Walgreens 2007 Annual Report Download - page 33

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, 2007, 14,571,522 shares were available
for future grants. The options granted during fiscal 2007, 2006 and 2005 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 Plan
authorized the grant of options, issued at fair market value on May 11, 2000,
to purchase up to an aggregate of 15,500,000 shares of common stock and
14,891,400 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 Plan authorized the grant of an aggregate of
15,000,000 shares of common stock. As of August 31, 2007, 7,242,755 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 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 deduc-
tions up to certain limits. The aggregate number of shares that may be purchased
under this Plan is 74,000,000. At August 31, 2007, 5,442,611 shares were
available for future purchase.
The Walgreen Co. Long-Term Performance Incentive Plan (amended and restated
Restricted Performance Share Plan) was approved by the shareholders on January
10, 2007. The Plan offers performance-based incentive awards and equity-based
awards to key employees. The fiscal 2007 awards are 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 multiyear period from
the date of grant. The Long-Term Performance Incentive Plan was authorized to
grant an aggregate of 10,000,000 shares of common stock (which constituted a
significant reduction from the then remaining authorized shares under the
Restricted Performance Share Plan). At August 31, 2007, 9,984,200 shares were
available for future issuance under the Long-Term Performance Incentive Plan.
Compensation expense is recognized in the year of grant. Compensation expense
related to the Plan was $11.7 million in fiscal 2007, $8.8 million in fiscal 2006
and $11.1 million in fiscal 2005.
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 year 2007, the Plan determined the number of shares granted by dividing
$100,000 by the price of a share of common stock on November 1. Each nonem-
ployee 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 compen-
sation account. Each nonemployee director received a grant of 2,375 shares
in fiscal 2007, 1,771 shares in fiscal 2006, and 2,211 shares in fiscal 2005.
New directors in any of the fiscal years were given a prorated amount.
Related to our commercial paper program, we maintain two unsecured backup
syndicated lines of credit that total $1.2 billion. The first $600 million facility expires
on August 12, 2008, the second on August 12, 2012. Our ability to access these
facilities is subject to our compliance with the terms and conditions of the credit
facilities, including financial covenants. The covenants require us to maintain certain
financial ratios related to minimum net worth and priority debt, along with limitations
on the sale of assets and purchases of investments. As of August 31, 2007, we were
in compliance with all such covenants. There were no borrowings against the credit
facilities in fiscal 2007. On October 12, 2007, we entered into an additional
$100 million unsecured line of credit facility that expires on December 31, 2007.
This line of credit is subject to similar covenants as the syndicated lines of credit.
The company pays a facility fee to the financing bank to keep this line of credit
facility active.
8. 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.
The company guarantees a credit agreement on behalf of SureScripts, LLC which
provides electronic prescription data services. This credit agreement, for which
SureScripts, LLC is primarily liable, has an expiration date of February 16, 2010.
The liability was $3.3 million at August 31, 2007, compared to no liability at
August 31, 2006. The maximum amount of future payments that could be required
to be paid under the guaranty is $25.0 million, of which $12.5 million may be
recoverable from another guarantor.
9. Capital Stock
On January 10, 2007, the Board of Directors approved a new stock repurchase
program (“2007 repurchase program”), pursuant to which up to $1 billion of the
company’s common stock may be purchased prior to the expiration date of the
program on January 10, 2011. This program was announced in the company’s
report on Form 8-K, which was filed on January 11, 2007. During fiscal 2007,
the company purchased $344.9 million of shares related to the 2007 repurchase
program, with a total remaining authorization under the 2007 repurchase program
of $655.1 million.
On July 14, 2004, the Board of Directors announced a stock repurchase program
(
“ 2004 repurchase program”) of up to $1 billion, which has been completely
executed in three years. During fiscal 2007, the company purchased $343.2 mil-
lion of shares related to the 2004 repurchase program, which compares to
$289.7 million of shares purchased in fiscal 2006. An additional $375.4 million
of shares were purchased to support the long-term needs of the employee stock
plans, which compares to $379.1 million in fiscal 2006.
At August 31, 2007, 68,485,634 shares of common stock were reserved for
future stock issuances under the company’s various employee benefit plans.
10. 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, 2007, there were 31,244,546 shares available
for future grants. The options granted during fiscal 2007, 2006 and 2005 have a
two-year vesting period.
2007 Walgreens Annual Report Page 31