Walgreens 2006 Annual Report Download - page 31

2006 Walgreens Annual Report Page 29
Income taxes paid were $1.111 billion, $928.2 million and $734.1 million during
the fiscal years ended August 31, 2006, 2005 and 2004, respectively. The differ-
ence 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 2006 or 2005. At August 31,
2006, 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 and is subject to various investigations, inspections, audits,
inquiries and similar actions by governmental authorities responsible for enforcing
the laws and regulations to which the company is subject. These include a lawsuit
for which a $31 million judgment was entered against the company in October
2006. The company has appealed the judgment and management is of the
opinion, based upon the advice of General Counsel, that although the outcome of
this and other litigation and investigations 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
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
2006, the company purchased $289.7 million of shares related to the stock repur-
chase program, which compares to $345.1 million of shares purchased in fiscal
2005. Total purchases to date related to the stock repurchase program have been
$656.8 million. An additional $379.1 million of shares were purchased to support
the long-term needs of the employee stock plans, which compares to $436.7 mil-
lion in fiscal 2005.
At August 31, 2006, 86,104,397 shares of common stock were reserved for
future stock issuances under the company’s various employee benefit plans.
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 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, 2006, there were 31,754,614 shares available
for future grants. The options granted during fiscal 2006, 2005 and 2004 have a
two-year vesting period.
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 January 11, 2016, for an aggregate of 38,400,000
shares of common stock. As of August 31, 2006, 17,658,026 shares were avail-
able for future grants. The options granted during fiscal 2006, 2005 and 2004
have a three-year vesting period.
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 and 14,888,725 shares were
granted. 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. Broad Based Employee Stock Option Plan provides for the grant-
ing 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. The option was authorized to grant an aggregate of
15,000,000 shares of common stock. As of August 31, 2006, 6,913,261 shares
were available for future grants. The options vested and became exercisable on
March 11, 2006, and any unexercised options will expire on March 10, 2013,
subject to earlier termination if the optionee’s employment ends.
The Walgreen Co. 1982 Employees Stock Purchase Plan permits eligible employ-
ees to purchase common stock at 90% of the fair market value at the date of pur-
chase. Employees may purchase shares through cash purchases, loans or payroll
deductions up to certain limits. The aggregate number of shares, which all partici-
pants have the right to purchase under this Plan, is 74,000,000. At August 31,
2006, 6,840,369 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, 2006, 22,938,127 shares were available for future purchases.
Compensation expense related to the Plan was $8.8 million in fiscal 2006, $11.1
million in fiscal 2005 and $8.1 million in fiscal 2004.
The Walgreen Co. Nonemployee Director Stock Plan provides that each nonemployee
director receives an equity grant of shares each year on November 1. Through fiscal
2006, the plan determined the number of shares granted by dividing $80,000 by the
price of a share of common stock on November 1. Beginning with the annual share
grant made on November 1, 2006, the dollar value of the grant has increased to
$100,000, and each nonemployee director may elect to receive this annual share
grant in the form of shares or deferred stock units. During the term of the Plan,
each nonemployee director will also receive 50% 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 defer all or a portion
of the cash component of his or her quarterly retainer, meeting fees and committee
chair retainer 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 1,771 shares in 2006, excluding any new directors which were
prorated. Each nonemployee director received a grant of 2,211 shares in 2005
and 2,298 shares in 2004.
A summary of information relative to the company’s stock option plans follows:
Weighted-
Weighted- Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Options Shares Price Term Value
Outstanding
at August 31, 2005 42,905,655 $29.58
Granted 3,544,433 46.08
Exercised (7,707,687) 22.92
Expired/Forfeited (1,334,954) 31.21
Outstanding
at August 31, 2006 37,407,447 $32.45 5.95 years $636,271,916
Exercisable
at August 31, 2006 22,926,046 $29.03 4.55 years $468,476,226