Walgreens 2008 Annual Report Download - page 33

In fiscal 2008 and 2007 the company issued commercial paper to support working
capital needs. The short-term borrowings under the commercial paper program
had the following characteristics (In millions):
2008 2007
Balance outstanding at fiscal year-end $70 $850
Maximum outstanding at any month-end 1,170 850
Average daily short-term borrowings 680 32
Weighted-average interest rate 2.10% 5.36%
The carrying value of the commercial paper approximates the fair value in both
fiscal years.
In connection with our commercial paper program, we maintained two unsecured
backup syndicated lines of credit that total $1,200 million. The first $600 million
facility expires on August 10, 2009; the second expires 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. On October 12, 2007, we entered into an additional $100 million
unsecured line of credit facility and on November 30, 2007, that credit facility was
amended and increased to include an additional $200 million, for a total of $300
million unsecured credit. That facility expired on December 31, 2007. On May 15,
2008, we entered into an additional $500 million unsecured line of credit facility.
That facility expired on July 31, 2008. These lines of credit were subject to similar
covenants as the syndicated lines of credit. The company pays a facility fee to the
financing bank to keep the line of credit facility active. As of August 31, 2008,
there have been no borrowings against the credit facilities.
On July 17, 2008, we issued notes totaling $1,300 million bearing an interest rate
of 4.875% paid semiannually in arrears on February 1 and August 1 of each year,
beginning on February 1, 2009. The notes will mature on August 1, 2013. We may
redeem the notes, at any time in whole or from time to time in part, at our option
at a redemption price equal to the greater of: (1) 100% of the principal amount of
the notes to be redeemed; or (2) the sum of the present values of the remaining
scheduled payments of principal and interest thereon (not including any portion of
such payments of interest accrued as of the date of redemption), discounted to the
date of redemption on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate, plus 30 basis points, plus accrued
interest on the notes to be redeemed to, but excluding, the date of redemption.
If a change of control triggering event occurs, unless we have exercised our option
to redeem the notes, we will be required to offer to repurchase the notes at a
purchase price equal to 101% of the principal amount of the notes plus accrued
and unpaid interest to the date of purchase. The notes will be unsecured senior
debt obligations and will rank equally with all other unsecured senior indebtedness.
The notes are not convertible or exchangeable. Total issuance costs relating to this
offering were $9 million, which included $8 million in underwriting fees. The fair
value of the notes as of August 31, 2008, was $1,307 million.
7. 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 this judgment.
In addition, on April 16, 2008, the Plumbers and Steamfitters Local No. 7 Pension
Fund filed a putative class action suit against the company and its Chief Executive
Officer and Chief Operating Officer in the United States District Court for the Northern
The following table provides a reconciliation of the total amounts of unrecognized
tax benefits for fiscal 2008 (In millions):
Balance at September 1, 2007 $55
Gross increases related to tax positions in a prior period 7
Gross decreases related to tax positions in a prior period (21)
Gross increases related to tax positions in the current period 28
Settlements with taxing authorities (3)
Lapse of statute of limitations (2)
Balance at August 31, 2008 $64
At September 1, 2007, and August 31, 2008, $23 million and $27 million,
respectively, of unrecognized tax benefits would favorably impact the effective
tax rate if recognized.
We recognize interest and penalties in income tax provision in our consolidated
statements of earnings. At September 1, 2007, and August 31, 2008, we had
accrued interest and penalties of $8 million and $12 million, respectively.
We file a consolidated U.S. federal income tax return, as well as income tax returns
in various states. We are no longer subject to U.S. federal income tax examinations
for years before fiscal 2006. With few exceptions, we are no longer subject to state
and local income tax examinations by tax authorities for years before fiscal 2003.
During the second quarter, we reached an agreement with the Internal Revenue
Service (IRS) on fiscal years 2004 and 2005 resulting in a $7 million refund primarily
arising from the carry back of foreign tax credits. During June, the IRS commenced
its examination of our federal income tax returns for fiscal 2006 and 2007.
It is reasonably possible that the amount of the unrecognized tax benefit with
respect to certain unrecognized tax positions will increase or decrease during the
next 12 months; however, we do not expect the change to have a material effect
on our results of operations or our financial position.
6. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consists of the following at August 31
(In millions):
2008 2007
Short-Term Borrowings –
Commercial paper $70 $ 850
Current maturities of loans assumed through
the purchase of land and buildings; various
interest rates from 3.50% to 8.75%;
various maturities from 2009 to 2035 86
Other 528
Total short-term borrowings $83 $ 884
Long-Term Debt –
4.875% unsecured notes due 2013 net of
unamortized discount $1,295 $—
Loans assumed through the purchase of land
and buildings; various interest rates from
3.50% to 8.75%; various maturities from
2009 to 2035 50 28
1,345 28
Less current maturities (8) (6)
Total long-term debt $1,337 $22
2008 Walgreens Annual Report Page 31