What Is Walgreens Annual Report
The Financial Reporting Project
ACCT 1201: Financial Accounting and Reporting
Kevin Kang
Chris Laughlin
Anthony Mele
Ricardo Ortiz
Progress Report 1
Walgreens Co.
Annual Report: 2012
Company Background
A. The ticker for Walgreens Co. is WAG. Walgreens trades its stock in the New York Stock Exchange (NYSE).
B. The auditor’s report included with the annual report is a statement from an external entity, explaining that after careful review of the balance sheets, cash flow statements and all financial statements included in the annual report are accurate. In addition, it ensures that Walgreens has prepared their financial statements in accordance with all the generally accepted accounting principles …show more content…
of the United States. The name of the auditing firm is Deloitte & Touche LLP.
C.
Walgreens, Co. is the largest drug store chain in the United States. It provides pharmacy services in addition to medical supplies, home needs, convenience goods and cosmetics. It sells a wide range of products from over the counter medicine, foods, cosmetics, supplements and vitamins, soaps and a multitude of other goods. The major service of the company is the pharmacy, for which Walgreens, Co. is most notable. Major competitors include Rite-Aid and CVS pharmacies.
D. Closing Price for Walgreens, Co. (WAG) Friday March 1, 2013: $41.32
Developments relating to the Company
A. The demand for the products provided at Walgreens is inelastic. Walgreens offers a number of medical products and the pharmacy service, which is a growing industry in itself. Until another system of delivering medicine to those to whom it is prescribed, a pharmacy will always have demand. The other goods such as cosmetics have an elastic demand, however demand in the past few years has been constant enough to expand that department.
B. The growth of the mobile technology industry has opened the door for a personalized customer service experience. Each customer can now access their rewards information, coupons and now check the status of their order at the pharmacy. This is a major stepping-stone for the company and an advantage over its current competitors.
Understanding the Annual Report and …show more content…
10K
1) 2012’s Net Sales of $71,633 million is the second highest of the last five years, yet it is the only time in the last five years the the company has shown negative growth, with an annual rate of -0.76%. Up until 2012, the trend was of positive growth which could be attributed to the expansion of the company. The number of locations has increased from 6,934 in 2008 to 8,385 in 2012. Furthermore, the downturn of growth rate in net sales might be attributed to a slowing down of expansion. In 2012 there were 175 net openings, as compared to 937 in 2008. Please see figure 1.1 in the Appendix for full calculations.
2012’s Net Income of $2,127 million is the third highest it has been in the last five years. The annual growth rate however is by far the worst it has been at -21.63%. With annual growth’s ranging from -21.63% to 29.79% there is no clear trend of Net Income. Aside from 2011’s spike in net income of $2,714 million though, net income has relatively stayed the same. Though net sales have generally increased over time, net income has likely remained the same because the expansion of the company will result in higher expenses. Please see figure 1.2 in the Appendix for full calculations.
2) Gross margin percentage has remained nearly constant at a rate of roughly 28%. This means that over the past few years the ratio between net sales and gross profit as well as either of their ratios with cost of sales has remained the same. This trend could furthermore be explained by Walgreen’s ability to produce and sell goods at similar costs despite an increase in quantity. Please see figure 2.1 in the Appendix for full calculations.
3) The three largest assets are Property and equipment, Inventories, and Equity investment in Alliance Boots at 35.98%, 21.03%, and 18.35% respectively. Property and equipment, the largest of the three, consists of land (both owned and leased), buildings, and equipment. Collectively these make up the distribution centers from which goods are sent to individual stores, the individual stores where goods are sold to customers, and the equipment used to produce, transport, and store goods. Ultimately, property and equipment is used to produce revenues by providing a physical location for goods to be sold to customers. Inventories, the second largest asset, consists of raw materials, works in progress, and finished goods. Once turned into finished goods, inventory makes up the physical goods that are offered for sale at retail locations. When these goods are sold revenues are earned. The third largest asset is Equity investments in Alliance Boots. In 2012 Walgreens invested in 45% of Alliance Boots, and international pharmacy-led health and beauty group1. This investment is used to produce revenue because the company now has major stake in another large company and will also be able to use this partnership to expand globally in the future. Please see figure 3.1 in the Appendix for full calculations.
4) According to the company’s 2012 annual report, the straight-line basis of depreciation is used over the estimated useful lives of all owned assets. Such estimated useful lives range from 2 to 13 years for equipment, and from 10 to 39 years for building, land, and their improvement. For equipment specifically, the company predominantly uses the composite method of depreciation - meaning they are grouped together and depreciated using the straight-line basis rather than calculating depreciation for each specific asset.
5) Walgreens uses the LIFO (last-in, first-out) method to value the inventory.
The inventory turnover ratio for the fiscal year ending on August 31, 2013 (in millions $) was 10.54. This ratio was calculated using the net sales of $72,217 and dividing it by the inventories of $6,852 (both in millions $). Similarly, the turnover ratio for the fiscal year ending on August 31, 2012 was 10.18. According to the data, the inventory turnover ratio for Walgreens has experienced an increase each fiscal year for the past three years. There are several reasons for why this may be occurring. It could be that Walgreens has implemented a stronger sales approach, such as a boost in advertising or through more appealing store infrastructure. Its inventory turnover ratio fluctuated between the fiscal year ending in August 8, 2008 and 2011 with ratios of 8.14, 9.33, 9.14, and 8.97; but perhaps the company decided to step up operations for 2012, when it saw that the overall industry had a steady increase in the ratio at 10.71 (2008), 10.86 (2009), 10.95 (2010), 11.06 (2011), and 11.13 (2012), respectively
2.
6) The total Assets for Walgreens amounted to $33,462 (in millions). Stockholders’ Equity amounted to $18,236. Current liabilities total $8,722 and noncurrent liabilities totalled $6,504 (both in millions). Total liabilities and stockholders’ equity equals $33,462 (in millions) -- same as the assets. Furthermore, liabilities account for 45.5% of total assets and stockholders’ equity account for 54.5% of total assets (45.5%+54.5% = 100%). The primary sources of funding for the assets include: property and equipment, at cost (less accumulated depreciation and amortization): $12,039 (in millions, approximately 35% of assets) and Inventories: $7,036 (in millions, approximately 21% of assets) (see Balance Sheet on appendix). In conclusion, 61% of total assets are in the form of capital, with some degree of liquidity -- inventory has a high liquidity. Because of this, it can be assumed that Walgreens is focused on selling goods and is not a big player in the service industry.
7) There were some shifts in the stockholders’ equity component from the fiscal years 2011-2012. Common stock shares increased from 889,294,130, to 944,055,334. In addition, the paid-in capital increased from $834 million in 2011 to $936 million in 2012. Retained earnings also experienced an increase in the 2012 fiscal year -- up by 1,279 of the previous year. All these increases have increased the general component of stockholder’s equity.
8) The files on the Securities and Exchange Commission provide a variety of information that is not necessarily on the annual report. It is composed of many files that the company sends to the SEC. One such file is the 10K Report, which provides information on how the business operates on a more micro level. For example, it discusses the acquirement of raw materials, the intellectual property licenses, as well as the variations in business, according to the season. For instance, more sales are generated near the cough and allergy season 3.
Other documents found were the contracts to the highest management. These are very detailed documents that include the responsibilities, the term of employment, and business conduct for the individual. This is important to third parties because it shows to them the expectations that the company has for the individuals who run the business and how the company is compensating them. For example, one document is the contract of Mr. Alex Gourlay as Executive Vice President, sent on September 26, 2013 4.
Appendix
Note: Some information was acquired from the 2013 fiscal year, which was not included in the most recent Annual Report for Walgreens (2012). Therefore, it is important to note that some figures may represent the 2013 fiscal year while others represent the 2012 fiscal year, in an effort to provide the most recent information. All numbers and calculations will indicate the fiscal year from which the data was collected.
Figure 1.1
2012
2011
2010
2009
2008
2007
Net Sales (millions)
$71,633
$72,184
$67,420
$63,335
$59,034
$53,762
Annual growth rate
-0.76%
7.07%
6.45%
7.29%
9.81%
Figure 1.2
2012
2011
2010
2009
2008
2007
Net Income (millions)
$2,127
$2,714
$2,091
$2,006
$2,157
$2,041
Annual growth rate
-21.63%
29.79%
4.24%
-7%
5.68%
Figure 2.1
2012
2011
2010
2009
2008
Net Sales (millions)
$71,633
$72,184
$67,420
$63,335
$59,034
Gross Profit (millions)
$20,342
$20,492
$18,976
$17,613
$16,643
GrossMargin Percentage
28.4%
28.39%
28.14%
27.81%
28.19%
Figure 3.1
Asset
2012 value (millions)
Percentage
Cash and cash equivalents
$1,297
3.88%
Accounts receivable, net
$2,167
6.48%
Inventories
$7,036
21.03%
Other current assets
$260
0.78%
Property and equipment
$12,038
35.98%
Equity investment in Alliance Boots
$6,140
18.35%
Alliance Boots call option
$866
2.59%
Goodwill
$2,161
6.46%
Other non-current assets
$1,497
4.47%
Total assets
$33,462
100%
Sources:
1:http://allianceboots.com
2:http://www.stock-analysis-on.net/NYSE/Company/Walgreen-Co/Ratios/Short-term-Operating-Activity#Inventory-Turnover
3:http://www.sec.gov/Archives/edgar/data/104207/000010420713000104/10-k.htm
4:http://www.sec.gov/Archives/edgar/data/104207/000010420713000104/exhibit_10-53.htm
Main Financial Statements
ACCT 1201: Financial Accounting and Reporting
Kevin Kang
Chris Laughlin
Anthony Mele
Ricardo Ortiz
Progress Report 1
Walgreens Co.
Annual Report: 2012
Company Background
A. The ticker for Walgreens Co. is WAG. Walgreens trades its stock in the New York Stock Exchange (NYSE).
B. The auditor’s report included with the annual report is a statement from an external entity, explaining that after careful review of the balance sheets, cash flow statements and all financial statements included in the annual report are accurate. In addition, it ensures that Walgreens has prepared their financial statements in accordance with all the generally accepted accounting principles …show more content…
of the United States. The name of the auditing firm is Deloitte & Touche LLP.
C.
Walgreens, Co. is the largest drug store chain in the United States. It provides pharmacy services in addition to medical supplies, home needs, convenience goods and cosmetics. It sells a wide range of products from over the counter medicine, foods, cosmetics, supplements and vitamins, soaps and a multitude of other goods. The major service of the company is the pharmacy, for which Walgreens, Co. is most notable. Major competitors include Rite-Aid and CVS pharmacies.
D. Closing Price for Walgreens, Co. (WAG) Friday March 1, 2013: $41.32
Developments relating to the Company
A. The demand for the products provided at Walgreens is inelastic. Walgreens offers a number of medical products and the pharmacy service, which is a growing industry in itself. Until another system of delivering medicine to those to whom it is prescribed, a pharmacy will always have demand. The other goods such as cosmetics have an elastic demand, however demand in the past few years has been constant enough to expand that department.
B. The growth of the mobile technology industry has opened the door for a personalized customer service experience. Each customer can now access their rewards information, coupons and now check the status of their order at the pharmacy. This is a major stepping-stone for the company and an advantage over its current competitors.
Understanding the Annual Report and …show more content…
10K
1) 2012’s Net Sales of $71,633 million is the second highest of the last five years, yet it is the only time in the last five years the the company has shown negative growth, with an annual rate of -0.76%. Up until 2012, the trend was of positive growth which could be attributed to the expansion of the company. The number of locations has increased from 6,934 in 2008 to 8,385 in 2012. Furthermore, the downturn of growth rate in net sales might be attributed to a slowing down of expansion. In 2012 there were 175 net openings, as compared to 937 in 2008. Please see figure 1.1 in the Appendix for full calculations.
2012’s Net Income of $2,127 million is the third highest it has been in the last five years. The annual growth rate however is by far the worst it has been at -21.63%. With annual growth’s ranging from -21.63% to 29.79% there is no clear trend of Net Income. Aside from 2011’s spike in net income of $2,714 million though, net income has relatively stayed the same. Though net sales have generally increased over time, net income has likely remained the same because the expansion of the company will result in higher expenses. Please see figure 1.2 in the Appendix for full calculations.
2) Gross margin percentage has remained nearly constant at a rate of roughly 28%. This means that over the past few years the ratio between net sales and gross profit as well as either of their ratios with cost of sales has remained the same. This trend could furthermore be explained by Walgreen’s ability to produce and sell goods at similar costs despite an increase in quantity. Please see figure 2.1 in the Appendix for full calculations.
3) The three largest assets are Property and equipment, Inventories, and Equity investment in Alliance Boots at 35.98%, 21.03%, and 18.35% respectively. Property and equipment, the largest of the three, consists of land (both owned and leased), buildings, and equipment. Collectively these make up the distribution centers from which goods are sent to individual stores, the individual stores where goods are sold to customers, and the equipment used to produce, transport, and store goods. Ultimately, property and equipment is used to produce revenues by providing a physical location for goods to be sold to customers. Inventories, the second largest asset, consists of raw materials, works in progress, and finished goods. Once turned into finished goods, inventory makes up the physical goods that are offered for sale at retail locations. When these goods are sold revenues are earned. The third largest asset is Equity investments in Alliance Boots. In 2012 Walgreens invested in 45% of Alliance Boots, and international pharmacy-led health and beauty group1. This investment is used to produce revenue because the company now has major stake in another large company and will also be able to use this partnership to expand globally in the future. Please see figure 3.1 in the Appendix for full calculations.
4) According to the company’s 2012 annual report, the straight-line basis of depreciation is used over the estimated useful lives of all owned assets. Such estimated useful lives range from 2 to 13 years for equipment, and from 10 to 39 years for building, land, and their improvement. For equipment specifically, the company predominantly uses the composite method of depreciation - meaning they are grouped together and depreciated using the straight-line basis rather than calculating depreciation for each specific asset.
5) Walgreens uses the LIFO (last-in, first-out) method to value the inventory.
The inventory turnover ratio for the fiscal year ending on August 31, 2013 (in millions $) was 10.54. This ratio was calculated using the net sales of $72,217 and dividing it by the inventories of $6,852 (both in millions $). Similarly, the turnover ratio for the fiscal year ending on August 31, 2012 was 10.18. According to the data, the inventory turnover ratio for Walgreens has experienced an increase each fiscal year for the past three years. There are several reasons for why this may be occurring. It could be that Walgreens has implemented a stronger sales approach, such as a boost in advertising or through more appealing store infrastructure. Its inventory turnover ratio fluctuated between the fiscal year ending in August 8, 2008 and 2011 with ratios of 8.14, 9.33, 9.14, and 8.97; but perhaps the company decided to step up operations for 2012, when it saw that the overall industry had a steady increase in the ratio at 10.71 (2008), 10.86 (2009), 10.95 (2010), 11.06 (2011), and 11.13 (2012), respectively
2.
6) The total Assets for Walgreens amounted to $33,462 (in millions). Stockholders’ Equity amounted to $18,236. Current liabilities total $8,722 and noncurrent liabilities totalled $6,504 (both in millions). Total liabilities and stockholders’ equity equals $33,462 (in millions) -- same as the assets. Furthermore, liabilities account for 45.5% of total assets and stockholders’ equity account for 54.5% of total assets (45.5%+54.5% = 100%). The primary sources of funding for the assets include: property and equipment, at cost (less accumulated depreciation and amortization): $12,039 (in millions, approximately 35% of assets) and Inventories: $7,036 (in millions, approximately 21% of assets) (see Balance Sheet on appendix). In conclusion, 61% of total assets are in the form of capital, with some degree of liquidity -- inventory has a high liquidity. Because of this, it can be assumed that Walgreens is focused on selling goods and is not a big player in the service industry.
7) There were some shifts in the stockholders’ equity component from the fiscal years 2011-2012. Common stock shares increased from 889,294,130, to 944,055,334. In addition, the paid-in capital increased from $834 million in 2011 to $936 million in 2012. Retained earnings also experienced an increase in the 2012 fiscal year -- up by 1,279 of the previous year. All these increases have increased the general component of stockholder’s equity.
8) The files on the Securities and Exchange Commission provide a variety of information that is not necessarily on the annual report. It is composed of many files that the company sends to the SEC. One such file is the 10K Report, which provides information on how the business operates on a more micro level. For example, it discusses the acquirement of raw materials, the intellectual property licenses, as well as the variations in business, according to the season. For instance, more sales are generated near the cough and allergy season 3.
Other documents found were the contracts to the highest management. These are very detailed documents that include the responsibilities, the term of employment, and business conduct for the individual. This is important to third parties because it shows to them the expectations that the company has for the individuals who run the business and how the company is compensating them. For example, one document is the contract of Mr. Alex Gourlay as Executive Vice President, sent on September 26, 2013 4.
Appendix
Note: Some information was acquired from the 2013 fiscal year, which was not included in the most recent Annual Report for Walgreens (2012). Therefore, it is important to note that some figures may represent the 2013 fiscal year while others represent the 2012 fiscal year, in an effort to provide the most recent information. All numbers and calculations will indicate the fiscal year from which the data was collected.
Figure 1.1
2012
2011
2010
2009
2008
2007
Net Sales (millions)
$71,633
$72,184
$67,420
$63,335
$59,034
$53,762
Annual growth rate
-0.76%
7.07%
6.45%
7.29%
9.81%
Figure 1.2
2012
2011
2010
2009
2008
2007
Net Income (millions)
$2,127
$2,714
$2,091
$2,006
$2,157
$2,041
Annual growth rate
-21.63%
29.79%
4.24%
-7%
5.68%
Figure 2.1
2012
2011
2010
2009
2008
Net Sales (millions)
$71,633
$72,184
$67,420
$63,335
$59,034
Gross Profit (millions)
$20,342
$20,492
$18,976
$17,613
$16,643
GrossMargin Percentage
28.4%
28.39%
28.14%
27.81%
28.19%
Figure 3.1
Asset
2012 value (millions)
Percentage
Cash and cash equivalents
$1,297
3.88%
Accounts receivable, net
$2,167
6.48%
Inventories
$7,036
21.03%
Other current assets
$260
0.78%
Property and equipment
$12,038
35.98%
Equity investment in Alliance Boots
$6,140
18.35%
Alliance Boots call option
$866
2.59%
Goodwill
$2,161
6.46%
Other non-current assets
$1,497
4.47%
Total assets
$33,462
100%
Sources:
1:http://allianceboots.com
2:http://www.stock-analysis-on.net/NYSE/Company/Walgreen-Co/Ratios/Short-term-Operating-Activity#Inventory-Turnover
3:http://www.sec.gov/Archives/edgar/data/104207/000010420713000104/10-k.htm
4:http://www.sec.gov/Archives/edgar/data/104207/000010420713000104/exhibit_10-53.htm
Main Financial Statements