Walgreens 2012 Annual Report Download - page 41

The fair value of each option grant was determined using the Black-Scholes option
pricing model with the following weighted-average assumptions used in fiscal 2012,
2011 and 2010:
2012 2011 2010
Risk-free interest rate (1) 1.73% 2.12% 3.14%
Average life of option (years) (2) 7.9 7.2 7.3
Volatility (3) 27.02% 28.08% 28.01%
Dividend yield (4) 2.90% 1.94% 1.91%
Weighted-average grant-date fair value
Granted at market price $ 8.08 $ 8.12 $ 9.80
(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) Volatility was based on historical and implied volatility of the Company’s common stock.
(4) Represents the Company’s cash dividend for the expected term.
The intrinsic value for options exercised in fiscal 2012, 2011 and 2010 was $22 million,
$33 million and $29 million, respectively. The total fair value of options vested in fiscal
2012, 2011 and 2010 was $125 million, $58 million and $53 million, respectively.
Cash received from the exercise of options in fiscal 2012 was $89 million compared to
$147 million in the prior year. The related tax benefit realized was $8 million in fiscal
2012 compared to $14 million in the prior year.
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, 2012, 16,610,192 shares were available
for future purchase.
The Walgreen Co. Long-Term Performance Incentive Plan (amended and restated
Restricted Performance Share Plan) was approved by 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, 2012, 4,982,447 shares
were available for future issuance under the Long-Term Performance Incentive Plan.
In accordance with ASC Topic 718, Compensation – Stock Compensation, compensation
expense is recognized on a straight-line basis over the employee’s vesting period
or to the employee’s retirement eligible date, if earlier.
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, 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.
A summary of information relative to the Company’s restricted stock awards follows:
Weighted-Average
Nonvested Shares Shares Grant-Date Fair Value
Nonvested at August 31, 2011 48,046 $ 36.13
Granted — —
Forfeited (3,690) 36.43
Vested (31,355) 36.02
Nonvested at August 31, 2012 13,001 $ 36.33
A summary 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, 2011 1,911,237 $ 33.94
Granted 936,499 36.60
Dividends 64,986 —
Forfeited (245,033) 33.01
Vested (857,138) 34.95
Outstanding at August 31, 2012 1,810,551 $ 34.04
A summary of information relative to the Company’s performance share plan follows:
Weighted-Average
Outstanding Shares Shares Grant-Date Fair Value
Outstanding at August 31, 2011 1,819,668 $ 31.83
Granted 689,605 35.61
Forfeited (215,948) 31.76
Vested (313,298) 35.52
Outstanding at August 31, 2012 1,980,027 $ 32.57
The Walgreen Co. Nonemployee Director Stock Plan provides that each nonemployee
director receives an equity grant of shares each year on November 1. 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 4,788 shares in fiscal 2012, 4,552 shares in fiscal 2011 and 4,097 shares
in fiscal 2010. New directors in any of the fiscal years earned 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 total stock-based compensation expense follows:
2012 2011 2010
Stock options $ 62 $ 85 $ 78
Restricted stock units 24 20 13
Performance share plans 7 25 6
Employee stock purchase plan 6 5 5
$ 99 $ 135 $ 102
14. Retirement Benefits
The principal retirement plan for employees is the Walgreen Profit-Sharing Retirement
Trust, to which both the Company and participating employees contribute.
The Company’s contribution, which has historically related to FIFO earnings before
interest and taxes and a portion of which is in the form of a guaranteed match, is
determined annually at the discretion of the Board of Directors. The profit-sharing
provision was $283 million in fiscal 2012, $382 million in fiscal 2011 and
$300 million in fiscal 2010. The Company’s contributions were $372 million
in fiscal 2012, $322 million in fiscal 2011 and $293 million in fiscal 2010.
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 service life of the employee.
In fiscal 2012, the Company amended its prescription drug program for certain
Medicare-eligible retirees to a group-based Company sponsored Medicare Part D
program, or employer group waiver program, effective January 1, 2013.
The Company’s postretirement health benefit plan is not funded.
2012 Walgreens Annual Report 39