Walgreens 2013 Annual Report Download - page 45

Upon shareholder approval of the Omnibus Plan at the Company’s Annual Meeting of
Shareholders on January 9, 2013, a total of 60.4 million shares became available for
delivery under the Omnibus Plan including: (i) 40.0 million newly authorized shares;
(ii) 9.3 million shares previously available for issuance under the former Executive
Stock Option Plan; (iii) 3.2 million shares previously available for issuance under the
former Long-Term Performance Incentive Plan, and (iv) 7.9 million shares previously
available for issuance under the former Broad Based Employee Stock Option Plan.
In addition, in accordance with the Omnibus Plan, shares that are subject to
outstanding awards under the Former Plans and the Share Walgreens Stock Purchase
Plan (Share Walgreens) that subsequently are cancelled, forfeited, lapsed or are
otherwise terminated or settled without a distribution of shares also become available
for awards under the Omnibus Plan.
A summary of the stock options authorized and available for future grants under the
Omnibus Plan and Former Plans follows:
Authorized shares at August 31, 2012 —
Shares available for grants at August 31, 2012 —
Newly authorized options 40,000,000
Shares transferred from Former Plans 20,426,181
Granted (5,642,763)
Cancellation and forfeitures 104,087
Plan termination 1,566,994
Available for future grants at August 31, 2013 56,454,499
A summary of the Company’s stock options outstanding under the Omnibus Plan
and Former Plans follows:
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Shares Price Term (Years) (In millions)
Outstanding
at August 31, 2012 50,035,969 $ 34.18 5.60 $ 175
Granted 8,629,392 35.86
Exercised (14,281,816) 33.07
Expired/Forfeited (3,167,372) 37.13
Outstanding
at August 31, 2013 41,216,173 $ 34.69 6.14 $ 548
Unvested
at August 31, 2013 21,174,374 $ 33.32 8.01 $ 312
Exercisable
at August 31, 2013 19,288,591 $ 36.40 4.04 $ 228
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
2013, 2012 and 2011:
2013 2012 2011
Risk-free interest rate (1) 1.15% 1.73% 2.12%
Average life of option (years) (2) 7.0 7.9 7.2
Volatility (3) 24.94% 27.02% 28.08%
Dividend yield (4) 2.44% 2.90% 1.94%
Weighted-average grant-date fair value $ 6.75 $ 8.08 $ 8.12
(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 2013, 2012 and 2011 was $159 million,
$22 million and $33 million, respectively. The total fair value of options vested in fiscal
2013, 2012 and 2011 was $51 million, $125 million and $58 million, respectively.
Cash received from the exercise of options in fiscal 2013 was $471 million compared
to $89 million in the prior year. The related tax benefit realized was $60 million in fiscal
2013 compared to $8 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 million.
At August 31, 2013, 14.4 million shares were available for future purchase.
Restricted Performance Shares issued under the Omnibus and Former Plans offer
performance-based incentive awards and equity-based awards to key employees.
Restricted Stock Units are also equity-based awards with performance requirements
that are granted to middle managers and key employees. The Restricted Performance
Shares and Restricted Stock Unit awards are both subject to restrictions as to continuous
employment except in the case of death, normal retirement or total and permanent
disability. 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.
A summary of information relative to the Company’s restricted stock units follows:
Weighted-Average
Outstanding Shares Shares Grant-Date Fair Value
Outstanding at August 31, 2012 1,810,551 $ 34.04
Granted 2,600,429 44.07
Dividends 88,921 —
Forfeited (228,406) 37.90
Vested (773,657) 28.68
Outstanding at August 31, 2013 3,497,838 $ 41.57
A summary of information relative to the Company’s performance shares follows:
Weighted-Average
Outstanding Shares Shares Grant-Date Fair Value
Outstanding at August 31, 2012 1,980,027 $ 32.57
Granted 998,020 35.66
Forfeited (170,415) 34.64
Vested (590,022) 35.63
Outstanding at August 31, 2013 2,217,610 $ 32.99
The Company also issues shares to nonemployee directors. Each director receives an
equity grant of shares every year on November 1. The number of shares granted is
determined by dividing $170,000 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. In fiscal 2013, each nonemployee director received a
grant of 4,789 shares compared to 4,788 shares and 4,552 shares in fiscal 2012 and
2011, respectively. New directors in any of the fiscal years earned a prorated amount.
Payment of the annual retainer is paid in the form of cash, which may be deferred.
A summary of total stock-based compensation expense follows (In millions):
2013 2012 2011
Stock options $ 51 $ 62 $ 85
Restricted stock units 33 24 20
Performance share plans 15 7 25
Share Walgreens 5 6 5
$ 104 $ 99 $ 135
15. 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 $342 million in fiscal 2013, $283 million in fiscal 2012 and $382 million
in fiscal 2011. The Company’s contributions were $262 million in fiscal 2013,
$372 million in fiscal 2012 and $322 million in fiscal 2011.
2013 Walgreens Annual Report 43