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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 2004.
[ ] 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
(State of incorporation)
36-1924025
(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: (847) 940-2500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock ($.078125 Par Value) New York Stock Exchange
Chicago Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None____
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes X No _____
As of February 29, 2004, the aggregate market value of Walgreen Co. common stock, par value $.078125 per share,
held by non-affiliates (based upon the closing transaction price on the New York Stock Exchange) was approximately
$36,364,900,349. As of October 31, 2004, there were 1,021,824,145 shares of Walgreen Co. common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for its 2004 annual meeting of shareholders held on January 12, 2005,
are incorporated by reference into part III of Form 10-K/A.

Table of contents

  • Page 1
    ..., Deerfield, Illinois (Address of principal executive offices) 36-1924025 (I.R.S. Employer Identification No.) 60015 (Zip Code) Registrant's telephone number, including area code: (847) 940-2500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on...

  • Page 2
    ... and Results of Operations Part II - Item 8 - Financial Statements and Supplementary Data Part II - Item 9A - Controls and Procedures Part IV - Item 15 - Exhibits and Financial Statement Schedules DESCRIPTION OF RESTATEMENT Historically, when accounting for leases, we recorded rent expense on...

  • Page 3
    ...The total number of stores at August 31, 2004 was 4,579 located in 44 states and Puerto Rico. In addition, the company operates 3 mail service facilities. The company anticipates operating more than 7,000 stores by 2010. To support store expansion, the company opened four distribution centers in the...

  • Page 4
    ... years are as follows: Product Class Prescription Drugs Nonprescription Drugs General Merchandise Total Sales (ii) Status of a product or segment. Not applicable. (iii) Sources and availability of raw materials. Inventories are purchased from numerous domestic and foreign suppliers. The loss of any...

  • Page 5
    (ix) Government contracts. The company fills prescriptions for many state welfare plans. Revenues from all such plans are approximately 8.7% of total sales. (x) Competitive conditions. The drug store industry is highly competitive. As a volume leader in the retail drug industry, Walgreens competes ...

  • Page 6
    ... website at investor.walgreens.com or, upon written request, in printed hardcopy form. Written requests should be sent to Walgreen Co., c/o Corporate Secretary, 200 Wilmot Road, Deerfield, Illinois 60015. Waivers, if any, of the company's Ethics Policy Statement for directors and executive officers...

  • Page 7
    ... processing control, operating efficiencies and rapid merchandise delivery to stores. In addition, the company uses public warehouses to handle certain distribution needs. A new distribution center opened in Moreno Valley, California in May, with another planned for Anderson County, South Carolina...

  • Page 8
    Item 3. Legal Proceedings See the caption "Contingencies" on page 32 of this Form 10-K/A. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year. 8

  • Page 9
    ... is furnished with respect to each executive officer of the company as of November 1, 2004: NAME AND BUSINESS EXPERIENCE AGE David W. Bernauer 60 Chairman of the Board since January 2003 Chief Executive Officer since January 2002 President and Chief Operating Officer January 1999 to January 2003...

  • Page 10
    ...January 2000 William M. Rudolphsen Senior Vice President and Chief Financial Officer since January 2004 Controller January 1998 to January 2004 AGE 54 OFFICE HELD Senior Vice President 54 Senior Vice President 59 Senior Vice President 65 Senior Vice President, Secretary and General Counsel 57...

  • Page 11
    ...2001 to January 2003 General Merchandise Manager January 2000 to December 2001 Director, New Business Development November 1998 to January 2000 William A. Shiel Senior Vice President since July 1993 Trent E. Taylor Senior Vice President since January 2002 Chief Information Officer since January 1999...

  • Page 12
    General Auditor since June 1988 EXECUTIVE OFFICERS OF THE REGISTRANT - continued: NAME AND BUSINESS EXPERIENCE Mia M. Scholz Controller since January 2004 Director of Internal Audit November 1999 to January 2004 Kenneth R. Weigand* Divisional Vice President since May 2000 Corporate Manager May 1998...

  • Page 13
    ... stock is traded on the New York Stock Exchange, Chicago Stock Exchange and Nasdaq National Market under the symbol WAG. As of October 31, 2004 there were 104,128 recordholders of company common stock according to the records maintained by the company's transfer agent. The range of the sales prices...

  • Page 14
    ... of accounting changes (2) Net Earnings Per Common Share (3) Net earnings (2) Basic Diluted Dividends declared Book value Non-Current Liabilities Long-term debt Deferred income taxes Other non-current liabilities Assets and Equity Total assets (4) Shareholders' equity Return on average shareholders...

  • Page 15
    ...per share) from the sale of the company' s long-term care pharmacy business. (2) Fiscal 1998 includes an after-tax $26.4 million ($.03 per share) charge from the cumulative effect of accounting change for system development costs. (3) Per share data have been adjusted for two-for-one stock splits in...

  • Page 16
    ... of life and control healthcare costs. Although the effect of the new Medicare prescription drug legislation on retail pharmacy is difficult to fully ascertain at this time, we are experiencing additional prescription sales as a result of the new senior discount cards; however, gross margin rates on...

  • Page 17
    ...-the-counter status reduced prescription sales. Third party sales, where reimbursement is received from managed care organizations as well as government and private insurance, were 91.7% of pharmacy sales in 2004, 90.6% in 2003 and 89.8% in 2002. Non-prescription (front-end) sales increased 11.7% in...

  • Page 18
    ...sales mix moving to higher margin categories, especially digital film processing. Contributing to the fiscal 2003 increase was the shift in vendor allowances from advertising to cost of sales. As of January 2003, we adopted Emerging Issues Task Force (EITF) Issue No. 02-16, "Accounting by a Customer...

  • Page 19
    ... be purchased and sold every 7, 28 and 35 days. The trading of auction rate securities takes place through a dutch auction with an interest rate reset at the beginning of each holding period. At the end of each holding period the interest is paid to the investor. Additions to property and equipment...

  • Page 20
    ....1 9.7 2.0 11.4 $2,830.7 68.7 19.2 16.8 0.6 2.0 17.7 $2,550.3 Operating leases* Purchase obligations: Open inventory purchase orders* Real estate development* Other corporate obligations* Insurance Retiree health & life Closed location obligations Long-term debt Capital lease obligations Other long...

  • Page 21
    In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvements and Modernization Act of 2003." This statement requires the company to disclose the effects of the Act and to assess the imp act of the subsidy on the ...

  • Page 22
    ..., August 31, 2003 (as restated) Net earnings (as restated) Cash dividends declared ($.181875 per share) Treasury stock purchases Employee stock purchase and option plans Balance, August 31, 2004 (as restated) Paid-in Capital $596.7 151.7 Retained Earnings $4,474.7 1,008.1 (148.4) 5,334.4 1,165...

  • Page 23
    The accompanying Summary of Major Accounting Policies and the Notes to Consolidated Financial Statements are integral parts of these statements. Assets Current Assets Cash and cash equivalents Short term investments - available for sale Accounts receivable, net Inventories Other current assets ...

  • Page 24
    ... of property and equipment 6.2 Net proceeds from corporate-owned life insurance 10.2 Net cash used for investing activities (2,165.9) Cash Flows from Financing Activities Payments of short-term borrowings Cash dividends paid (176.9) Stock purchases (299.2) Proceeds from employee stock plans 145...

  • Page 25
    .... Summary of Major Accounting Policies Description of Business The company is principally in the retail drugstore business and its operations are within one reportable segment. Stores are located in 44 states and Puerto Rico. At August 31, 2004, there were 4,579 retail drugstores and three mail...

  • Page 26
    ... accumulated depreciation and amortization accounts. Property and equipment consists of (In Millions): 2004 Land and land improvements Owned stores Dis tribution centers Other locations Buildings and building improvements Owned stores Leased stores (leasehold improvements only) Distribution centers...

  • Page 27
    ... in an increase to advertising costs of $75.0 million (.23% of total sales), a reduction to cost of sales of $56.2 million (.17% of total sales), and a reduction to pre-tax earnings and inventory of $18.8 million. Stock-Based Compensation Plans As permitted under SFAS No. 123, the company applies...

  • Page 28
    ... Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects Pro forma net income Earnings per share: Basic - as reported Basic - pro forma Diluted - as reported Diluted - pro forma Income Taxes 2004 2003 2002 (Restated...

  • Page 29
    ...to control the property. Additionally, the company recognizes rent expense on a straight-line basis over a time period that equals or exceeds the time period used for depreciation of buildings on leased land. The following is a summary of the effects of the corrections (In Millions, Except Per Share...

  • Page 30
    ... the property. Additionally, the company recognizes rent expense on a straight-line basis over a time period that equals or exceeds the time period used for depreciation of buildings on leased land. In addition to minimum fixed rentals, most leases provide for contingent rentals based upon sales...

  • Page 31
    ... consist of the following (In Millions): 2004 2003 (Restated - See Restatement Note on Pages 29-30) Deferred tax assets Employee benefit plans Accrued rent Insurance Inventory Bad debt Other Deferred tax liabilities Accelerated depreciation Inventory Other Net deferred tax liabilities $212.0 106...

  • Page 32
    ... Plan offered a stock option award to all non-executive employees who were employed on May 11, 2000. Each eligible employee, in conjunction with opening the company' s 3,000th store, received a stock option award to purchase from 75 to 500 shares, based on years of service. The option award, issued...

  • Page 33
    ... purchase. The Walgreen Co. Restricted Performance Share Plan provides for the granting of shares of common stock to certain key employees, subject to restrictions as to continuous employment except in the case of death, normal retirement or total and permanent disability. Restrictions generally...

  • Page 34
    ... interest rate Average life of option (years) Volatility Dividend yield Retirement Benefits The principal retirement plan for employees is the Walgreen Profit-Sharing Retirement Trust to which both the company and the employees contribute. The company's contribution, which is determined annually at...

  • Page 35
    ..., the Medicare Prescription Drug Improvement and Modernization Act of 2003 was signed into law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retirement health care benefit plans. The retiree medical obligations and costs reported do not...

  • Page 36
    ... income of $.6 million (less than $.001 per share) from the receipt of an antitrust lawsuit settlement. Common Stock Prices Below is the Consolidated Transaction Reporting System high and low sales price for each quarter of fiscal 2004 and 2003. Quarter Ended November February May August Fiscal Year...

  • Page 37
    Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Walgreen Co.: We have audited the accompanying consolidated balance sheets of Walgreen Co. and subsidiaries (the "Company") as of August 31, 2004 and 2003, and the related consolidated statements ...

  • Page 38
    ... on a company-wide basis. Management believes it has appropriately responded to the internal auditors' and independent registered public accounting firm's recommendations concerning the company's internal control system. /s/ David W. Bernauer Chairman of the Board and Chief Executive Officer William...

  • Page 39
    ... 31, 2004 and taking into consideration the restatement described in the note on pages 29-30, pursuant to Exchange Act Rule 13a-15(b), the company' s management, including its Chief Executive Officer and Chief Financial Officer, believe the company' s disclosure controls and procedures (as defined...

  • Page 40
    ... Concerning Corporate Governance, the Board of Directors and its Committees Securities Ownership of Certain Beneficial Owners and Management Section 16(a) Beneficial Ownership Reporting Compliance Executive Compensation Equity Compensation Plans Independent Registered Public Accounting Firm...

  • Page 41
    ... Management Long-Term Disability Plan. (Note 3) Executive Short-Term Disability Plan Description. (Note 3) Walgreen Co. Management Incentive Plan (as restated effective September 1, 2003), filed with the Securities and Exchange Commission as Exhibit 10(c) to the company's Annual Report on Form 10K...

  • Page 42
    ... Form of Stock Option Agreement (Grades 18 and above), filed with the Securities and Exchange Commission as Exhibit 10(e)(iii) to the company's annual Report on Form 10K for the fiscal year ended August 31, 2004 (previously filed). Walgreen Co. 1986 Director's Deferred Fee/Capital Accumulation Plan...

  • Page 43
    ... (ii) Form of Change of Control Employment Agreements. (Note 5) Amendment to Employment Agreements adopted July 12, 1989. (Note 7) Walgreen Select Senior Executive Retiree Medical Expense Plan, filed with the Securities and Exchange Commission as Exhibit 10(j) to the company's Annual Report on Form...

  • Page 44
    ...of Independent Registered Accounting Firm Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed with the Securities and Exchange Commission as Exhibit 31.1 to the company' s Annual Report on Form 10-K/A for the fiscal year ended August 31, 2004...

  • Page 45
    ...Commission as Exhibit 10 to the company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1988 (File No. 1604), and incorporated by reference herein. Filed with the Securities and Exchange Commission as Exhibit 10 to the company's Annual Report on Form 10-K for the fiscal year ended...

  • Page 46
    ...CO. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED AUGUST 31, 2004, 2003 AND 2002 (Dollars in Millions) Additions Charged to Costs and Expenses Classification Allowances deducted from receivables for doubtful accounts Year Ended August 31, 2004 Year Ended August...

  • Page 47
    DELOITTE & TOUCHE LLP REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Walgreen Co.: We have audited the consolidated financial statements of Walgreen Co. and subsidiaries (the "Company") as of August 31, 2004 and 2003, and for each of the three ...

  • Page 48
    ..., thereunto duly authorized. WALGREEN CO. (Registrant) By /s/ William M. Rudolphsen William M. Rudolphsen Senior Vice President and Chief Financial Officer Date: April 8, 2005 Pursuant to the requirements of the Securities and Exchange Act of 1934 this report has been signed below by the following...

  • Page 49
    Exhibit 23 DELOITTE & TOUCHE LLP CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in this Form 10-K/A of Walgreen Co. and subsidiaries (the "Company") of our report dated October 12, 2004 (April 5, 2005 as to the effects of the restatement ...

  • Page 50
    ...I, David W. Bernauer, Chief Executive Officer, certify that: 1. 2. I have reviewed this annual report on Form 10-K/A of Walgreen Co.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in...

  • Page 51
    ...I, William M. Rudolphsen, Chief Financial Officer, certify that: 1. 2. I have reviewed this annual report on Form 10-K/A of Walgreen Co.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made...

  • Page 52
    ...) In connection with the Annual Report of Walgreen Co., an Illinois corporation (the "Company"), on Form 10-K/A for the year ending August 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, David W. Bernauer, Chief Executive Officer of the Company, certify, pursuant to...

  • Page 53
    ... connection with the Annual Report of Walgreen Co., an Illinois corporation (the "Company"), on Form 10-K/A for the year ending August 31, 2004 as filed with the Securities and Exchange Commission (the "Report"), I, William M. Rudolphsen, Chief Financial Officer of the Company, certify, pursuant to...