S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N
WASHINGTON, D. C. 20549
_______________________
FORM 10-Q
(Mark One)
____X____ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1995
or
__________ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from __________ to ___________
Commission file number 1-604.
_____________________WALGREEN CO._____________________
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1924025
(State of incorporation) (I.R.S. Employer Identification No.)
200 WILMOT ROAD, DEERFIELD, ILLINOIS 60015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 940-2500
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only to
corporate issuers).
COMMON STOCK, $.3125 PAR VALUE; ISSUED AND OUTSTANDING 246,141,072 AT
DECEMBER 31, 1995.
Page 1 of 10
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have
been prepared by the company pursuant to the rules and regulations of the
Securities and Exchange Commission. The Consolidated Condensed Balance
Sheet as of November 30, 1995 and the Consolidated Condensed Statements of
Earnings for the three months ended November 30, 1995 and 1994, and the
Consolidated Condensed Statements of Cash Flows for the three months ended
November 30, 1995 and 1994, have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the disclosures are adequate
to make the information presented not misleading. It is suggested that
these consolidated condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the
company's latest annual report on Form 10-K.
In the opinion of the company the condensed statements for the
unaudited interim periods presented include all adjustments, consisting
only of normal recurring adjustments, necessary to present a fair statement
of the results for such interim periods. Because of the influence of
certain holidays, seasonal and other factors on the company's operations,
net earnings for any interim period may not be comparable to the same
interim period in previous years, nor necessarily indicative of earnings for
the full year.
2
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
November 30, August 31,
1995 1995
(In Thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 7,635 $ 22,245
Marketable securities, at cost which
approximates market 4,950 -
Accounts receivable, net of allowances
for doubtful accounts of $26,837,000 at
November 30, and $24,633,000 at August 31 269,736 246,086
Inventories 1,664,750 1,453,881
Other current assets 79,064 90,705
Total Current Assets 2,026,135 1,812,917
Property and Equipment, at cost, less
accumulated depreciation and amortization
of $605,974,000 at November 30 and
$581,803,000 at August 31 1,287,591 1,248,962
Other Non-Current Assets 197,848 190,728
TOTAL ASSETS $3,511,574 $3,252,607
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 77,289 $ -
Trade accounts payable 750,307 606,263
Other current liabilities 457,468 471,499
Total Current Liabilities 1,285,064 1,077,762
Non-Current Liabilities:
Deferred income taxes 144,210 142,278
Other non-current liabilities 253,828 239,981
Total Non-Current Liabilities 398,038 382,259
Shareholders' Equity:
Preferred stock $.25 par value; authorized
8,000,000 shares; none issued - -
Common stock $.3125 par value; authorized
800,000,000 shares; issued and outstanding
246,141,072 at November 30 and August 31 76,919 76,919
Retained earnings 1,751,553 1,715,667
Total Shareholders' Equity 1,828,472 1,792,586
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $3,511,574 $3,252,607
========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
3
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
November 30,
1995 1994
(Dollars in Thousands
Except Per Share Data)
Net Sales $2,692,767 $2,405,556
Costs and Deductions:
Cost of sales 1,953,785 1,740,764
Selling, occupancy and
administration 635,208 576,941
2,588,993 2,317,705
Other (Income) Expense:
Interest income (1,043) (824)
Interest expense 890 521
(153) (303)
Earnings before income tax
provision 103,927 88,154
Income tax provision 40,272 34,160
Net Earnings $ 63,655 $ 53,994
=========== ===========
Per Share:
Net Earnings $ .26 $ .22
=========== ===========
Dividends Declared $ .11 $ .0975
=========== ===========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
4
WALGREEN CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
November 30,
1995 1994
(In Thousands)
Net cash provided by operating activities $ 14,024 $ 17,005
Cash (Used for) Provided by Investing Activities:
Additions to property and equipment (76,329) (85,221)
Net investment in corporate-owned
life insurance - (29,521)
Net (purchases) sales of marketable securities (4,950) 19,198
Proceeds from disposition of property and
equipment 4,637 3,251
Net cash used for investing activities (76,642) (92,293)
Cash (Used for) Provided by Financing Activities:
Cash dividends paid (23,999) (20,922)
Proceeds from notes payable 77,289 35,000
Other (5,282) (544)
Net cash provided by financing activities 48,008 13,534
Changes in Cash and Cash Equivalents:
Net decrease in cash and cash equivalents (14,610) (61,754)
Cash and cash equivalents at beginning
of year 22,245 77,915
Cash and Cash Equivalents at end of period $ 7,635 $ 16,161
========== ==========
The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these Statements.
5
WALGREEN CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) Inventories are valued on a lower of last-in, first-out (LIFO) cost or
market basis. At November 30, 1995 and August 31, 1995, inventories would have
been greater by $423,579,000 and $415,015,000 respectively, if they had been
valued on a lower of first-in, first-out (FIFO) cost or market basis. LIFO
inventory costs can only be determined at the end of each fiscal year when
inflation rates and inventory levels are finalized; therefore, LIFO inventory
costs for interim financial statements are estimated. Cost of sales is
primarily computed on an estimated basis and adjusted based on periodic
inventories.
(2) All share data have been adjusted to reflect a two-for-one stock split
distributed to shareholders August 8, 1995. In addition the Board of Directors
approved increases in the authorized common stock, from 400 million shares to
800 million shares, and in the authorized preferred stock, from 4 million shares
to 8 million shares.
The weighted average number of common shares and equivalents used for
calculating primary net earnings per share was 248,109,000 and 247,065,000 for
the three months ended November 30, 1995 and 1994, respectively. Fully diluted
net earnings per share are the same as primary net earnings per share.
(3) The company is involved in various legal proceedings incidental to the
normal course of business. This includes a patent infringement suit against the
company and its co-defendant supplier. On October 20, 1994, a judgment of $11.3
million plus interest was entered on this suit. The plaintiff subsequently
filed a motion for treble damages, which was denied. That denial has been
appealed. The case has also been appealed by the defendants, and the company
has an indemnification agreement from its supplier for the amount of the
judgment plus interest. Management is of the opinion, with which its General
Counsel concurs, that the patent infringement suit and other legal proceedings
will not have a material adverse effect on the company's consolidated financial
position or results of operations.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net earnings for the first quarter of fiscal 1996, increased by 17.9% to
$63,655,000 or $.26 per share, compared to $.22 per share in the same
quarter last year. Earnings increases resulted from improved sales and lower
expense ratios, which were partially offset by lower gross margins.
Sales for the quarter ended November 30, 1995 increased 11.9% to $2.7
billion. Drugstore sales increases resulted from sales gains in existing
stores and added sales from new stores, each of which include an
indeterminate amount of market-driven price changes. Sales in comparable
stores (those open at least one year) were up 7.4% for the quarter. New
store openings accounted for 7.2% of the quarterly sales increase. The
company operated 2110 drugstores as of November 30, 1995, compared to 2,019
a year earlier.
Pharmacy sales increased 19.3% for the first quarter and were 45.9% of total
sales for the quarter compared to 43.1% a year ago. Comparable drugstore
sales increased 14.4%. Pharmacy sales trends are expected to continue
primarily because of expansion into new markets, increased penetration in
existing markets and demographic changes such as the aging population.
Gross margins as a percent of sales decreased to 27.4% of sales from 27.6%
last year. Prescription margins continue to decrease as third party sales
become a larger portion of pharmacy sales. The company is responding to
gross margin pressures by emphasizing minimum third party profitability
standards.
The company uses the LIFO method of inventory valuation, which can only be
determined at the end of the fiscal year when inflation rates and inventory
levels are finalized; therefore, LIFO inventory costs for interim financial
statements are estimated. Cost of sales for the November quarter includes a
LIFO provision of $8.6 million ($.02 per share) versus a charge of $9.5
million ($.02 per share) for the same period a year ago.
Selling, occupancy and administration expenses were 23.6% of sales in the
quarter compared to 24.0% in the same period a year ago. The decrease, as a
percent to sales, was caused by improved bad debt experience and lower
insurance costs.
Financial Condition
Net cash provided by operating activities was $14.0 million compared to
$17.0 million a year ago. The company's ongoing profitability is expected
to continue supporting expansion and remodeling programs, dividends to
shareholders and the funding for various technological improvements.
7
Net cash used for investing activities was $76.6 million for the first
quarter of fiscal 1996 versus $92.3 million last year. Additions to
property and equipment were $76.3 million compared to $85.2 million last
year. During the first quarter, 48 new or relocated drugstores were opened.
This compares to 73 new or relocated drugstores opened in the same period
last year. New stores are owned and leased. Openings for the first quarter
included 5 owned locations versus 4 for the same period last year. Capital
expenditures for fiscal 1996 are expected to exceed $300 million. During
the first quarter last year, the company repaid $29.5 million of borrowings
on corporate-owned life insurance.
The company expects to open 215 new stores in fiscal 1996 and continue to
open 200 or more stores annually for the next 5 years. By the end of fiscal
1996 more than 400 stores are expected to offer one-hour photofinishing.
Store implementation of Intercom Plus, an advanced pharmacy computer and
workflow system, is expected to be completed in fiscal 1997. Healthcare
Plus, the company's managed care subsidiary, has formed WHP Health
Initiatives, Inc., its own PBM (pharmacy benefits manager) network which
began serving new plans in January.
Net cash provided by financing activities was $48.0 million compared to
$13.5 million provided a year ago. During both quarters, the company
obtained funds through the placement of commercial paper. At November 30,
1995, the company had $146 million in unused bank lines of credit and $100
million of unissued authorized debt securities, previously filed with the
Securities and Exchange Commission. In addition, the company has the
ability to borrow an additional $94 million against corporate-owned life
insurance policies.
In fiscal 1995, the company received an unfavorable Tax Court ruling
concerning the depreciable lives of certain assets. The company appealed,
and on October 17, 1995, the United States Court of Appeals rendered an
opinion which reversed the ruling. The case, which involves approximately
$50 million of tax deductions taken in prior years, was remanded back to the
Tax Court for further findings on the facts. As of November 30, 1995, the
company has adequately provided for all possible tax and related interest.
Adoption of Financial accounting Board Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets" is required by fiscal 1997. This
pronouncement requires long-lived assets to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. Financial Accounting Board
Statement No. 123 "Accounting for Stock-Based Compensation" was issued in
October 1995. This pronouncement will require the company to disclose the
effect on income of stock options based on a formula outlined in the
bulletin. This disclosure will be required in fiscal 1997. Neither of
these pronouncements are expected to significantly impact the company's
consolidated financial position or results of operations.
8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
27. Financial Data Schedule
(b) Reports on Form 8-K:
No reports were filed on Form 8-K during the quarter
which ended November 30, 1995.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALGREEN CO._________
(Registrant)
Date January 11, 1996 R. L. Polark_________
Senior Vice President
(Chief Financial Officer)
Date January 11, 1996 R. H. Clausen________
Controller
(Chief Accounting Officer)
10
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q QUARTERLY REPORT FOR THE QUARTER ENDED NOVEMBER 30, 1995, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<CASH> 7,635
<SECURITIES> 4,950
<RECEIVABLES> 296,573
<ALLOWANCES> 26,837
<INVENTORY> 1,664,750
<CURRENT-ASSETS> 2,026,135
<PP&E> 1,287,591
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<INCOME-TAX> 40,272
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