Walgreen Co. Reports Fiscal 2013 First Quarter Results

  Walgreen Co. Reports Fiscal 2013 First Quarter Results

  *Company reports adjusted first quarter earnings per diluted share of 58
    cents, compared with adjusted earnings per diluted share of 71 cents in
    year-ago quarter; GAAP earnings per diluted share of 43 cents compared
    with 63 cents in last year’s first quarter
  *To address regulatory and audit considerations, company adopts one-quarter
    reporting lag for its investment in Alliance Boots, resulting in dilution
    of 7 cents to adjusted EPS in the first quarter, compared with an
    estimated accretion of 3 cents to adjusted EPS had the company used the
    previously announced one-month lag
  *Alliance Boots business performance continues to achieve expectations, and
    joint synergy program is on track to deliver first-year targets
  *Gross profit margins during first quarter increase 130 basis points versus
    year-ago quarter; comparable prescriptions filled improve 320 basis points
    from fourth quarter 2012
  *More than 45 million people now enrolled for Balance™ Rewards loyalty
    program

Business Wire

DEERFIELD, Ill. -- December 21, 2012

Walgreen Co. (NYSE: WAG) (Nasdaq: WAG) today announced earnings and sales
results for the first quarter of fiscal year 2013 ended Nov. 30.

Net earnings determined in accordance with generally accepted accounting
principles (GAAP) for the fiscal 2013 first quarter were $413 million or 43
cents per diluted share, compared with $554 million or 63 cents per diluted
share in the year-ago quarter.

Adjusted fiscal 2013 first quarter net earnings were $553 million or 58 cents
per diluted share, compared with adjusted net earnings of $619 million or 71
cents per diluted share in the year-ago quarter. This year’s adjusted first
quarter results exclude the negative impacts of 6 cents per diluted share in
acquisition-related amortization costs, 4 cents per diluted share from the
quarter’s LIFO provision, 3 cents per diluted share in costs related to
Hurricane Sandy, and 2 cents per diluted share related to the company’s
acquisition of USA Drug and related store closures.

“During a quarter that included a number of non-operational items, as well as
the ongoing Express Scripts impact, we saw the underlying performance of our
business strengthen with improved gross profit margins and an upswing in
comparable prescriptions filled in the quarter,” said Walgreens President and
CEO Greg Wasson. “We also were pleased with the business performance of our
strategic partner, Alliance Boots, and are on track to meet our first-year
synergy targets with them. As I have said before, Walgreens and Alliance Boots
both perform well in historically tough economic climates, and together we now
are better positioned for growth.

“In many respects, this quarter was a turning point with the increasing pace
of return of Express Scripts customers to our pharmacies, as well as the
enthusiastic customer response to our Balance™ Rewards program, with more than
45 million signups since the program launched. In addition, we saw strong
demand for flu shots and other immunizations, which has continued into the
month of December. Given these factors, we are confident in our strategy and
ability to execute going into the new year.”

Walgreens today also announced that it is reporting results from its
investment in Alliance Boots on a one-quarter lag rather than a one-month lag
period, as previously disclosed. This is intended to align the audit
requirements for the investment and more efficiently address regulatory and
audit considerations. While this does not affect the underlying equity income
and synergies that are anticipated in the first 12 months since the Aug. 2,
2012 completion of Walgreens initial 45 percent investment in Alliance Boots,
it does impact the quarterly and fiscal year timing in which the equity income
and a portion of the synergies are reported. While only investment results
from the month of August 2012 are included in Walgreens fiscal 2013 first
quarter performance, the first quarter does fully reflect the incremental
shares and interest expense associated with the transaction, resulting in
dilution of 7 cents to adjusted EPS in the first quarter, compared with an
estimated accretion of 3 cents to adjusted EPS had the company used the
previously announced one-month lag period.

The company previously estimated its accretion related to the Alliance Boots
investment for fiscal year 2013 would be 23 to 27 cents per diluted share. As
a result of a one-quarter rather than a one-month reporting lag period, the
company estimates that the accretion over the last three quarters of fiscal
2013 will be an adjusted 25 to 29 cents per diluted share, and an adjusted 18
to 22 cents for the full fiscal year. These estimates do not include
amortization expense or one-time transaction costs, and reflect the company’s
current estimates of IFRS to GAAP conversion and foreign exchange rates.

FINANCIAL HIGHLIGHTS

Sales

First quarter sales decreased 4.6 percent from the prior-year quarter to $17.3
billion. Brand-to-generic prescription drug conversions negatively impacted
sales by $883 million or 4.9 percentage points in the first quarter.

Front-end comparable store sales (those open at least a year) decreased 2.0
percent in the first quarter compared to the prior-year quarter, customer
traffic in comparable stores decreased 4.2 percent and basket size increased
2.2 percent.

Prescription sales, which accounted for 63.8 percent of sales in the quarter,
decreased 7.2 percent compared to the year-ago quarter, while prescription
sales in comparable stores decreased 11.3 percent. The company filled 201
million prescriptions, a decrease of 3.2 percent over last year’s first
quarter. Prescriptions filled in comparable stores decreased 4.8 percent in
the quarter, an improvement of 3.2 percentage points from the 8.0 percent
decrease in the fourth quarter of fiscal 2012. The improvement was due
primarily to the company’s return to the Express Scripts, Inc. pharmacy
network on Sept. 15. Total sales in comparable stores decreased 8.0 percent.

Gross Profit and SG&A

Total gross profit dollars in the first quarter decreased $5 million, or 0.1
percent, compared with the year-ago quarter,with LIFO gross profit margins
increasing to 29.4 as a percentage of sales versus the year-ago quarter of
28.1. The growth in margins was driven primarily by an increase in generic
prescription drugs dispensed. Front-end margins remained firm even as the
company made gross profit margin investments through reward points for its
Balance Rewards program throughout the quarter. In addition, Walgreens private
brand products increased in share 2.0 percentage points over the year-ago
quarter to 22.0 percent. The LIFO provision was $55 million in this year’s
first quarter versus $45 million last year.

Selling, general and administrative expense dollars increased $194 million or
4.6 percent compared with the year-ago quarter, including 0.9 percentage point
for costs related to Hurricane Sandy; 0.6 percentage point for USA Drug
acquisition-related costs; 0.3 percentage point for Alliance Boots transaction
and synergy related costs; and 0.3 percentage point for other
acquisition-related amortization.

In the first quarter, the company opened or acquired 218 new drugstores
compared with 71 in the year-ago quarter.

The company also delivered operating and free cash flow of $601 million and
$265 million, respectively, in the first quarter.


First Quarter Fiscal Year 2013 Summary Financial Results
($ in millions except EPS)
GAAP                         First Quarter      First Quarter     Change
                              FY12                FY13
                            (Unaudited)        (Unaudited)       
Net Sales                    $18,157            $17,316           (4.6%)
Operating Income             $900               $705              (21.7%)
Net Earnings                 $554               $413              (25.5%)
Diluted Net Earnings Per     $0.63              $0.43             (31.7%)
Share
Operating Cash Flow          $809               $601              (25.7)%
                                                               
Non-GAAP (Supplemental)*     First Quarter      First Quarter     Change
                              FY12                FY13
Adjusted Operating           $1,005             $924              (8.1%)
Income*
Adjusted Net Earnings*       $619               $553              (10.7%)
Adjusted Diluted Net         $0.71              $0.58             (18.3%)
Earnings Per Share*

* 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.


First quarter highlights

Other company highlights in the first quarter include:

  *Opening new flagship stores in Chicago and Hollywood, Calif., which was
    the company’s 8,000^th store nationwide
  *Completing the acquisition of USA Drug with locations in seven states
    primarily in the mid-South region of the country
  *Establishing a new joint venture company with Alliance Boots as part of
    the companies’ strategic partnership synergy program
  *Launching a major response to Hurricane Sandy, including a donation from
    Walgreens of $250,000 and a fundraising program at all Walgreens and Duane
    Reade stores nationwide that provided more than $5 million to the American
    Red Cross Disaster Relief Fund
  *Administering more than 5.3 million flu shots this season to date, just
    ahead of the total administered a year ago.

As of Nov. 30, 2012, Walgreens operated 8,516 locations in all 50 states, the
District of Columbia, Puerto Rico and Guam, including 8,058 drugstores and
hospital onsite pharmacies nationwide. Walgreens also operates worksite health
and wellness centers, infusion and respiratory service facilities, specialty
pharmacies and mail service facilities. Its Take Care Health Systems
subsidiary manages more than 700 in-store convenient care clinics and worksite
health and wellness centers.

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:
http://investor.walgreens.com. 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.


WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
(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                4,398                         4,204
administrative expenses
Equity earnings in                  4                           -        
Alliance Boots
Operating Income                    705                           900
                                                              
Interest expense, net               37                          17       
                                                              
Earnings Before Income              668                           883
Tax Provision
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                      945.3                         879.7
outstanding
Dilutive effect of stock            5.9                         5.5      
options
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                25.4                          23.1
administrative expenses
Equity earnings in                  -                           -        
Alliance Boots
Operating Income                    4.0                           5.0
                                                              
Interest expense, net               0.2                         0.1      
                                                              
Earnings Before Income              3.8                           4.9
Tax Provision
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.


WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(In Millions)
                                                           
                                               November 30,     November 30,
                                               2012             2011
Assets
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
                                                                    

WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED AND SUBJECT TO RECLASSIFICATION)
(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                     (471    )           (70    )
acquisitions, net of cash received
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        740               (774   )
activities
                                                                   
Changes in cash and cash equivalents:
Net increase (decrease) in cash and cash          532                 (462   )
equivalents
Cash and cash equivalents at beginning of        1,297             1,556  
year
Cash and cash equivalents at end of period     $  1,829           $  1,094  
                                                                             

                        WALGREEN CO. AND SUBSIDIARIES
                     SUPPLEMENTAL INFORMATION (UNAUDITED)
                RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                   (In millions, except per share amounts)

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           11               -
costs
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           7                -
costs
Adjusted net earnings                          $  553       $       619
                                                            
Net earnings per common share –                $  0.43      $       0.63
diluted (GAAP)
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         $  0.58      $       0.71
– diluted
                                                            
                                                            Three months ended
                                                            November 30, 2012
Net cash provided by operating                              $       601
activities (GAAP)
Less: Additions to property and                                    336
equipment
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
(1)  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.

Contact:

Walgreen Co.
Media Contact:
Michael Polzin, 847-315-2920
or
Investor Contacts:
Rick Hans, CFA, 847-315-2385
Ashish Kohli, CFA, 847-315-3810
http://news.walgreens.com
 
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