Walgreens Liquidity and Cash Flow the Management\'s

Walgreens Liquidity and Cash Flow

The Management's Discussion and Analysis, together with the Consolidated Statement of Cash Flows and Notes, provide insight into the company's sources and uses of cash.

Over the two-year period for the years ending August 31, 2009 thru 2011, the company has seen large cash outflows which affected its cash position and its liquidity. Net cash provided by operations declined from $4.1 billion in 2009 to $3.6 billion in 2011. Cash provided by operations was the principal source of funds for the Duane Read acquisition, for expansion, remodeling programs, shareholder dividends and stock repurchases (Walgreens, 2011).

Walgreens management attributes the decrease in net cash provided by operations to higher working capital. In part the cash flow decrease in working capital was offset by higher earnings, which increased by $708 million over the two-year period (Walgreens, 2011).

Walgreens' cash and cash equivalents have trended down from $2.1 billion in 2009 to $1.9 billion in 2010 to $1.6 billion in 2011 for a total decrease of $531 million. Included in the company's cash and cash equivalents is cash on hand and all highly liquid investments having an original maturity of three months or less (Walgreens, 2011).

Cash provided by operations funded Walgreens investment in additions to property and equipment for $1.2 billion in fiscal year 2011. Walgreens added a total of 297 locations, a net addition of 164, which included the acquisition of 258 Duane Reade locations. Walgreens' expansion included 62 owned locations added during the year, with 44 under construction at fiscal year end. In addition to the Duane Reade chain, business acquisitions included the purchase of drugstore.com, Inc. (Walgreens, 2011).

The company used $2.0 billion for their stock repurchase program in 2011; in the previous year, Walgreens spent $1.8 billion to repurchase shares. In keeping with the Board of Directors setting a long-term dividend ratio target between 30 and 35% of net earnings, Walgreens paid out $647 million in 2011 stock dividends, up from $541 million the previous year (Walgreens, 2011).

Even though Walgreens did not issue any long-term debt in 2011, Walgreens maintains two unsecured backup syndicated lines of credit that totaled $1.1 billion. The company is able to access these facilities only if complies with certain restrictions on borrowing, as well as maintaining financial ratios related to minimum net worth and priority debt (Walgreens, 2011).