Although I didn't receive the report in the mail I did look it up online. There is some interesting stuff on page 31. The last thing they talk about was the cost for acquisitions for the year. Over $100 million in expenses are listed for bond conversion costs, some FASB garbarge for accelerating vesting and investment banker costs. Since WAG spent over $900 Million for Option Care (became part of WAG in August) I have to think most of these costs were for that acquisition. My question is how many of these costs were incurred in the 4th quarter? To give perspective WAG made $400 million in Q4 so $100M of acquisition costs would be about $.10 per share. I'm not saying all of this was Q4 but I believe the majority was. I find it curious that WAG blamed generic price reimbursements for the EPS miss while none of our competition even mentioned it. I believe the majority of the miss was due to costs from this acquisition. Walgreens very arrogantly refused to break out costs for the analysts and really skated around the issue the best that they could.
The next question is what does this mean for investors. I believe it is good news. To me the Q4 EPS was artificially deflated because of one time charges related to acquisitions. Most companies would call these extraordinary items and not include them in continuing operations but for some reason WAG chose not to. The stockholder meeting is in a couple weeks, I think a great question for Rein would be how much of the Q4 miss was due to acquisition costs. This Option Care acquisition was very risky and expensive, maybe WAG just doesn't want to talk about it. Hopefully it will end up being a good move but they sure paid a lot for it.
Regarding earnings on Option Care:
I don't have an MBA, but wouldn't that be a capital purchase, and not necessarily impact earnings. I know money was spent, but the accounting transaction would not necessarily make this an expense item on an income statement - correct?
Or another take....
Auditor's, thanks to SOX, would have not signed off on FY07 Annual report if they "hid" the expense of this Option Care purchase. WAG is extremely conservative in accounting, and would have come out and said the transaction hurt the bottom line for FY07 Q4.
I wasn't saying WAG hid the cost of the Option Care acquisition in the financial reports I was saying it appears they hid it from the analysts on their discussion of why they missed Q4 earnings by $.08. On page 31 of the annual report over $100 million in acquisition costs for the year are mentioned, curiously the last thing discussed. Off the top of my head around $60M for convertible bond costs, and then around $25M for some FASB garbage about vesting acceleration and $15M or so for investment banking expenses. These are not capital items to be depreciated they are one time expenses which apparently mostly hit in the 4th quarter. WAG's reputation of having no long term debt is also pretty interesting. In F2006 they had no liability under short term borrowing but in F2007 they had around $800M. The Option Care acquisition cost over $900M this is very material even for a $50B company, it is a risky and costly investment. I don't understand their reasoning but for some reason they don't seem to want to talk about it.
Again I'll repeat myself, I believe the 1st quarter will be better than people think. While sales are not as good as I had hoped due to a very tough 2006 comparison, expectations have been lowered significantly based on things I consider to be one time items that don't affect continuuing operations. Rein talked and talked in the annual report about how expenses had gotten out of control at the store level and were going to be reined in(no pun intended). Hopefully that will make a difference, the next step should be to slow some of the corporate spending, salaries and bonuses have been getting way out of control. I think there is way too much upper management making fancy salaries with large stock bonueses but maybe that is just my opinion.
Gundun, Me too! I'm frustrated with the way things are going. I sent Investor Relations a to the point note too re: shareholders dying on the vine out here. A guy answered me, thanked me for my feedback and said Walgreens can't control their stock price.. . We know they do have influence and impact it with their PR and stupid thingsthat keep happening. When you read the news and groan with every report, that's bad. I will hold a while longer but not forever...
This board is brain dead. I had a very insightful post on how WAG blamed their Q4 EPS miss on generic reimbursements rather than the truth that the primary reason was their acquisition of Option Care. I gave specific reasons for this conclusion and why this information is important in the future and yet not one person has responded in a positive or negative way. I'm done passing along pertinent information in the hopes of an intelligent discussion, please resume your mindless Cramer bashing and whatever other garbage that is deemed more important to discuss.
"I had a very insightful post on how WAG blamed their Q4 EPS miss on generic reimbursements rather than the truth that the primary reason was their acquisition of Option Care. I gave specific reasons for this conclusion and why this information is important in the future and yet not one person has responded in a positive or negative way."
I think your theory about the 4th quarter miss and the main cause being the acquisition of Option Care is a good one. This acquisition and the large amount of cash necessary to do the deal also meant that they did not earn interest on this money that they formerly had in the bank either, creating a revenue shortfall due to less earned interest income. If this is true then it gives one hope that the cause of the miss is a short term one and December should be good again.