Walgreens 2009 Annual Report Download - page 37

2009 Walgreens Annual Report Page 35
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
4,713 shares in fiscal 2009, 3,075 shares in fiscal 2008 and 2,375 shares in fiscal
2007. New directors in any of the fiscal years were given a prorated amount.
Asummary of information relative to the Company’s stock option plans follows:
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term (Years) (In millions)
Outstanding
at August 31, 2008 34,982,563 $37.03 5.37 $ 92
Granted 16,815,471 28.38
Exercised (984,747) 24.45
Expired/Forfeited (2,279,717) 35.29
Outstanding
atAugust 31, 2009 48,533,570 $34.35 6.03 $143
Vested or expected to vest
at August 31, 2009 47,957,435 $30.47 6.00 $140
Exercisable
at August 31, 2009 25,530,759 $34.91 3.66 $ 42
The intrinsic value for options exercised in fiscal 2009, 2008 and 2007 was $6 million,
$42 million and $105 million, respectively. The total fair value of options vested in fiscal
2009, 2008 and 2007 was $56 million, $46 million and $102 million, respectively.
Cash received from the exercise of options in fiscal 2009 was $24 million compared
to $94 million in the prior year. The related tax benefit realized was $2 million in fiscal
2009 compared to $16 million in the prior year. The Company has a practice of repur-
chasing shares on the open market to satisfy share-based payment arrangements
and expects to repurchase approximately four million shares during fiscal 2010.
Asummary of information relative to the Company’s restricted stock awards follows:
Weighted-Average
Nonvested Shares Shares Grant-Date Fair Value
Nonvested at August 31, 2008 317,410 $40.72
Granted ——
Forfeited (8,261) 44.25
Vested (122,870) 42.49
Nonvested at August 31, 2009 186,279 $39.39
Asummary of information relative to the Company’s restricted stock unit plan follows:
Weighted-Average
Outstanding Shares Shares Grant-Date Fair Value
Outstanding at August 31, 2008 — $ —
Granted 552,757 34.35
Forfeited (78,096) 33.96
Vested (19,571) 27.25
Outstanding at August 31, 2009 455,090 $34.72
Asummary of information relative to the Company’s performance share plan follows:
Weighted-Average
Outstanding Shares Shares Grant-Date Fair Value
Outstanding at August 31, 2008 — $ —
Granted 552,275 36.43
Forfeited (101,727) 36.43
Vested ——
Outstanding at August 31, 2009 450,548 $36.43
The fair value of each option grant was determined using the Black-Scholes
option pricing model with weighted-average assumptions used in fiscal 2009,
2008 and 2007:
2009 2008 2007
Risk-free interest rate (1) 3.47% 4.41% 4.71%
Average life of option (years) (2) 6.8 7.2 7.2
Volatility (3) 34.00% 27.61% 25.77%
Dividend yield (4) 2.30% .81% .50%
Weighted-average grant-date fair value
Granted atmarket price $9.14 $16.11 $18.05
(1) Represents the U.S. Treasury security rates for the expected term of the option.
(2) Represents the period of time that options granted are expected to be outstanding.
The Company analyzed separate groups of employees with similar exercise behavior
to determine the expected term.
(3) Beginning with fiscal 2007, volatility was based on historical and implied volatility
of the Company’s common stock.
(4) Represents the Company’scash dividend for the expected term.
14. Retirement Benefits
The principal retirement plan for employees is the Walgreen Profit-Sharing Retirement
Plan, to which both the Companyand the employees contribute. The Company’s
contribution, which is determined annually at the discretion of the Board of Directors,
has historically been based on pre-tax income; however, beginning January 1, 2008,
aportion of thatcontribution will be in the form of a guaranteed match. The profit-
sharing provision was $282 million in 2009, $305 million in 2008 and $284 million
in 2007. The Company’s contributions were $301 million for 2009, $261 million for
2008 and $253 million for 2007.
The Company provides certain health insurance benefits for retired employees who
meet eligibility requirements, including age, years of service and date of hire. The
costs of these benefits are accrued over the period earned. The Company’spostretire-
ment health benefit plans are not funded. In May 2009, we amended the Company’s
postretirement health benefit plans to change the eligibility requirements. As a result
of this amendment, we recognized curtailment income of $16 million during fiscal
2009. In addition, the Company recognized a special retirement benefit expense of
$4 million related to accelerating eligibility for certain employees who elected special
early retirement as a part of our initiative to enhance shareholder value.
Components of net periodic benefit costs (In millions):
2009 2008 2007
Service cost $12 $14 $14
Interest cost 26 24 22
Amortization of actuarial loss 455
Amortization of prior service cost (6) (4) (4)
Special retirement benefit expense 4——
Curtailment income (16) ——
Total postretirement benefit cost $24 $39 $37