Walgreens 2010 Annual Report Download - page 38

Notes to Consolidated Financial Statements (continued)
authorized a share repurchase program (2009 repurchase program) and set a
long-term dividend payout ratio target between 30 and 35 percent. The 2009
repurchase program, which was completed in September 2010, allowed for the
repurchase of up to $2,000 million of the Company’s common stock prior to its
expiration on December 31, 2013. Shares totaling $1,640 million were purchased
in conjunction with the 2009 repurchase program during fiscal 2010. On October 13,
2010, the Board of Directors authorized a new share repurchase program (2011 repurchase
program) which allows for the repurchase of up to $1,000 million of the Company’s
common stock prior to its expiration on December 31, 2012. In addition, the Company
continues to repurchase shares to support the needs of the employee stock plans.
Shares totaling $116 million were purchased to support the needs of the employee
stock plans during the current fiscal year as compared to $280 million last year.
At August 31, 2010, 74,459,975 shares of common stock were reserved for future
issuances under the Company’s various employee benefit plans.
12. Stock Compensation Plans
The Walgreen Co. Stock Purchase/Option Plan (Share Walgreens) provides for the
granting of options to purchase common stock over a 10-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. 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, 2010, there were
12,982,618 shares available for future grants. The options granted during fiscal 2010
and 2009 have a three-year vesting period while the options granted during fiscal
2008 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 10-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 13, 2020, for an aggregate of 63,400,000 shares of
common stock. At August 31, 2010, 26,890,772 shares were available for future
grants. The options granted during fiscal 2010, 2009 and 2008 have a three-year
vesting period.
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. 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. At August 31, 2010, 7,744,190 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 make purchases by cash, loans or payroll deductions up to certain
limits. The aggregate number of shares that may be purchased under this Plan is
94,000,000. At August 31, 2010, 19,498,137 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 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. As of August 31, 2010,
7,344,258 shares were available for future issuance under the Long-Term
Performance Incentive Plan. Compensation expense related to the Restricted
Performance Share Plan is recognized on a straight-line basis over the employee’s
vesting period or to the employee’s retirement eligible date, if earlier. Compensation
expense related to the Plan was $3 million in fiscal 2010. This compares to $6 million
in fiscal 2009 and no expense in fiscal 2008.
In fiscal 2009, the Company introduced the Restricted Stock Unit and Performance
Share Plans under the Long-Term Performance Incentive Plan. In accordance with
ASC Topic 718, Compensation — Stock Compensation (formerly SFAS No. 123(R)),
compensation expense is recognized on a straight-line basis based on a three-year
cliff vesting schedule for the annual restricted stock units and straight line over a
three-year vesting schedule for the performance shares. The Company recognized
$18 million and $12 million of expense related to these plans in fiscal years 2010
and 2009, respectively.
The Walgreen Co. Nonemployee Director Stock Plan provides that each nonemployee
director receives an equity grant of shares each year on November 1. Effective
November 1, 2009, the value of the annual stock grant made to directors on each
November 1 increased from $120,000 to $155,000. The number of shares granted
is determined by dividing $155,000 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. Each nonemployee director
received a grant of 4,097 shares in fiscal 2010, 4,713 shares in fiscal 2009 and 3,075
shares in fiscal 2008. New directors in any of the fiscal years were given a prorated
amount. Effective November 1, 2009, the payment of the annual retainer was changed
to be paid only in the form of cash, which may still be deferred. Previously, the annual
retainer was paid one-half in cash and one-half in Walgreen Co. common stock.
A summary 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, 2009 48,533,570 $ 34.35 6.03 $ 143
Granted 7,519,162 34.63
Exercised (4,424,890) 30.22
Expired/Forfeited (2,520,639) 35.02
Outstanding
at August 31, 2010 49,107,203 $ 34.75 6.03 $ 16
Vested or expected to vest
at August 31, 2010 48,486,791 $ 34.81 6.03 $ 16
Exercisable
at August 31, 2010 22,852,753 $ 37.52 3.50 $ —
The intrinsic value for options exercised in fiscal 2010, 2009 and 2008 was $29 million,
$6 million and $42 million, respectively. The total fair value of options vested in fiscal
2010, 2009 and 2008 was $53 million, $56 million and $46 million, respectively.
Cash received from the exercise of options in fiscal 2010 was $134 million compared
to $24 million in the prior year. The related tax benefit realized was $11 million in
fiscal 2010 compared to $2 million in the prior year. The Company has a practice of
repurchasing shares on the open market to satisfy share-based payment arrange-
ments and expects to repurchase approximately four million shares during fiscal 2011.
Page 36 2010 Walgreens Annual Report