Walgreens 2007 Annual Report Download - page 25

Contractual Obligations and Commitments
The following table lists our contractual obligations and commitments at August 31, 2007 (In Millions):
Payments Due by Period
Less Than
Total 1 Year 1–3 Years 3–5 Years Over 5 Years
Operating leases
(1) $ 28,710.5 $1,609.9 $3,365.5 $ 3,292.1 $20,443.0
Purchase obligations (2) :
Open inventory purchase orders 1,591.8 1,591.8 — — —
Real estate development 980.4 978.8 1.6 — —
Other corporate obligations 619.8 283.9 262.1 37.5 36.3
Insurance* 482.9 144.2 112.8 61.1 164.8
Retiree health* 370.0 8.4 20.5 25.5 315.6
Closed location obligations* 67.1 18.2 20.7 12.3 15.9
Capital lease obligations* 39.7 1.2 2.3 2.7 33.5
Other long-term liabilities reflected on the balance sheet* 564.4 45.3 72.5 56.0 390.6
Total $ 33,426.6 $4,681.7 $3,858.0 $ 3,487.2 $21,399.7
* Recorded on balance sheet.
(1) Amounts for operating leases and capital leases do not include certain operating expenses under these leases such as common area maintenance, insurance and
real estate taxes. These expenses for the company’s most recent fiscal year were $255.6 million.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including
open purchase orders.
Off-Balance Sheet Arrangements
Letters of credit are issued to support purchase obligations and commitments
(as reflected on the Contractual Obligations and Commitments table) as follows
(In Millions) :
Inventory obligations $ 76.9
Real estate development 12.2
Insurance 276.8
Total $ 365.9
We have no other off-balance sheet arrangements other than those disclosed
on the Contractual Obligations and Commitments table and a credit agreement
guaranty on behalf of SureScripts, LLC. This agreement is described more fully
in Note 8 in the Notes to Consolidated Financial Statements.
Both on-balance sheet and off-balance sheet financing are considered when
targeting debt to equity ratios to balance the interests of equity and debt
(including real estate) investors. This balance allows us to lower our cost of capital
while maintaining a prudent level of financial risk.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109.” This interpretation clarifies the
accounting and disclosure for uncertain income tax positions, including how income
tax positions should be reflected in the financial statements before they are resolved
with the tax authorities. This interpretation will be effective first quarter of fiscal
2008. Had this pronouncement been effective as of August 31, 2007, the adjustment
to Retained Earnings would have been immaterial.
In September 2006, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 157, “Fair Value Measurements.” This statement defines and provides
guidance when applying fair value measurements to accounting pronouncements
that require or permit such measurements. This statement, which will be effective
first quarter of fiscal 2009, is not expected to have a material impact on our
consolidated financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This statement gives entities the option
to carry most financial assets and liabilities at fair value, with changes in fair value
recorded in earnings. We are currently evaluating whether we intend to adopt this
voluntary statement, which would be effective first quarter of fiscal 2009.
In June 2007, the Emerging Issues Task Force (EITF) reached a consensus on Issue
No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards.” EITF 06-11 states that an entity should recognize a realized tax
benefit associated with dividends on certain nonvested equity shares and options as
an increase in additional paid-in capital. The benefit should be included in the pool
of excess tax benefits available to absorb potential future tax liabilities. This issue
should be applied prospectively for share-based awards declared beginning in fiscal
2009. The company does not expect the adoption of EITF 06-11 to have a material
impact on its consolidated financial position or results of operations.
Cautionary Note Regarding Forward-Looking Statements
Certain statements and projections of future results made in this report constitute
forward-looking information that is based on current market, competitive and
regulatory expectations that involve risks and uncertainties. Please see Walgreen
Co.’s Form 10-K for the period ended August 31, 2007, for a discussion of
important factors as they relate to forward-looking statements. Actual results
could differ materially.
2007 Walgreens Annual Report Page 23