08 January 2014

Company leadership presents how Walgreens is positioned for growth and for creating long-term shareholder value

DEERFIELD, Ill., January 08, 2014 - Reviewing a year of major strategic progress in transforming Walgreens (NYSE: WAG) (Nasdaq: WAG) for long-term sustainable growth and value creation, Chairman James A. Skinner, President and Chief Executive Officer Gregory D. Wasson and Executive Vice President, Chief Financial Officer and President, International Wade D. Miquelon today outlined the company’s growth opportunities and strategy at Walgreens Annual Shareholders Meeting. Addressing nearly 2,000 shareholders in Chicago, company leadership also discussed the substantial progress Walgreens has made since announcing its “plan to win” in 2009.

Wasson said, “Our ‘plan to win’ was a journey to innovate and reinvent Walgreens for a new era of growth and value creation. Toward that end, we slowed new store growth to invest more in our existing store base. We looked at new, innovative retail concepts both in the U.S. and around the world. We made major acquisitions such as Duane Reade in New York City and drugstore.com, forged a strategic partnership with Alliance Boots and began a long-term strategic relationship with AmerisourceBergen. All of this culminated in a year of solid progress in fiscal 2013 and a five-year total shareholder return for our stock of 145 percent.”

In the last fiscal year, Walgreens reached record sales of $72.2 billion with an adjusted net earnings increase of 16.3 percent to $3 billion, while GAAP net earnings increased 15.2 percent to $2.5 billion. Operating cash flow was $4.3 billion for the year, and free cash flow reached a record $3.1 billion. The company continued to return significant cash to shareholders with $1 billion paid in dividends, and provided a total shareholder return in the last 12 months of 53 percent.

“We are in two dynamic industries – retail and health care – that are converging as consumers become more involved in shopping for their health care solutions,” said Wasson.

U.S. health care spending is expected to grow from 17 percent of gross domestic product to 20 percent by 2020, driven by an aging population and health care reform, which is expected to bring 30 million more people into the system. At the same time, health care is beginning to see a shift in payment models from fee-for-service to pay-for-performance. That’s good for Walgreens and community pharmacy, as the company is well positioned to play a greater role in these emerging models and expand its role beyond the pharmacy market to the much larger $2.6 trillion health care market.

On the retail side, consumers continue to look for value and extraordinary service coming out of the Great Recession, and Walgreens introduced 2,000 new private brand items last year to meet growing demand for trusted retail brands. In addition, more opportunity in categories such as beauty and fresh foods is opening up to Walgreens as consumers shop across all retail channels. And finally, digital commerce is expanding rapidly and driving major change in both retail and health care.

Walgreens is seizing the opportunity created by these trends to lead the market for decades ahead by focusing on its three strategic growth drivers: creating a Well Experience, advancing community pharmacy and establishing an efficient global platform on behalf of its customers and shareholders.

Creating a Well Experience

Beyond enhancing the physical store, Well Experience also means a highly engaged employee delivering extraordinary customer care with the right products and solutions in every community in America. Walgreens has expanded the number of stores incorporating its Well Experience concepts from 400 at the start of fiscal 2013 to 600 today.

Walgreens is ensuring it has the right products and solutions by making it easy for shoppers to get in and out with what they need, elevating its beauty offering and accelerating the convergence of retail and health care by pulling together its pharmacy and health care services with its over-the-counter health and wellness products into more seamless solutions for customers.

Boosting the Well Experience was last year’s launch of the Balance® Rewards loyalty program, with 74 million active members, making Balance Rewards one of the most successful launches of a loyalty program in the history of retail.

In addition, Miquelon noted, “Our front-end comparable store sales have improved steadily over the last three quarters, and we have outperformed our largest drugstore competitors.”

Advancing Community Pharmacy

Walgreens is advocating a greater role for community pharmacy to offer unparalleled access to innovative, high-quality, affordable health and well-being services. The company believes its pharmacists and nurse practitioners can help fill the gap in primary care, expand health and wellness and lower overall health care costs by practicing at the top of their professions.

Walgreens is well positioned to serve the growing demand for pharmacy-led health and well-being services by advancing community pharmacy through three main goals: delivering comprehensive care for its customers by leveraging its community presence in all 50 states; providing a differentiated experience that competitors can’t easily match; and building strategic partnerships with physicians, health insurance companies, hospital systems and large employers.

Miquelon noted Walgreens is focused on serving customers with asthma, high blood pressure, high cholesterol and diabetes. “These four chronic disease states alone drive a high percentage of health care costs in the country, and we now offer a cost effective solution to patients and payers,” he said. Earlier last year, Walgreens Healthcare Clinics began offering diagnosis and treatment of these four disease states, in addition to acute care, prevention and wellness, and monitoring and disease management services.

As Walgreens pursues its goals to advance community pharmacy, it is ensuring that policymakers are aware of and understand the value community pharmacy can bring to the health care system.

Establishing an Efficient Global Platform

Through its strategic partnership with Alliance Boots and its strategic, long-term relationship with AmerisourceBergen, Walgreens is elevating its growth strategies across the United States and beyond as the global market for health care solutions grows.

“The greater scale and global reach of all three companies will create new global opportunities,” said Wasson. “We can streamline the world’s pharmaceutical supply and distribution, reduce costs and increase access to pharmaceuticals, make it easier for manufacturers to bring new products to the market, and bring the benefits of global sourcing and best practices to serve community pharmacies across the U.S. and around the world.”

To build this global platform, Walgreens and Alliance Boots already are sharing best practices and capabilities, including executive talent and products like Boots No7. Walgreens and Alliance Boots also are creating substantial synergies through their joint venture and a platform for growth beyond the U.S. and Europe to serve new and emerging markets.

Miquelon said, “In fiscal year 2013, our combined synergies with Alliance Boots totaled $154 million, ahead of our initial expectation of $100 million to $150 million in synergies.”

Wasson concluded, “Building from our ‘plan to win’ that we launched five years ago, I’m confident that today we are positioned for growth. That confidence comes from the progress we’ve made over the last five years and, most of all, from the soul of our company – our people. They are the ones who truly help people get, stay and live well through their personal relationships with our customers, patients and the communities we serve.”

During shareholder voting at the meeting, the following nominees were presented for election to Walgreens board of directors:

  • Janice M. Babiak, former Partner at Ernst & Young LLP
  • David J. Brailer, MD, PhD, Managing Partner and CEO, Health Evolution Partners
  • Steven A. Davis, Chairman and CEO of Bob Evans Farms Inc.
  • William C. Foote, Retired Chairman and CEO of USG Corporation
  • Mark P. Frissora, Chairman and CEO of The Hertz Corporation
  • Ginger L. Graham, President and CEO of Two Trees Consulting
  • Alan G. McNally, Former Chairman of the Board of Walgreen Co. and Retired CEO of Harris Bank
  • Dominic Murphy, Partner at Kohlberg Kravis Roberts & Co.
  • Stefano Pessina, Executive Chairman of Alliance Boots GmbH
  • Nancy M. Schlichting, President and CEO of Henry Ford Health System
  • Alejandro Silva, Chairman and CEO of Evans Food Group, Inc.
  • James A. Skinner, Chairman of Walgreen Co.
  • Gregory D. Wasson, President and CEO of Walgreen Co.

Chairman Jim Skinner added, “I’d like to thank our shareholders and owners for believing in Walgreens today and our limitless promise for tomorrow. We look forward to moving ahead together as we redefine Walgreens for a new generation as a place, in your community, that always strives to help people get, stay and live well.”

Ten of the 13 board members are independent, consistent with the requirement in the company’s governance guidelines that a majority of its board be independent.

Preliminary voting results were announced at the meeting. The final voting results on all agenda items will be disclosed in a Current Report on Form 8-K to be filed by Walgreens with the Securities and Exchange Commission after certification by the inspector of elections.

About Walgreens

As the nation's largest drugstore chain with fiscal 2013 sales of $72 billion, Walgreens (www.walgreens.com) vision is to be the first choice in health and daily living for everyone in America, and beyond. Each day, Walgreens provides more than 6 million customers the most convenient, multichannel access to consumer goods and services and trusted, cost-effective pharmacy, health and wellness services and advice in communities across America. Walgreens scope of pharmacy services includes retail, specialty, infusion, medical facility and mail service, along with respiratory services. These services improve health outcomes and lower costs for payers including employers, managed care organizations, health systems, pharmacy benefit managers and the public sector. The company operates 8,200 drugstores in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Take Care Health Systems is a Walgreens subsidiary that is the largest and most comprehensive manager of worksite health and wellness centers and in-store convenient care clinics, with more than 750 locations throughout the country.

Cautionary Note Regarding Forward-Looking Statements: Statements in this document that are not historical 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," "target," "continue," "sustain," "on track," "believe," "seek," "estimate," "anticipate," "may," “possible,” "assume," and 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 our ability to realize anticipated synergies and achieve anticipated financial results, changes in vendor, payer and customer relationships and terms, competition, industry consolidation and the effects thereof, changes in economic and business conditions, risks associated with new business and business retention initiatives and activities, failure to obtain new contracts or extensions of existing contracts, risks associated with acquisitions, divestitures, joint ventures and strategic investments, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, and outcomes of legal and regulatory matters. 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 date of this report, 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
SUPPLEMENTAL INFORMATION (UNAUDITED)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions)

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.

         
        Twelve months ended
            August 31,       August 31,
            2013       2012
Net earnings (GAAP)           $ 2,450       $ 2,127
Acquisition-related amortization           241       161
Alliance Boots related tax add-back           124       -
LIFO provision           151       195
Hurricane Sandy costs           24       -
Acquisition-related costs           60       82
DEA settlement costs           47       -
Distributor transition costs           8       -
Increase in fair market value of warrants           (110)       -
Gain on sale of Walgreen Health Initiatives, Inc.           (13)       -
Adjusted net earnings           $ 2,982       $ 2,565

 

                   
           

Twelve months
ended

                August 31,
                2013
Net cash provided by operating activities (GAAP)               $4,301
Less: Additions to property and equipment               1,212
Free cash flow(1)               $3,089
                 
(1)   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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