Walgreens 2004 Annual Report Download - page 34

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34
The weighted-average fair value and exercise price of options granted for fiscal 2004, 2003 and 2002 were as follows:
2004 2003 2002
Granted at market price -
Weighted-average fair value $12.17
$10.36
$13.60
Weighted-average exercise price 32.33
28.80
34.40
Granted below market price -
Weighted-average fair value 14.03
13.37
11.86
Weighted-average exercise price 32.14
31.48
33.21
The fair value of each option grant used in the pro forma net earnings and net earnings per share was determined using the Black-
Scholes option pricing model with weighted-average assumptions used for grants in fiscal 2004, 2003 and 2002:
2004 2003 2002
Risk-free interest rate 4.07% 3.36% 4.56%
Average life of option (years) 7 7 7
Volatility 28.56% 28.04% 27.58%
Dividend yield .38% .29% .22%
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 the discretion of the Board of Directors, has
historically related to pre-tax income. The profit-sharing provision was $193.6 million in 2004, $168.0 million in 2003 and $145.7
million in 2002.
The company provides certain health insurance benefits for retired employees who meet eligibility requirements, including age,
years of service and date of hire. The costs of these benefits are accrued over the period earned. The company's postretirement
health benefit plans currently are not funded.
Components of net periodic benefit costs (In Millions):
2004 2003 2002
Service cost $19.3
$10.2
$ 6.0
Interest cost 22.5
15.7
10.5
Amortization of actuarial loss 9.9
4.9
1.4
Amortization of prior service cost (0.4)
(0.4)
(0.4)
Total postretirement benefit cost $51.3
$30.4
$17.5
Change in benefit obligation (In Millions):
2004 2003
Benefit obligation at September 1 $349.6 $226.4
Service cost 19.3 10.2
Interest cost 22.5 15.7
Amendments (26.3) -
Actuarial loss 33.0 102.9
Benefit payments (7.1)
(6.9)
Participants contributions 1.5 1.3
Benefit obligation at August 31 $392.5 $349.6
Change in plan assets (In Millions):
2004 2003
Plan assets at fair value at September 1 $ - $ -
Plan participants contributions 1.5 1.3
Employer contributions 5.6 5.6