Walgreens 2005 Annual Report Download - page 31

2005 Annual Report 29
Income taxes paid were $928.2 million, $734.1 million and $625.2 million during
the fiscal years ended August 31, 2005, 2004 and 2003, respectively. The difference
between the statutory income tax rate and the effective tax rate is principally due
to state income tax provisions.
Short-Term Borrowings
The company had no short-term borrowings in fiscal 2005 or 2004. At August 31,
2005, the company had a syndicated bank line of credit facility of $200 million to
support the company’s short-term commercial paper program. The company pays
a nominal facility fee to the financing bank to keep this line of credit facility active.
Contingencies
The company is involved in various legal proceedings incidental to the normal
course of business. Company management is of the opinion, based upon the
advice of General Counsel, that although the outcome of such litigation cannot
be forecast with certainty, the final disposition should not have a material adverse
effect on the company’s consolidated financial position or results of operations.
Capital Stock
The company’s common stock is subject to a Rights Agreement under which each
share has attached to it a Right to purchase one one-hundredth of a share of a
new series of Preferred Stock, at a price of $37.50 per Right. In the event an entity
acquires or attempts to acquire 15% of the then outstanding shares, each Right,
except those of an acquiring entity, would entitle the holder to purchase a number
of shares of common stock pursuant to a formula contained in the Agreement.
These non-voting Rights will expire on August 21, 2006, but may be redeemed at
a price of $.0025 per Right at any time prior to a public announcement that the
above event has occurred.
On July 14, 2004, the Board of Directors announced a stock repurchase program
of up to $1 billion, which is expected to be executed over four years. During
fiscal 2005, the company purchased $345.1 million of shares related to
the stock repurchase program, which compares to $21.9 million of shares
purchased in fiscal 2004. An additional $436.7 million of shares were purchased
to support the long-term needs of the employee stock plans, which compares to
$277.3 million in fiscal 2004.
At August 31, 2005, 96,936,238 shares of common stock were reserved for
future stock issuances under the company’s various employee benefit plans.
Preferred stock of 10,135,120 shares has been reserved for issuance upon
the exercise of Preferred Share Purchase Rights.
Stock Compensation Plans
The Walgreen Co. Stock Purchase/Option Plan (Share Walgreens) provides for the
granting of options to purchase common stock over a ten-year period to eligible
non-executive employees upon the purchase of company shares, subject to certain
restrictions. Employees may purchase the company shares through cash purchases
or loans. For options granted prior to October 1, 2005, the option price could not
be more than 15% lower than the fair market value at the date of grant. For
options granted on or after October 1, 2005, the option price is the closing price
of a share of common stock on the grant date. Options may be granted under
this Plan until September 30, 2012, for an aggregate of 42,000,000 shares of
common stock. At August 31, 2005, there were 32,296,440 shares available for
future grants. The options granted during fiscal 2005, 2004 and 2003 have a
two-year vesting period. Compensation expense related to the plan was $.3 million
in fiscal 2005, $.6 million in fiscal 2004 and $1.2 million in fiscal 2003.
The Walgreen Co. Executive Stock Option Plan provides for the granting of options
to eligible key employees to purchase common stock over a ten-year period, at a
price not less than the fair market value on the date of the grant. Under this Plan,
options may be granted until October 9, 2006, for an aggregate of 38,400,000
shares of common stock. As of August 31, 2005, 20,456,653 shares were
available for future grants. The options granted during fiscal 2005, 2004 and
2003 have a three-year vesting period. Compensation expense related to the
plan was less than $1 million in fiscal 2005, fiscal 2004 and fiscal 2003.
The Walgreen Co. Broad Based Employee Stock Option Plan provides for the granting
of options to eligible non-executive employees to purchase common stock over a
ten-year period, at a price not less than the fair market value on the date of the
grant, in connection with the achievement of store opening milestones. Under this
Plan, on March 11, 2003, substantially all non-executive employees, in conjunction
with the opening of the company’s 4,000th store, were granted a stock option to
purchase 100 shares. Options may be granted for an aggregate of 15,000,000
shares of common stock until all options have either been exercised or have
expired. The options have a three-year vesting period. At August 31, 2005,
6,234,000 shares were available for future grants.
The Walgreen Co. Option 3000 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 at fair market value on May 11, 2000, was authorized to grant an
aggregate of 15,500,000 shares of common stock. The options vested and
became exercisable on May 11, 2003, and any unexercised options will expire on
May 10, 2010, subject to earlier termination if the optionee’s employment ends.
The Walgreen Co. 1982 Employees Stock Purchase Plan permits eligible
employees to purchase common stock at 90% of the fair market value at the
date of purchase. Employees may purchase shares through cash purchases,
loans or payroll deductions up to certain limits. The aggregate number of
shares, which all participants have the right to purchase under this Plan,
is 74,000,000. At August 31, 2005, 8,216,538 shares were available for
future purchase.
The Walgreen Co. Restricted Performance Share Plan provides for the granting
of shares of common stock and cash 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 lapse over a four-year period from
the date of grant. Compensation expense is recognized in the year of grant. Shares
may be granted for an aggregate of 32,000,000 shares of common stock. At
August 31, 2005, 23,072,895 shares were available for future grants. The number
of shares granted was 134,768 in 2005, 116,898 in 2004 and 79,869 in 2003.
Compensation expense related to the Plan was $11.1 million in fiscal 2005,
$8.1 million in fiscal 2004 and $5.5 million in fiscal 2003.
The Walgreen Co. Nonemployee Director Stock Plan provides that each Nonemployee
Director receives an equity grant of shares each year on November 1. The number
of shares granted shall be determined by dividing $80,000 by the price of a share
of common stock on November 1. During the term of the Plan, each Nonemployee
Director will also receive fifty percent of his or her quarterly retainer in the form of
shares, which may be deferred into an equal number of stock units. In addition, a
Nonemployee Director may elect to receive all or a portion of the cash component
of his or her quarterly retainer and meeting fees in the form of deferred stock units
or to have such amounts placed in a deferred cash compensation account. Each
Nonemployee Director received a grant of 2,211 shares in 2005, 2,298 shares
in 2004 and 2,361 shares in 2003.