|
1,053 | 1,074 | 930 | |||||||||
Employee stock loan receivable
|
(10 | ) | (11 | ) | (15 | ) | ||||||
Retained earnings
|
21,918 | 21,523 | 20,308 | |||||||||
Accumulated other comprehensive income (loss)
|
22 | (98 | ) | 45 | ||||||||
Treasury stock, at cost; 78,008,865 shares at November 30, 2013, 81,584,572 at August 31, 2013 and 83,075,411 at November 30, 2012
|
(3,042 | ) | (3,114 | ) | (2,969 | ) | ||||||
Total Walgreen Co. Shareholders' Equity
|
20,021 | 19,454 | 18,379 | |||||||||
Noncontrolling interests
|
35 | - | - | |||||||||
Total Equity
|
20,056 | 19,454 | 18,379 | |||||||||
Total Liabilities & Equity
|
$ | 36,481 | $ | 35,481 | $ | 35,259 |
WALGREEN CO. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||
CONSOLIDATED CONDENSED STATEMENT OF EQUITY
|
||||||||||||||||||||||||||||||||||||
(UNAUDITED)
|
||||||||||||||||||||||||||||||||||||
For the three month period ended, November 30, 2013
|
||||||||||||||||||||||||||||||||||||
(In millions, except per share amounts)
|
||||||||||||||||||||||||||||||||||||
Equity attributable to Walgreen Co.
|
||||||||||||||||||||||||||||||||||||
Common Stock
Shares
|
Common Stock Amount
|
Treasury Stock Amount
|
Paid-In Capital
|
Employee Stock Loan Receivable
|
Accumulated Other Comprehensive Income(Loss)
|
Retained Earnings
|
Noncontrolling Interests
|
Total Equity
|
||||||||||||||||||||||||||||
Balance, August 31, 2013
|
946,595,578 | $ | 80 | $ | (3,114 | ) | $ | 1,074 | $ | (11 | ) | $ | (98 | ) | $ | 21,523 | $ | - | $ | 19,454 | ||||||||||||||||
Net earnings
|
- | - | - | - | - | - | 695 | 9 | 704 | |||||||||||||||||||||||||||
Other Comprehensive Income, net of tax
|
- | - | - | - | - | 120 | - | - | 120 | |||||||||||||||||||||||||||
Dividends declared ($.3150 per share)
|
- | - | - | - | - | - | (300 | ) | - | (300 | ) | |||||||||||||||||||||||||
Treasury stock purchases
|
(3,703,799 | ) | - | (205 | ) | - | - | - | - | - | (205 | ) | ||||||||||||||||||||||||
Employee stock purchase and option plans
|
7,279,506 | - | 277 | (42 | ) | - | - | - | - | 235 | ||||||||||||||||||||||||||
Stock-based compensation
|
- | - | - | 21 | - | - | - | - | 21 | |||||||||||||||||||||||||||
Employee stock loan receivable
|
- | - | - | - | 1 | - | - | - | 1 | |||||||||||||||||||||||||||
Other
|
- | - | - | - | - | - | - | 26 | 26 | |||||||||||||||||||||||||||
Balance, November 30, 2013
|
950,171,285 | $ | 80 | $ | (3,042 | ) | $ | 1,053 | $ | (10 | ) | $ | 22 | $ | 21,918 | $ | 35 | $ | 20,056 |
WALGREEN CO. AND SUBSIDIARIES
|
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
|
(UNAUDITED)
|
(In millions, except per share amounts)
|
Three Months Ended
November 30,
|
||||||||
2013
|
2012
|
|||||||
Net sales
|
$ | 18,329 | $ | 17,316 | ||||
Cost of sales
|
13,177 | 12,217 | ||||||
Gross Profit
|
5,152 | 5,099 | ||||||
Selling, general and administrative expenses
|
4,379 | 4,398 | ||||||
Equity earnings in Alliance Boots
|
151 | 4 | ||||||
Operating Income
|
924 | 705 | ||||||
Interest expense, net
|
41 | 37 | ||||||
Other income
|
225 | - | ||||||
Earnings Before Income Tax Provision
|
1,108 | 668 | ||||||
Income tax provision
|
404 | 255 | ||||||
Net Earnings
|
704 | 413 | ||||||
Net earnings attributable to noncontrolling interests
|
9 | - | ||||||
Net Earnings Attributable to Walgreen Co.
|
$ | 695 | $ | 413 | ||||
Net earnings per common share attributable to Walgreen Co. – basic
|
$ | .73 | $ | .44 | ||||
Net earnings per common share attributable to Walgreen Co. – diluted
|
$ | .72 | $ | .43 | ||||
Dividends declared
|
$ | .3150 | $ | .2750 | ||||
Average shares outstanding
|
949.3 | 945.3 | ||||||
Dilutive effect of stock options
|
12.2 | 5.9 | ||||||
Average diluted shares
|
961.5 | 951.2 | ||||||
WALGREEN CO. AND SUBSIDIARIES
|
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
|
(UNAUDITED)
|
(In millions)
|
Three Months Ended
November 30,
|
||||||||
2013
|
2012
|
|||||||
Comprehensive Income
|
||||||||
Net Earnings
|
$ | 704 | $ | 413 | ||||
Other comprehensive income (loss), net of tax:
|
||||||||
Postretirement liability
|
8 | (2 | ) | |||||
Changes in unrecognized gain on available-for-sale investments
|
84 | - | ||||||
Share of other comprehensive income of Alliance Boots
|
(34 | ) | (72 | ) | ||||
Cumulative translation adjustments
|
62 | 50 | ||||||
Total Other Comprehensive Income
|
120 | (24 | ) | |||||
Total Comprehensive Income
|
824 | 389 | ||||||
Comprehensive income attributable to noncontrolling interests
|
9 | - | ||||||
Comprehensive income attributable to Walgreen Co.
|
$ | 815 | $ | 389 | ||||
WALGREEN CO. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
||||||||
(UNAUDITED)
|
||||||||
(In millions)
|
||||||||
Three Months Ended
November 30,
|
||||||||
2013
|
2012
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net earnings
|
$ | 704 | $ | 413 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities -
|
||||||||
Depreciation and amortization
|
332 | 313 | ||||||
Change in fair value of warrants and related amortization
|
(225 | ) | - | |||||
Deferred income taxes
|
129 | 30 | ||||||
Stock compensation expense
|
21 | 20 | ||||||
Equity earnings in Alliance Boots
|
(151 | ) | (4 | ) | ||||
Other
|
94 | 43 | ||||||
Changes in operating assets and liabilities -
|
||||||||
Accounts receivable, net
|
(74 | ) | (98 | ) | ||||
Inventories
|
(815 | ) | (698 | ) | ||||
Other current assets
|
(12 | ) | 14 | |||||
Trade accounts payable
|
97 | 389 | ||||||
Accrued expenses and other liabilities
|
(232 | ) | (15 | ) | ||||
Income taxes
|
190 | 194 | ||||||
Other non-current assets and liabilities
|
75 | - | ||||||
Net cash provided by operating activities
|
133 | 601 | ||||||
Cash Flows from Investing Activities:
|
||||||||
Additions to property and equipment
|
(364 | ) | (336 | ) | ||||
Proceeds from sale of assets
|
14 | 10 | ||||||
Business and intangible asset acquisitions, net of cash received
|
(243 | ) | (471 | ) | ||||
Purchases of short-term investments held to maturity
|
(19 | ) | - | |||||
Proceeds from short-term investments held to maturity
|
19 | - | ||||||
Investment in AmerisourceBergen
|
(290 | ) | - | |||||
Other
|
(42 | ) | (12 | ) | ||||
Net cash used for investing activities
|
(925 | ) | (809 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Proceeds from issuance of long-term debt
|
- | 4,000 | ||||||
Payments of long-term debt
|
- | (3,000 | ) | |||||
Stock purchases
|
(205 | ) | (50 | ) | ||||
Proceeds related to employee stock plans
|
173 | 45 | ||||||
Cash dividends paid
|
(298 | ) | (260 | ) | ||||
Other
|
(15 | ) | 5 | |||||
Net cash (used for) provided by financing activities
|
(345 | ) | 740 | |||||
Changes in Cash and Cash Equivalents:
|
||||||||
Net (decrease) increase in cash and cash equivalents
|
(1,137 | ) | 532 | |||||
Cash and cash equivalents at beginning of period
|
2,106 | 1,297 | ||||||
Cash and cash equivalents at end of period
|
$ | 969 | $ | 1,829 |
November 30,
|
August 31,
|
November 30,
|
||||||||||
2013
|
2013
|
2012
|
||||||||||
Balance – beginning of period
|
$ | 123 | $ | 117 | $ | 117 | ||||||
Provision for present value of non-cancellable lease
payments on closed facilities
|
23 | 34 | 19 | |||||||||
Assumptions about future sublease income, terminations and changes in interest rates
|
3 | (6 | ) | 3 | ||||||||
Interest accretion
|
1 | 15 | 4 | |||||||||
Cash payments, net of sublease income
|
(7 | ) | (37 | ) | (10 | ) | ||||||
Balance – end of period
|
$ | 143 | $ | 123 | $ | 133 |
2013
|
2012
|
|||||||||||||||
Carrying
Value
|
Ownership
Percentage
|
Carrying
Value
|
Ownership
Percentage
|
|||||||||||||
Alliance Boots
|
$ | 6,439 | 45 | % | $ | 6,112 | 45 | % | ||||||||
Other equity method investments
|
7 | 30% - 50 | % | 7 | 30% - 50 | % | ||||||||||
Total Equity Method Investments
|
$ | 6,446 | $ | 6,119 |
November 30,
2013(1)
|
August 31,
2013(1)
|
November 30, 2012(1)
|
||||||||||
Current assets
|
$ | 8,571 | $ | 8,906 | $ | 9,260 | ||||||
Noncurrent assets
|
19,758 | 19,484 | 20,230 | |||||||||
Current liabilities
|
7,199 | 7,204 | 7,185 | |||||||||
Noncurrent liabilities
|
11,751 | 12,228 | 13,587 | |||||||||
Shareholders' equity (2)
|
9,379 | 8,958 | 8,718 | |||||||||
Three Months Ended November 30,
|
||||||||
2013
|
2012(3)
|
|||||||
Net revenue
|
$ | 8,859 | $ | 2,775 | ||||
Gross profit
|
1,842 | 602 | ||||||
Net income
|
348 | 37 | ||||||
Share of income from equity method investments(3)
|
151 | 4 |
Net book value – December 1, 2012
|
$ | 2,404 | ||
Acquisitions
|
16 | |||
Other
|
(10 | ) | ||
Net book value – August 31, 2013
|
2,410 | |||
Acquisitions
|
98 | |||
Other
|
(17 | ) | ||
Net book value – November 30, 2013
|
$ | 2,491 |
November 30,
2013
|
August 31, 2013
|
November 30,
2012
|
||||||||||
Gross Intangible Assets
|
||||||||||||
Purchased prescription files
|
$ | 1,103 | $ | 1,099 | $ | 1,052 | ||||||
Favorable lease interests
|
381 | 381 | 388 | |||||||||
Purchasing and payer contracts
|
348 | 347 | 334 | |||||||||
Non-compete agreements
|
150 | 153 | 140 | |||||||||
Trade names
|
199 | 199 | 189 | |||||||||
Other amortizable intangible assets
|
4 | 4 | 4 | |||||||||
Total gross intangible assets
|
2,185 | 2,183 | 2,107 | |||||||||
Accumulated amortization
|
||||||||||||
Purchased prescription files
|
(447 | ) | (467 | ) | (425 | ) | ||||||
Favorable lease interests
|
(152 | ) | (143 | ) | (118 | ) | ||||||
Purchasing and payer contracts
|
(154 | ) | (147 | ) | (126 | ) | ||||||
Non-compete agreements
|
(67 | ) | (67 | ) | (56 | ) | ||||||
Trade names
|
(54 | ) | (49 | ) | (38 | ) | ||||||
Other amortizable intangible assets
|
(3 | ) | (3 | ) | (3 | ) | ||||||
Total accumulated amortization
|
(877 | ) | (876 | ) | (766 | ) | ||||||
Total intangible assets, net
|
$ | 1,308 | $ | 1,307 | $ | 1,341 |
2014
|
2015
|
2016
|
2017
|
2018
|
||||||||||||||||
Estimated annual amortization expense:
|
$ | 282 | $ | 257 | $ | 225 | $ | 187 | $ | 148 |
November 30,
2013
|
August 31, 2013
|
November 30,
2012
|
||||||||||
Short-Term Borrowings -
|
||||||||||||
Current maturities of loans assumed through the purchase of land and buildings; various interest rates from 5.000% to 8.750%; various maturities from 2015 to 2035
|
$ | 2 | $ | 2 | $ | 2 | ||||||
4.875% unsecured notes due 2013, net of unamortized discount and interest rate swap fair market value adjustment (see Note 9)
|
- | - | 1,305 | |||||||||
Unsecured variable rate notes due 2014, net of unamortized discount
|
550 | 550 | - | |||||||||
Other
|
19 | 18 | 9 | |||||||||
Total short-term borrowings
|
$ | 571 | $ | 570 | $ | 1,316 | ||||||
Long-Term Debt -
|
||||||||||||
1.000% unsecured notes due 2015, net of unamortized discount
|
750 | 749 | 749 | |||||||||
1.800% unsecured notes due 2017, net of unamortized discount
|
998 | 998 | 998 | |||||||||
5.250% unsecured notes due 2019 net of unamortized discount and interest rate swap fair market value adjustment (see Note 9)
|
1,018 | 994 | 1,035 | |||||||||
3.100% unsecured notes due 2022, net of unamortized discount
|
1,199 | 1,199 | 1,199 | |||||||||
4.400% unsecured notes due 2042, net of unamortized discount
|
496 | 496 | 496 | |||||||||
Unsecured variable rate notes due 2014, net of unamortized discount
|
- | - | 550 | |||||||||
Loans assumed through the purchase of land and buildings; various interest rates from 5.000% to 8.750%; various maturities from 2015 to 2035
|
42 | 43 | 44 | |||||||||
4,503 | 4,479 | 5,071 | ||||||||||
Less current maturities
|
(2 | ) | (2 | ) | (2 | ) | ||||||
Total long-term debt
|
$ | 4,501 | $ | 4,477 | $ | 5,069 |
Notes Issued
(In millions)
|
Maturity Date
|
Interest Rate
|
Interest Payment Dates
|
||
$ | 550 |
March 13, 2014
|
Variable; three-month U.S. Dollar LIBOR, reset quarterly, plus 50 basis points
|
March 13, June 13, September 13 and December 13; commencing on December 13, 2012
|
|
750 |
March 13, 2015
|
Fixed 1.000%
|
March 13 and September 13; commencing on March 13, 2013
|
||
1,000 |
September 15, 2017
|
Fixed 1.800%
|
March 15 and September 15; commencing on March 15, 2013
|
||
1,200 |
September 15, 2022
|
Fixed 3.100%
|
March 15 and September 15; commencing on March 15, 2013
|
||
500 |
September 15, 2042
|
Fixed 4.400%
|
March 15 and September 15; commencing on March 15, 2013
|
||
$ | 4,000 |
November 30,
2013
|
August 31,
2013
|
November 30,
2012
|
||||||||||
Derivatives designated as fair value hedges:
|
||||||||||||
Interest rate swaps
|
$ | 1,000 | $ | 1,000 | $ | 1,800 |
Location in Consolidated Condensed Balance Sheets
|
November 30,
2013
|
August 31,
2013
|
November 30,
2012
|
||||||||||
Asset derivatives designated as fair value hedges:
|
|||||||||||||
Interest rate swaps
|
Other current assets
|
$ | - | $ | - | $ | 25 | ||||||
Interest rate swaps
|
Other non-current assets
|
23 | 1 | 44 |
Location in Consolidated Condensed Balance Sheets
|
November 30,
2013
|
August 31,
2013
|
November 30,
2012
|
||||||||||
Asset derivatives not designated as hedges:
|
|||||||||||||
Warrants
|
Other non-current assets
|
$ | 408 | $ | 188 | $ | - |
Level 1 -
|
Quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
|
|
Level 2 -
|
Observable inputs other than quoted prices in active markets.
|
|
Level 3 -
|
Unobservable inputs for which there is little or no market data available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
|
November 30, 2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Money market funds
|
$ | 360 | $ | 360 | $ | - | $ | - | ||||||||
Interest rate swaps(1)
|
23 | - | 23 | - | ||||||||||||
Investment in AmerisourceBergen (2)
|
599 | 599 | - | |||||||||||||
Warrants (3)
|
408 | - | 408 | - | ||||||||||||
August 31, 2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Money market funds
|
$ | 1,636 | $ | 1,636 | $ | - | $ | - | ||||||||
Interest rate swaps
|
1 | - | 1 | - | ||||||||||||
Investment in AmerisourceBergen (2)
|
225 | 225 | - | - | ||||||||||||
Warrants (3)
|
188 | - | 188 | - | ||||||||||||
November 30, 2012
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Assets:
|
||||||||||||||||
Money market funds
|
$ | 1,477 | $ | 1,477 | $ | - | $ | - | ||||||||
Interest rate swaps
|
69 | - | 69 | - |
(1)Interest rate swaps are valued using six-month and one-month LIBOR in arrears rates. See Note 9 for additional disclosure regarding financial instruments.
|
(2)The investment in AmerisourceBergen Corporation is valued using the closing stock price of AmerisourceBergen as of the balance sheet date. See Note 6 for additional disclosures on available-for-sale investments.
|
(3)Warrants were valued using a Monte Carlo simulation. Key assumptions used in the valuation include risk-free interest rates using constant maturity treasury rates; the dividend yield for AmerisourceBergen's common stock; AmerisourceBergen's common stock price at the valuation date; AmerisourceBergen's equity volatility; the number of shares of AmerisourceBergen's common stock outstanding; the number of AmerisourceBergen employee stock options and the exercise price; and the details specific to the warrants.
|
Three Months Ended
November 30,
|
||||||||
2013
|
2012
|
|||||||
Service cost
|
$ | 2 | $ | 2 | ||||
Interest cost
|
4 | 3 | ||||||
Amortization of actuarial loss
|
3 | 3 | ||||||
Amortization of prior service cost
|
(5 | ) | (5 | ) | ||||
Total postretirement benefit cost
|
$ | 4 | $ | 3 |
Three Months Ended
November 30,
|
||||||||
2013
|
2012
|
|||||||
Depreciation expense
|
$ | 235 | $ | 219 | ||||
Intangible asset amortization
|
70 | 74 | ||||||
System development costs amortization
|
27 | 20 | ||||||
Total depreciation and amortization expense
|
$ | 332 | $ | 313 |
|
Number of Locations
|
|||||||
Location Type
|
November 30, 2013
|
November 30, 2012
|
||||||
Drugstores
|
8,200
|
8,058
|
||||||
Worksite Health and Wellness Centers
|
372
|
369
|
||||||
Infusion and Respiratory Services Facilities
|
96
|
80
|
||||||
Specialty Pharmacies
|
11
|
7
|
||||||
Mail Service Facilities
|
2
|
2
|
||||||
Total
|
8,681
|
8,516
|
|
Percentage Increases/(Decreases)
|
|||||||
|
Three Months Ended
November 30,
|
|||||||
|
2013
|
2012
|
||||||
Net Sales
|
5.9
|
(4.6
|
)
|
|||||
Net Earnings
|
68.3
|
(25.5
|
)
|
|||||
Comparable Drugstore Sales
|
5.4
|
(8.0
|
)
|
|||||
Prescription Sales
|
7.3
|
(7.2
|
)
|
|||||
Comparable Drugstore Prescription Sales
|
7.2
|
(11.3
|
)
|
|||||
Front-End Sales
|
3.3
|
0.2
|
||||||
Comparable Drugstore Front-End Sales
|
2.4
|
(2.0
|
)
|
|||||
Gross Profit
|
1.0
|
(0.1
|
)
|
|||||
Selling, General and Administrative Expenses
|
(0.4
|
)
|
4.6
|
|
Percent to Net Sales
|
|||||||
|
Three Months Ended
November 30,
|
|||||||
|
2013
|
2012
|
||||||
Gross Margin
|
28.1
|
29.4
|
||||||
Selling, General and Administrative Expenses
|
23.9
|
25.4
|
|
Other Statistics
|
|||||||
|
Three Months Ended
November 30,
|
|||||||
|
2013
|
2012
|
||||||
Prescription Sales as a % of Net Sales
|
64.7
|
63.8
|
||||||
Third Party Sales as a % of Total Prescription Sales
|
95.8
|
95.7
|
||||||
Number of Prescriptions (in millions)
|
175
|
169
|
||||||
Comparable Prescription % Increase/(Decrease)
|
3.3
|
(7.4
|
)
|
|||||
30 Day Equivalent Prescriptions (in millions) *
|
213
|
201
|
||||||
Comparable 30 Day Equivalent Prescription % Increase/(Decrease) *
|
5.5
|
(4.8
|
)
|
|||||
Total Number of Locations
|
8,681
|
8,516
|
|
Drugstores
|
Worksites
|
Infusion and Respiratory Services
|
Specialty Pharmacies
|
Mail Service
|
Total
|
||||||||||||||||||
August 31, 2013
|
8,116
|
371
|
82
|
11
|
2
|
8,582
|
||||||||||||||||||
New/Relocated
|
53
|
8
|
-
|
-
|
-
|
61
|
||||||||||||||||||
Acquired
|
57
|
-
|
14
|
-
|
-
|
71
|
||||||||||||||||||
Closed/Replaced
|
(26
|
)
|
(7
|
)
|
-
|
-
|
-
|
(33
|
)
|
|||||||||||||||
November 30, 2013
|
8,200
|
372
|
96
|
11
|
2
|
8,681
|
Rating Agency
|
Long-Term Debt Rating
|
Commercial Paper Rating
|
Outlook
|
Moody's
|
Baa1
|
P-2
|
Negative
|
Standard & Poor's
|
BBB
|
A-2
|
Stable
|
November 30, 2013
|
||||
Inventory purchase commitments
|
$
|
52
|
||
Insurance
|
263
|
|||
Real estate development
|
4
|
|||
Total
|
$
|
319
|
|
Payments Due by Period (In millions)
|
|||||||||||||||||||
|
Total
|
Less than 1 Year
|
1-3 Years
|
3-5 Years
|
Over 5 Years
|
|||||||||||||||
Operating leases (1)
|
$
|
34,606
|
$
|
2,504
|
$
|
4,904
|
$
|
4,593
|
$
|
22,605
|
||||||||||
Purchase obligations (2):
|
||||||||||||||||||||
Open inventory purchase orders
|
1,330
|
1,330
|
-
|
-
|
-
|
|||||||||||||||
Real estate development
|
208
|
144
|
57
|
7
|
-
|
|||||||||||||||
Other corporate obligations
|
773
|
231
|
283
|
221
|
38
|
|||||||||||||||
Long-term debt*
|
5,056
|
555
|
763
|
1,001
|
2,737
|
|||||||||||||||
Interest payment on long-term debt
|
1,350
|
137
|
263
|
242
|
708
|
|||||||||||||||
Insurance*
|
645
|
239
|
188
|
85
|
133
|
|||||||||||||||
Retiree health*
|
337
|
10
|
26
|
32
|
269
|
|||||||||||||||
Closed location obligations*
|
142
|
25
|
40
|
23
|
54
|
|||||||||||||||
Capital lease obligations *(1)
|
403
|
13
|
25
|
22
|
343
|
|||||||||||||||
Other long-term liabilities reflected on the balance sheet*(3)
|
1,215
|
133
|
214
|
377
|
491
|
|||||||||||||||
Total
|
$
|
46,065
|
$
|
5,321
|
$
|
6,763
|
$
|
6,603
|
$
|
27,378
|
(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 for the Company's most recent fiscal year were $435 million.
|
(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)
|
Includes $144 million ($20 million within one year, $74 million in 1-3 years, $39 million in 3-5 years and $11 million over 5 years) of unrecognized tax benefits recorded under Accounting Standards Codification Topic 740, Income Taxes.
|
Goodwill and other intangible asset impairment -
|
|
|
Goodwill and other indefinite-lived intangible assets are not amortized, but are evaluated for impairment annually during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As part of our impairment analysis for each reporting unit, we engage a third party appraisal firm to assist in the determination of estimated fair value for each unit. This determination includes estimating the fair value using both the income and market approaches. The income approach requires management to estimate a number of factors for each reporting unit, including projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping.
The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which we compete; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization and capital expenditures. The allocation requires several analyses to determine fair value of assets and liabilities including, among other things, purchased prescription files, customer relationships and trade names. Although we believe our estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting units, the amount of the goodwill impairment charge, or both.
We also compared the sum of the estimated fair values of the reporting units to the Company's total value as implied by the market value of the Company's equity and debt securities. This comparison indicated that, in total, our assumptions and estimates were reasonable. However, future declines in the overall market value of the Company's equity and debt securities may indicate that the fair value of one or more reporting units has declined below its carrying value.
We have not made any material changes to the method of evaluating goodwill and intangible asset impairments during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine impairment.
|
Allowance for doubtful accounts -
|
|
|
The provision for bad debt is based on both specific receivables and historic write-off percentages. We have not made any material changes to the method of estimating our allowance for doubtful accounts during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine the allowance.
|
Vendor allowances -
|
|
|
Vendor allowances are principally received as a result of purchases, sales or promotion of vendors' products. Allowances are generally recorded as a reduction of inventory and are recognized as a reduction of cost of sales when the related merchandise is sold. Those allowances received for promoting vendors' products are offset against advertising expense and result in a reduction of selling, general and administrative expenses to the extent of advertising incurred, with the excess treated as a reduction of inventory costs. We have not made any material changes to the method of estimating our vendor allowances during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine vendor allowances.
|
Asset impairments -
|
|
|
The impairment of long-lived assets is assessed based upon both qualitative and quantitative factors, including years of operation and expected future cash flows, and tested for impairment annually or whenever events or circumstances indicate that a certain asset may be impaired. If the future cash flows reveal that the carrying value of the asset group may not be recoverable, an impairment charge is immediately recorded. We have not made any material changes to the method of estimating our asset impairments during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine asset impairments.
|
Liability for closed locations -
|
|
|
The liability is based on the present value of future rent obligations and other related costs (net of estimated sublease rent) to the first lease option date. We have not made any material changes to the method of estimating our liability for closed locations during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine the liability.
|
Liability for insurance claims -
|
|
|
The liability for insurance claims is recorded based on estimates for claims incurred and is not discounted. The provisions are estimated in part by considering historical claims experience, demographic factors and other actuarial assumptions. We have not made any material changes to the method of estimating our liability for insurance claims during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine the liability.
|
Cost of sales -
|
|
|
Drugstore cost of sales is derived based on point-of-sale scanning information with an estimate for shrinkage and adjusted based on periodic inventory counts. Inventories are valued at the lower of cost or market determined by the last-in, first-out (LIFO) method. We have not made any material changes to the method of estimating cost of sales during the last three years. Based on current knowledge, we do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to determine cost of sales.
|
Equity method investments -
|
|
|
We use the equity method to account for investments in companies if the investment provides the ability to exercise significant influence, but not control, over operating and financial policies of the investee. Our proportionate share of the net income or loss of these companies is included in consolidated net income. Judgment regarding the level of influence over each equity method investment includes considering key factors such as our ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions.
The underlying net assets of the Company's equity method investment in Alliance Boots include goodwill and indefinite-lived intangible assets. These assets are evaluated for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Based on testing performed during fiscal 2013, the fair value of each Alliance Boots reporting unit exceeded its carrying value. For certain reporting units, relatively modest changes in key assumptions may have resulted in the recognition of a goodwill impairment charge. The Company's proportionate share of a potential impairment would be limited to its 45% ownership percentage.
|
Income taxes -
|
|
|
We are subject to routine income tax audits that occur periodically in the normal course of business. U.S. federal, state, local and foreign tax authorities raise questions regarding our tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the tax benefits associated with our various tax filing positions, we record a tax benefit for uncertain tax positions using the highest cumulative tax benefit that is more likely than not to be realized. Adjustments are made to our liability for unrecognized tax benefits in the period in which we determine the issue is effectively settled with the tax authorities, the statute of limitations expires for the return containing the tax position or when more information becomes available. As of November 30, 2013, approximately $21 million of unrecognized tax benefits were reported as current tax liabilities, with the balance classified as long-term liabilities on the Consolidated Condensed Balance Sheets.
In determining our provision for income taxes, we use an annual effective income tax rate based on full-year income, permanent differences between book and tax income, the relative proportion of foreign and domestic income, projections of income subject to Subpart F rules and statutory income tax rates. The effective income tax rate also reflects our assessment of the ultimate outcome of tax audits. Discrete events such as audit settlements or changes in tax laws are recognized in the period in which they occur. Based on current knowledge, it is reasonably possible the amount of our unrecognized tax benefits will decrease in the next 12 months by up to $21 million. The primary cause of this decrease is expected to be tax audit settlements. We do not expect the settlements to significantly impact our Consolidated Condensed Statements of Earnings, our Consolidated Condensed Balance Sheets or our liquidity.
|
PART II. OTHER INFORMATION
|
(c)
|
The following table provides information about purchases by the Company during the quarter ended November 30, 2013 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act. Subject to applicable law, share purchases may be made in open market transactions, privately negotiated transactions, or pursuant to instruments and plans complying with Rule 10b5-1.
|
|
Issuer Purchases of Equity Securities
|
|||||||||||||||
|
||||||||||||||||
Period
|
Total Number of Shares Purchased (1)
|
Average Price Paid per Share
|
Total Number of Shares Purchased as Part of Publicly Announced Repurchase Programs (2)
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Program (2)
|
||||||||||||
9/1/2013 – 9/30/2013
|
600,000
|
$
|
52.14
|
-
|
425,062,173
|
|||||||||||
10/1/2013 - 10/31/2013
|
3,103,800
|
55.97
|
-
|
425,062,173
|
||||||||||||
11/1/2013 - 11/30/2013
|
-
|
-
|
-
|
425,062,173
|
||||||||||||
Total
|
3,703,800
|
-
|
(1)
|
The Company purchased these shares of its common stock in open-market transactions to satisfy share requirements under the Company's employee stock purchase and Omnibus incentive plans.
|
(2)
|
On July 13, 2011, the Board of Directors approved a share repurchase program (2012 repurchase program) that allows for the repurchase of up to $2.0 billion of the Company's common stock prior to its expiration on December 31, 2015.
|
|
Exhibit No.
|
Description
|
|
SEC Document Reference
|
|
3.1
|
Amended and Restated Articles of Incorporation of Walgreen Co.
|
|
Incorporated by reference to Exhibit 3.1 to Walgreen Co.'s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 19, 2011.
|
|
|
|
|
|
|
3.2
|
Amended and Restated By-Laws of Walgreen Co., as amended effective as of
August 2, 2012
|
|
Incorporated by reference to Exhibit 3.1 to Walgreen Co.'s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on August 6, 2012.
|
|
|
|
|
|
|
12
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
Filed herewith.
|
|
|
|
|
|
|
31.1
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith.
|
|
|
|
|
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith.
|
|
|
|
|
|
|
32.1
|
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
|
|
Furnished herewith.
|
|
|
|
|
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
|
|
Furnished herewith.
|
|
|
|
|
|
|
101
|
The following financial statements and footnotes from the Walgreen Co. Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Condensed Balance Sheets; (ii) Consolidated Condensed Statement of Equity; (iii) Consolidated Condensed Statements of Earnings; (iv) Consolidated Condensed Statements of Comprehensive Income; (v) Consolidated Condensed Statements of Cash Flows; and (vi) the Notes to Consolidated Condensed Financial Statements.
|
|
Filed herewith.
|
|
WALGREEN CO.
|
|
(Registrant)
|
|
|
Dated: 12/27/13
|
/s/ W.D. Miquelon
|
|
W.D. Miquelon
|
|
Executive Vice President, Chief Financial Officer and President, International
|
|
(Chief Financial Officer)
|
|
|
Dated: 12/27/13
|
/s/ T.J. Heidloff
|
|
Theodore J. Heidloff
|
|
Divisional Vice President – Accounting and Controller
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|