Walgreens 2008 Annual Report Download - page 34

District of Illinois. The suit was filed on behalf of purchasers of company common stock
during the period between June 25, 2007, and November 29, 2007. The complaint
charges the company and its Chief Executive Officer and Chief Operating Officer with
violations of Section 10(b) of the Securities Exchange Act of 1934, claiming that the
company misled investors by failing to disclose declining rates of growth in generic
drug sales and a contract dispute with a pharmacy benefits manager that allegedly
had a negative impact on earnings. The company and the officers named in the suit
believe the allegations are without merit, and intend to defend against them vigorously.
Management is of the opinion that although the outcome of these and other
litigation and investigations cannot be forecast with certainty, the final dispositions
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-RxHub, LLC,
which provides electronic prescription data services. This credit agreement, for which
SureScripts-RxHub, LLC is primarily liable, has an expiration date of June 30, 2011.
The liability was $8 million at August 31, 2008, and $3 million at August 31, 2007.
The maximum amount of future payments that could be required to be paid
under the guaranty is $25 million, of which $13 million may be recoverable from
another guarantor. In addition, under certain circumstances the company may be
required to provide an additional guarantee of up to $10 million, of which $8 million
may be recoverable from other guarantors.
8. Capital Stock
On January 10, 2007, the Board of Directors approved a new stock repurchase
program (“2007 repurchase program”), pursuant to which up to $1,000 million 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 2008, the
company purchased no shares related to the 2007 repurchase program, compared
to $345 million of shares purchased in 2007.
On July 14, 2004, the Board of Directors announced a stock repurchase program
(“2004 repurchase program”) of up to $1,000 million, which has been completely
executed. The company purchased $343 million of shares related to the 2004
repurchase program in fiscal 2007. An additional $294 million of shares were
purchased to support the long-term needs of the employee stock plans, which
compares to $375 million in fiscal 2007.
At August 31, 2008, 62,301,790 shares of common stock were reserved for
future stock issuances under the company’s various employee benefit plans.
9. 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, 2008, there were 30,997,441 shares available
for future grants. The options granted during fiscal 2008, 2007 and 2006 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, 2008, 10,849,029 shares
were available for future grants. The options granted during fiscal 2008, 2007
and 2006 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 14,892,200 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 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. The Plan authorized the grant of an aggregate of 15,000,000
shares of common stock. As of August 31, 2008, 7,407,510 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 deductions
up to certain limits. The aggregate number of shares that may be purchased under
this Plan is 74,000,000. At August 31, 2008, 3,242,237 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, 2008, 9,805,573 shares were available for
future issuance under the Long-Term Performance Incentive Plan. Compensation
expense is recognized in the year of grant. There was no compensation expense
related to the Plan in fiscal 2008, compared to $12 million in fiscal 2007 and
$9 million in fiscal 2006.
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 2008, the Plan determined the number of shares granted by dividing $120,000
by the price of a share of common stock on November 1. 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 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 3,075 shares in fiscal 2008, 2,375 shares in fiscal 2007 and 1,771 shares in
fiscal 2006. New directors in any of the fiscal years were given a prorated amount.
Notes to Consolidated Financial Statements (continued)
Page 32 2008 Walgreens Annual Report