Quarterly Report
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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FOR
THE QUARTER ENDED NOVEMBER 30, 2008
OR
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|
¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _______to _______
Commission
File Number
1-604
WALGREEN
CO.
(Exact
name of registrant as specified in its charter)
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Illinois
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36-1924025
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(State
of Incorporation)
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(I.R.S.
Employer Identification No.)
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200 Wilmot Road, Deerfield,
Illinois
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60015
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(Address
of principal executive offices)
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(Zip
Code)
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(847)
914-2500
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
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Yes
þ
No
¨
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of "large accelerated filer”, “accelerated
filer" and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer
þ
Accelerated
Filer
¨
Non-accelerated
filer
¨
(Do
not check if a smaller reporting
company) Smaller
reporting company
¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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Yes
¨
No
þ
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The
number of shares outstanding of the registrant's Common Stock, $.078125 par
value, as of November 30, 2008 was 986,744,871.
WALGREEN
CO.
FORM
10-Q FOR THE QUARTER ENDED NOVEMBER 30, 2008
TABLE OF
CONTENTS
PART
I. FINANCIAL
INFORMATION
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Item
1.
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Consolidated
Condensed Financial Statements (Unaudited)
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||
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a)
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Balance
Sheets
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||
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b)
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Statements
of Earnings
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c)
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Statements
of Cash Flows
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d)
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Notes
to Financial Statements
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||
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Item
2.
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Management’s
Discussion and Analysis of Results of Operations and Financial
Condition
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||
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Item
3.
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Qualitative
and Quantitative Disclosure about Market Risk
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Item
4.
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Controls
and Procedures
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PART
II. OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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Item
6.
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Exhibits
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PART
1. FINANCIAL INFORMATION
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Item
1.
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WALGREEN
CO. AND SUBSIDIARIES CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
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The
consolidated condensed financial statements included herein have been prepared
by the company pursuant to the rules and regulations of the Securities and
Exchange Commission. The Consolidated Condensed Balance Sheets as of
November 30, 2008, August 31, 2008 and November 30, 2007, the Consolidated
Condensed Statements of Earnings for the three months ended November 30, 2008
and 2007, and the Consolidated Condensed Statements of Cash Flows for the three
months ended November 30, 2008 and 2007, have been prepared without
audit. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the company's latest annual report on Form
10-K.
In the
opinion of the company, the consolidated condensed statements for the unaudited
interim periods presented include all adjustments, consisting of normal
recurring adjustments, necessary to present a fair statement of the results for
such interim periods. Because of the influence of certain holidays,
seasonal and other factors on the company's operations, net earnings for any
interim period may not be comparable to the same interim period in previous
years or necessarily indicative of earnings for the full year.
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WALGREEN
CO. AND SUBSIDIARIES
|
||||||||||||
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CONSOLIDATED
CONDENSED BALANCE SHEETS
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||||||||||||
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(UNAUDITED)
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||||||||||||
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(In
millions, except per share amounts)
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||||||||||||
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November
30,
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August
31,
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November
30,
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||||||||||
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2008
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2008
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2007
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||||||||||
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Assets
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||||||||||||
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Current
Assets:
|
||||||||||||
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Cash
and cash equivalents
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$ | 886 | $ | 443 | $ | 295 | ||||||
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Accounts
receivable, net
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2,776 | 2,527 | 2,247 | |||||||||
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Inventories
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8,298 | 7,249 | 7,553 | |||||||||
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Other
current assets
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199 | 214 | 240 | |||||||||
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Total
Current Assets
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12,159 | 10,433 | 10,335 | |||||||||
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Non-Current
Assets:
|
||||||||||||
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Property
and equipment, at cost, less accumulated depreciation and
amortization
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10,150 | 9,775 | 8,502 | |||||||||
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Goodwill
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1,433 | 1,438 | 1,066 | |||||||||
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Other
non-current assets
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771 | 764 | 573 | |||||||||
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Total
Non-Current Assets
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12,354 | 11,977 | 10,141 | |||||||||
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Total
Assets
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$ | 24,513 | $ | 22,410 | $ | 20,476 | ||||||
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Liabilities
& Shareholders' Equity
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||||||||||||
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Current
Liabilities:
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||||||||||||
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Short-term
borrowings
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$ | 1,080 | $ | 83 | $ | 1,176 | ||||||
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Trade
accounts payable
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5,026 | 4,289 | 4,107 | |||||||||
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Accrued
expenses and other liabilities
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2,246 | 2,272 | 2,085 | |||||||||
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Income
taxes
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144 | - | 178 | |||||||||
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Total
Current Liabilities
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8,496 | 6,644 | 7,546 | |||||||||
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Non-Current
Liabilities:
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||||||||||||
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Long-term
debt
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1,337 | 1,337 | 20 | |||||||||
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Deferred
income taxes
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154 | 150 | 107 | |||||||||
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Other
non-current liabilities
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1,395 | 1,410 | 1,313 | |||||||||
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Total
Non-Current Liabilities
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2,886 | 2,897 | 1,440 | |||||||||
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Shareholders'
Equity:
|
||||||||||||
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Preferred
stock $.0625 par value; authorized 32 million shares, none
issued
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- | - | - | |||||||||
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Common
stock $.078125 par value; authorized 3.2 billion shares; issued
1,025,400,000 at November 30, 2008, August 31, 2008 and November 30,
2007
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80 | 80 | 80 | |||||||||
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Paid-in
capital
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593 | 575 | 569 | |||||||||
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Employee
stock loan receivable
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(47 | ) | (36 | ) | (58 | ) | ||||||
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Retained
earnings
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14,088 | 13,792 | 12,390 | |||||||||
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Accumulated
other comprehensive income (loss)
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9 | 9 | (4 | ) | ||||||||
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Treasury
stock, at cost; 38,655,129 shares at November 30, 2008, 36,223,782 at
August 31, 2008 and 34,019,636 at November 30, 2007
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(1,592 | ) | (1,551 | ) | (1,487 | ) | ||||||
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Total
Shareholders' Equity
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13,131 | 12,869 | 11,490 | |||||||||
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Total
Liabilities & Shareholders' Equity
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$ | 24,513 | $ | 22,410 | $ | 20,476 | ||||||
The
accompanying Notes to Consolidated Condensed Financial
Statements
are an integral part of these Statements.
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WALGREEN
CO. AND SUBSIDIARIES
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||||||||
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CONSOLIDATED
CONDENSED STATEMENTS OF EARNINGS
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||||||||
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(UNAUDITED)
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||||||||
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(In
millions, except per share amounts)
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||||||||
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Three
Months Ended November 30,
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||||||||
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2008
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2007
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|||||||
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Net
sales
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$ | 14,947 | $ | 14,028 | ||||
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Cost
of sales
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10,796 | 10,107 | ||||||
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Gross
profit
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4,151 | 3,921 | ||||||
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Selling,
general and administrative expenses
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3,482 | 3,193 | ||||||
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Operating
income
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669 | 728 | ||||||
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Interest
expense, net
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15 | - | ||||||
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Earnings
before income tax provision
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654 | 728 | ||||||
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Income
tax provision
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246 | 272 | ||||||
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Net
earnings
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$ | 408 | $ | 456 | ||||
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Net
earnings per common share – basic
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$ | .41 | $ | .46 | ||||
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Net
earnings per common share – diluted
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$ | .41 | $ | .46 | ||||
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Dividends
declared
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$ | .1125 | $ | .0950 | ||||
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Average
shares outstanding
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988.6 | 991.3 | ||||||
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Dilutive
effect of stock options
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1.6 | 6.2 | ||||||
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Average
shares outstanding assuming dilution
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990.2 | 997.5 | ||||||
The
accompanying Notes to Consolidated Condensed Financial
Statements
are an integral part of these Statements.
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WALGREEN
CO. AND SUBSIDIARIES
|
||||||||
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CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
|
||||||||
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(UNAUDITED)
|
||||||||
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(In
millions)
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||||||||
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Three
Months Ended November 30,
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||||||||
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2008
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2007
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|||||||
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Cash Flows from Operating
Activities
:
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||||||||
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Net
earnings
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$ | 408 | $ | 456 | ||||
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Adjustments
to reconcile net earnings to net cash provided by operating activities
-
|
||||||||
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Depreciation
and amortization
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236 | 195 | ||||||
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Deferred
income taxes
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16 | (72 | ) | |||||
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Stock
compensation expense
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32 | 31 | ||||||
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Income
tax savings from employee stock plans
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- | 1 | ||||||
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Other
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4 | 3 | ||||||
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Changes
in operating assets and liabilities -
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||||||||
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Accounts
receivable, net
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(313 | ) | (158 | ) | ||||
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Inventories
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(1,036 | ) | (753 | ) | ||||
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Other
assets
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15 | (9 | ) | |||||
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Trade
accounts payable
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736 | 373 | ||||||
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Accrued
expenses and other liabilities
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21 | 2 | ||||||
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Income
taxes
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210 | 322 | ||||||
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Other
non-current liabilities
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(17 | ) | (1 | ) | ||||
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Net
cash provided by operating activities
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312 | 390 | ||||||
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Cash Flows from Investing
Activities
:
|
||||||||
|
Additions
to property and equipment
|
(638 | ) | (490 | ) | ||||
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Proceeds
from sale of assets
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15 | 5 | ||||||
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Business
and intangible asset acquisitions, net of cash received
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(61 | ) | (48 | ) | ||||
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Net
proceeds from corporate-owned life insurance policies
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- | 2 | ||||||
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Net
cash used for investing activities
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(684 | ) | (531 | ) | ||||
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Cash Flows from Financing
Activities
:
|
||||||||
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Net
proceeds from short-term borrowings
|
998 | 317 | ||||||
|
Payments
of debt
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- | (29 | ) | |||||
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Stock
purchases
|
(99 | ) | (78 | ) | ||||
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Proceeds
related to employee stock plans
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32 | 68 | ||||||
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Cash
dividends paid
|
(111 | ) | (94 | ) | ||||
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Other
|
(5 | ) | (3 | ) | ||||
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Net
cash provided by financing activities
|
815 | 181 | ||||||
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Changes in Cash and Cash
Equivalents
:
|
||||||||
|
Net
increase in cash and cash equivalents
|
443 | 40 | ||||||
|
Cash
and cash equivalents at September 1
|
443 | 255 | ||||||
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Cash
and cash equivalents at November 30
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$ | 886 | $ | 295 | ||||
The
accompanying Notes to Consolidated Condensed Financial
Statements
are an integral part of these Statements.
WALGREEN
CO. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) The
consolidated condensed financial statements include the accounts of the company
and its subsidiaries. All intercompany transactions have been
eliminated. The consolidated condensed financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America and include amounts based on management’s prudent
judgments and estimates. Actual results may differ from these
estimates. For a complete discussion of all our significant
accounting policies please see our 2008 annual report on Form 10-K.
The
November 30, 2007 balance sheet reflects the reclassification of debt, which was
previously condensed within the accrued expenses and other liabilities line and
other non-current liabilities line. In addition, software development
costs were reclassified from other non-current assets to property and
equipment.
(2)
Inventories are valued on a lower of last-in, first-out (LIFO) cost or market
basis. At November 30, 2008, August 31, 2008 and November 30, 2007,
inventories would have been greater by $1,110 million, $1,067 million and $996
million respectively, if they had been valued on a lower of first-in, first-out
(FIFO) cost or market basis. LIFO inventory costs can only be
determined annually when inflation rates and inventory levels are finalized;
therefore, LIFO inventory costs for interim financial statements are estimated.
Inventory includes product cost, inbound freight, warehousing costs and vendor
allowances not included as a reduction of advertising expense.
(3) 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 is determined annually
at the discretion of the Board of Directors, has historically related to pre-tax
income; however, beginning January 1, 2008, a portion of that contribution will
be in the form of a guaranteed match. The profit-sharing provision
was $58 million for the first quarter compared to $65 million last
year. The company made no cash or other contributions during the
first quarter of fiscal 2009 or 2008.
(4) The
company granted 16 million and 4 million stock options under the Walgreen Co.
Executive Stock Option Plan and the Walgreen Co. Stock Purchase/Option Plan
(Share Walgreens) for the quarters ended November 30, 2008 and 2007,
respectively. Total stock-based compensation expense was $32 million for the
quarter ended November 30, 2008 compared to $31 million last year. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R),
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. For the quarters ended November 30, 2008 and 2007, the
company fully recognized retiree eligible expense of $14 million and $16
million, respectively. Therefore, the compensation expense for the
quarters ended November 30, 2008 and 2007 are not representative of the
compensation expense for the entire fiscal year. There have been no
material changes in the assumptions used to compute compensation expense during
the current quarter.
The
company granted 0.5 million restricted stock units under the new Walgreen Co.
Restricted Stock Unit Award Program and 0.5 million performance shares under the
new Walgreen Co. Performance Share Program for the quarter ended November 30,
2008. In accordance with SFAS No. 123(R), compensation expense is
recognized on a straight line basis based on a three year cliff vesting schedule
for the Restricted Stock Unit Award Program and straight line over a three year
vesting schedule for the Performance Share Program. For the quarter
ended November 30, 2008 the company recognized $5 million of expense related to
these new plans.
(5) 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's postretirement health benefit plans are not funded.
|
Three
Months Ended November 30,
|
||||||||
|
Components of Net Periodic Benefit Costs (In
millions)
|
2008
|
2007
|
||||||
|
Service
cost
|
$ | 3 | $ | 4 | ||||
|
Interest
cost
|
7 | 6 | ||||||
|
Amortization
of actuarial loss
|
1 | 1 | ||||||
|
Amortization
of prior service cost
|
(1 | ) | (1 | ) | ||||
|
Total
postretirement benefit cost
|
$ | 10 | $ | 10 | ||||
(6) 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 $9 million at
November 30, 2008, $8 million at August 31, 2008 and $5 million at November 30,
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. This guarantee arose as a result of a business decision
between parties to ensure that the operations of SureScripts-RxHub, LLC would
have additional support to access financing. Should
SureScripts-RxHub, LLC default or become unable to pay their debts, the company
would be required to fulfill our portion of this guarantee.
(7)
The dilutive effect of
outstanding stock options on earnings per share is calculated using the treasury
stock method. Stock options are anti-dilutive and excluded from the
earnings per share calculation if the exercise price exceeds the average market
price of the common shares for the periods presented. At November 30,
2008 and 2007, outstanding options to purchase common shares of 49,251,284 and
11,011,274 were excluded from the calculation.
(8)
Short-term borrowings and long-term debt consists of the following at November
30 (in millions):
|
2008
|
2007
|
|||||||
|
Short-Term
Borrowings -
|
||||||||
|
Commercial
paper
|
$ | 1,068 | $ | 1,167 | ||||
|
Current
maturities of loans assumed through the purchase of land and buildings;
various interest rates from 3.50% to 8.75%; various maturities from 2009
to 2035
|
8 | 9 | ||||||
|
Other
|
4 | - | ||||||
|
Total
short-term borrowings
|
$ | 1,080 | $ | 1,176 | ||||
|
Long-Term
Debt -
|
||||||||
|
4.875%
unsecured notes due 2013 net of unamortized discount
|
$ | 1,295 | $ | - | ||||
|
Loans
assumed through the purchase of land and buildings; various interest rates
from 3.50% to 8.75%; various maturities from 2009 to 2035
|
50 | 29 | ||||||
| 1,345 | 29 | |||||||
|
Less
current maturities
|
(8 | ) | (9 | ) | ||||
|
Total-long
term debt
|
$ | 1,337 | $ | 20 | ||||
In fiscal
2009 and 2008 the company issued commercial paper to support working capital
needs. The short-term borrowings under the commercial paper program had the
following characteristics at November 30 (in millions):
|
2008
|
2007
|
|||||||
|
Balance
outstanding at end of period
|
$ | 1,068 | $ | 1,167 | ||||
|
Maximum
outstanding at any month-end
|
1,068 | 1,167 | ||||||
|
Average
daily short-term borrowings
|
641 | 797 | ||||||
|
Weighted-average
interest rate
|
1.80 | % | 4.57 | % | ||||
The
carrying value of the commercial paper approximates the fair value in both
fiscal years.
In
connection with our commercial paper program, we maintained two unsecured backup
syndicated lines of credit that total $1,200 million. The first $600
million facility expires on August 10, 2009; the second expires on August 12,
2012. Our ability to access these facilities is subject to our
compliance with the terms and conditions of the credit facilities, including
financial covenants. The covenants require us to maintain certain
financial ratios related to minimum net worth and priority debt, along with
limitations on the sale of assets and purchases of investments. On
October 12, 2007, we entered into an additional $100 million unsecured line of
credit facility and on November 30, 2007, that credit facility was amended and
increased to include an additional $200 million, for a total of $300 million
unsecured credit. That facility expired on December 31,
2007. On May 15, 2008, we entered into an additional $500 million
unsecured line of credit facility. That facility expired on July 31,
2008. These lines of credit were subject to similar covenants as the
syndicated lines of credit. The company pays a facility fee to the
financing bank to keep the line of credit facility active. As of
November 30, 2008, there have been no borrowings against the credit
facilities. On December 9, 2008, we entered into an additional $175
million line of credit that expires on December 31, 2008.
On July
17, 2008, we issued notes totaling $1,300 million bearing an interest rate of
4.875% paid semiannually in arrears on February 1 and August 1 of each
year, beginning on February 1, 2009. The notes will mature on
August 1, 2013. We may redeem the notes, at any time in whole or from time
to time in part, at our option at a redemption price equal to the greater of:
(1) 100% of the principal amount of the notes to be redeemed; or
(2) the sum of the present values of the remaining scheduled payments of
principal and interest thereon (not including any portion of such payments of
interest accrued as of the date of redemption), discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate, plus 30 basis points, plus accrued interest
on the notes to be redeemed to, but excluding, the date of
redemption. If a change of control triggering event occurs, unless we
have exercised our option to redeem the notes, we will be required to offer to
repurchase the notes at a purchase price equal to 101% of the principal amount
of the notes plus accrued and unpaid interest to the date of
purchase. The notes will be unsecured senior debt obligations and
will rank equally with all other unsecured senior indebtedness. The notes are
not convertible or exchangeable. Total issuance costs relating to
this offering were $9 million, which included $8 million in underwriting
fees. The fair value of the notes as of November 30, 2008, was $1,327
million.
(9) The
company is involved in various legal proceedings incidental to the normal course
of business and is subject to various investigations, inspections, audits,
inquiries and similar actions by governmental authorities responsible for
enforcing the laws and regulations to which the company is
subject. These include a lawsuit for which a $31 million
judgment was entered against the company in October 2006. The company
has appealed this judgment.
In
addition, on April 16, 2008, the Plumbers and Steamfitters Local No. 7 Pension
Fund filed a putative class action suit against the company and its
former Chief Executive Officer and Chief Operating Officer in the United
States District Court for the Northern 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,
which was amended on October 16, 2008 charges the company and its
former 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.
(10) We
adopted the provisions of SFAS 157,
Fair Value Measurements
for
financial assets and liabilities beginning in the first quarter of fiscal
2009. We currently do not hold any financial assets or liabilities
that are included within the scope of this statement. Our debt
instruments are not reported at fair value in our statement of financial
position and as a result, we will continue to report under the guidance of SFAS
107,
Disclosures about Fair
Value of Financial Instruments
that requires us to disclose the fair
value of our debt in the footnotes.
(11)
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 160,
Noncontrolling
Interest in Consolidated Financial Statements – an amendment of Accounting
Research Bulletin No. 51
. The objective of this statement is
to improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The statement significantly changes the accounting for
transactions with minority interest holders. This statement, which
will be effective for the first quarter of fiscal 2010, is not expected to have
a material impact on our consolidated financial position or results of
operations.
In
December 2007, the FASB issued SFAS No 141(R),
Business
Combinations
. This statement establishes principles and
requirements for how the acquirer recognizes and measures identifiable assets
acquired, liabilities assumed and any noncontrolling interest in a business
combination. In addition the statement provides a revised definition
of a business, shifts from the purchase method to the acquisition method,
expenses acquisition-related transaction costs, recognizes contingent
consideration and contingent assets and liabilities at fair value and
capitalizes acquired in-process research and development. This statement, which
will be effective for the first quarter of fiscal 2010, will be applied
prospectively to business combinations. In addition, changes in an
acquired entity’s deferred tax assets and uncertain tax positions after the
measurement period will impact income tax expense.
|
|
Item
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
|
INTRODUCTION
Walgreens
is principally a retail drugstore chain that sells prescription and
non-prescription drugs and general merchandise. General merchandise
includes, among other things, beauty care, personal care, household items,
candy, photofinishing, greeting cards, convenience foods and seasonal
items. Customers can have prescriptions filled in retail pharmacies,
as well as through the mail, by telephone and via the Internet. As of
November 30, 2008, we operated 7,123 locations in 49 states, the District of
Columbia, Guam and Puerto Rico. Total locations do not include 293
convenient care clinics operated by Take Care Health Systems, Inc.
|
|
||||||||
|
Number of
Lo
cati
ons
at
November
30
,
|
||||||||
|
Location
Type
|
2008
|
2007
|
||||||
|
Drugstores
|
6,630 | 6,032 | ||||||
|
Worksite
Facilities
|
368 | 3 | ||||||
|
Home
Care Facilities
|
110 | 91 | ||||||
|
Specialty
Pharmacies
|
13 | 11 | ||||||
|
Mail
Service Facilities
|
2 | 2 | ||||||
|
Total
|
7,123 | 6,139 | ||||||
The
drugstore industry is highly competitive. In addition to other
drugstore chains, independent drugstores and mail order prescription providers,
we also compete with various other retailers including grocery stores,
convenience stores, mass merchants and dollar stores.
The
long-term outlook for prescription utilization is strong due in part to the
aging population and the continued development of innovative drugs that improve
quality of life and control health care costs. Certain provisions of
the Deficit Reduction Act of 2005 seek to reduce federal spending by altering
the Medicaid reimbursement formula for multi-source (i.e., generic)
drugs. These changes are expected to result in reduced Medicaid
reimbursement rates for prescription drugs.
We
believe deteriorating economic conditions and heightened turmoil in the
financial markets have adversely impacted discretionary consumer spending,
including spending at retail drugstores. It is unclear the extent to which
these conditions will persist and what overall impact they will have on future
consumer spending.
Front-end
sales have continued to grow due to strengthening core categories, such as
consumables, over-the-counter non-prescription drugs, household products and
beauty care items. Walgreens strong name recognition continues to
drive private brand sales, which are included in these core
categories.
We
continue to expand into new markets and increase penetration in existing
markets. To support our growth, we are investing in prime locations, technology
and customer service initiatives. Retail organic growth continues to
be our primary growth vehicle; however, consideration is given to retail and
other acquisitions that provide a unique opportunity and strategic fit for our
business.
We are
currently engaged in company-wide strategic initiatives to broaden
access to our products and services, enhance the customer experience for our
shoppers, patients and payors and reduce costs to improve
productivity. These strategies are intended to enable us to provide
the most convenient access to consumer goods and services, and pharmacy and
health and wellness services; offer a consistent customer experience across all
channels; and ensure that cost, culture and capabilities support and enable our
strategies. On October 30, 2008, we announced an initiative to
improve efficiency and effectiveness, which targets $1 billion in annual cost
savings by fiscal 2011. In conjunction with this initiative, we
anticipate incurring total costs of approximately $300 million to $400 million
over fiscal 2009 and 2010. During the current quarter we incurred
approximately $17 million in pre-tax costs associated with these
programs. There were no significant savings realized in the current
quarter.
OPERATING
STATISTICS
|
Percentage
Changes
|
||||||||
|
Three
Months Ended November 30, 2008
|
Three
Months Ended November 30, 2007
|
|||||||
|
Net
Sales
|
6.6 | 10.4 | ||||||
|
Net
Earnings
|
(10.4 | ) | 5.5 | |||||
|
Comparable
Drugstore Sales
|
1.7 | 5.4 | ||||||
|
Prescription
Sales
|
6.2 | 11.1 | ||||||
|
Comparable
Drugstore Prescription Sales
|
2.6 | 5.9 | ||||||
|
Front-End
Sales
|
7.2 | 9.1 | ||||||
|
Comparable
Drugstore Front-End Sales
|
0.0 | 4.6 | ||||||
|
Gross
Profit
|
5.9 | 9.7 | ||||||
|
Selling,
General and Administrative Expenses
|
9.1 | 10.0 | ||||||
|
Percent
to Net Sales
|
||||||||
|
Three
Months Ended November 30, 2008
|
Three
Months Ended November 30, 2007
|
|||||||
|
Gross
Margin
|
27.8 | 28.0 | ||||||
|
Selling,
General and Administrative Expenses
|
23.3 | 22.8 | ||||||
|
Other
Statistics
|
||||||||
|
Three
Months Ended November 30, 2008
|
Three
Months Ended November 30, 2007
|
|||||||
|
Prescription
Sales as a % of Net Sales
|
65.9 | 66.1 | ||||||
|
Third
Party Sales as a % of Total Prescription Sales
|
95.4 | 95.1 | ||||||
|
Total
Number of Prescriptions (in millions)
|
156 | 151 | ||||||
|
Total
Number of Locations
|
7,123 | 6,139 | ||||||
RESULTS
OF OPERATIONS
Net
earnings for the first quarter ended November 30, 2008 were $408 million or
$0.41 per share (diluted). This was a 10.4% decrease over the same
quarter last year. The net earnings decrease resulted from lower
gross margins, higher selling, general and administrative expenses as a
percentage of sales and higher interest costs.
Net sales
for the first quarter increased by 6.6% to $14,947 million. Drugstore
sales increases resulted from sales gains in existing stores and added sales
from new stores, each of which include an indeterminate amount of market-driven
price changes. Sales in comparable drugstores were up 1.7% for the
quarter. Comparable drugstores are defined as those that have been
open for at least twelve consecutive months without closure for seven or more
consecutive days and without a major remodel or a natural disaster in the past
twelve months. Relocated and acquired stores are not included as
comparable stores for the first twelve months after the relocation or
acquisition. We operated 7,123 locations as of November 30, 2008,
compared to 6,139 a year earlier.
Prescription
sales increased by 6.2% for the first quarter and represented 65.9% of total
sales. In the prior year, prescription sales increased 11.1% and
comprised 66.1% of total sales. Comparable drugstore prescription
sales were up 2.6% in the current quarter. The effect of generic
drugs, which have a lower retail price, replacing brand name drugs reduced
prescription sales by 2.3% in the current quarter versus 4.2% last year, while
the effect on total sales was a reduction of 1.4% in the current quarter versus
2.6% in the prior year. Third party sales, where reimbursement is
received from managed care organizations as well as government and private
insurance, were 95.4% of prescription sales compared to 95.1% a year
ago. The total number of prescriptions filled for the quarter was
approximately 156 million compared to 151 million for the same period last
year.
Front-end
sales increased 7.2% for the current quarter and were 34.1% of total
sales. In comparison, prior year front end sales increased 9.1% and
comprised 33.9% of total sales. In addition to new stores, the
increase is due in part to improved sales dollars related to consumables,
non-prescription drugs and household items. Comparable front-end
sales were flat in the current quarter compared to a 4.6% increase last
year.
Gross
margin as a percent of sales was 27.8% in the current quarter compared to 28.0%
last year. Overall margins were negatively impacted by non-retail
businesses, which have lower margins and are becoming a greater part of the
total business and a higher provision for LIFO. This was partially
offset by an improvement in retail pharmacy margins, which were positively
influenced by generic drug sales, but to a lesser extent negatively influenced
by the growth in third party pharmacy sales and lower market driven
reimbursements. Front-end margins remained essentially flat from the
prior year.
We use
the LIFO method of inventory valuation, which can only be determined annually
when inflation rates and inventory levels are finalized; therefore, LIFO
inventory costs for the interim financial statements are
estimated. Cost of sales included a LIFO provision of $43 million for
the current quarter compared to a provision of $27 million a year
ago. Our estimated annual inflation rate was 2.25% for the current
quarter compared to 1.50% a year ago. The increase is attributed to
higher anticipated inflation for non-prescription drugs and front-end
merchandise.
Gross
profit increased 5.9% in this year’s first quarter versus 9.7% last
year. The change from the prior year is primarily due to lower sales
growth.
Selling,
general and administrative expenses as a percentage of sales were 23.3% for the
current quarter compared to 22.8% a year ago. Higher occupancy
expenses, store closing costs, amortization expenses and other miscellaneous
expenses were partially offset by lower employee benefit plan expenses and store
direct expenses as a percentage of sales.
Selling,
general and administrative expenses increased 9.1% this year compared to 10.0% a
year ago primarily due to store level salaries and expenses. Although
store level salaries and expenses increased at a faster rate than sales, the
rate of growth for the current year was lower than a year ago.
Interest
was a net expense of $15 million in the current quarter compared to a net
expense of zero in the prior year. The increase in interest expense
is primarily attributed to the issuance of long-term debt. The
current year’s interest expense is net of $5 million, which was capitalized to
construction projects versus $7 million capitalized last
year.
The
effective tax rate was 37.6% for the first quarter as compared to 37.4% for a
year ago. The increase is attributed to additional provisions for
state tax matters.
CRITICAL
ACCOUNTING POLICIES
The
consolidated condensed financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
include amounts based on management's prudent judgments and
estimates. Actual results may differ from these
estimates. Management believes that any reasonable deviation from
those judgments and estimates would not have a material impact on our
consolidated financial position or results of operations. To the
extent that the estimates used differ from actual results, however, adjustments
to the statement of earnings and corresponding balance sheet accounts would be
necessary. These adjustments would be made in future
statements. For a complete discussion of all our significant
accounting policies please see our 2008 annual report on Form
10-K. Some of the more significant estimates include goodwill and
other intangible asset impairment, allowance for doubtful accounts, vendor
allowances, liability for closed locations, liability for insurance claims, cost
of sales, and income taxes. We use the following methods to determine
our estimates:
|
Goodwill
and other intangible asset impairment -
|
|
|
Goodwill
and other indefinite-lived intangible assets are not amortized, but are
evaluated for impairment annually or whenever events or changes in
circumstances indicate that the value of a certain asset may be
impaired. The process of evaluating goodwill for impairment
involves the determination of fair value. Inherent in such fair
value determinations are certain judgments and estimates, including the
interpretation of economic indicators and market valuations and
assumptions about our business plans. We have not made any
material changes to the method of evaluating goodwill and intangible asset
impairments during the last three years. Based on current
knowledge, we do not believe there is a reasonable likelihood that there
will be a material change in the estimate or assumptions used to determine
impairment.
|
|
|
Allowance
for doubtful accounts -
|
|
|
The
provision for bad debt is based on both specific receivables and historic
write-off percentages. We have not made any material changes to
the method of estimating our allowance for doubtful accounts during the
last three years. Based on current knowledge, we do not believe
there is a reasonable likelihood that there will be a material change in
the estimate or assumptions used to determine the
allowance.
|
|
|
Vendor
allowances -
|
|
|
Vendor
allowances are principally received as a result of purchase levels, sales
or promotion of vendors' products. Allowances are
generally recorded as a reduction of inventory and are recognized as a
reduction of cost of sales when the related merchandise is
sold. Those allowances received for promoting vendors' products
are offset against advertising expense and result in a reduction of
selling, general and administrative expenses to the extent of advertising
incurred, with the excess treated as a reduction of inventory
costs. We have not made any material changes to the method of
estimating our vendor allowances during the last three
years. Based on current knowledge, we do not believe there is a
reasonable likelihood that there will be a material change in the estimate
or assumptions used to determine vendor
allowances.
|
|
|
Liability
for closed locations -
|
|
|
The
liability is based on the present value of future rent obligations and
other related costs (net of estimated sublease rent) to the first lease
option date. We have not made any material changes to the
method of estimating our liability for closed locations during the last
three years. Based on current knowledge, we do not believe
there is a reasonable likelihood that there will be a material change in
the estimate or assumptions used to determine the
liability.
|
|
|
Liability
for insurance claims -
|
|
|
The
liability for insurance claims is recorded based on estimates for claims
incurred and is not discounted. The provisions are estimated in
part by considering historical claims experience, demographic factors and
other actuarial assumptions. We have not made any material
changes to the method of estimating our liability for insurance claims
during the last three years. Based on current knowledge, we do
not believe there is a reasonable likelihood that there will be a material
change in the estimate or assumptions used to determine the
liability.
|
|
|
Cost
of sales -
|
|
|
Drugstore
cost of sales is derived based on point-of-sale scanning information with
an estimate for shrinkage and adjusted based on periodic
inventories. Inventories are valued at the lower of cost or
market determined by the LIFO method. We have not made any
material changes to the method of estimating cost of sales during the last
three years. Based on current knowledge, we do not believe
there is a reasonable likelihood that there will be a material change in
the estimate or assumptions used to determine cost of
sales.
|
|
|
Income
Taxes -
|
|
|
We
are subject to routine income tax audits that occur periodically in the
normal course of business. U.S. federal, state and local and
foreign tax authorities raise questions regarding our tax filing
positions, including the timing and amount of deductions and the
allocation of income among various tax jurisdictions. In evaluating the
tax benefits associated with our various tax filing positions, we record a
tax benefit for uncertain tax positions using the highest cumulative tax
benefit that is more likely than not to be realized.
Adjustments are made to our liability for unrecognized tax benefits in the
period in which we determine the issue is effectively settled with the tax
authorities, the statute of limitations expires for the return containing
the tax position or when more information becomes available. Our liability
for unrecognized tax benefits, including accrued penalties and interest,
is included in other long-term liabilities on our consolidated balance
sheets and in income tax expense in our consolidated statements of
earnings.
In
determining our provision for income taxes, we use an annual effective
income tax rate based on full year income, permanent differences between
book and tax income, and statutory income tax rates. The effective income
tax rate also reflects our assessment of the ultimate outcome of tax
audits. Discrete events such as audit settlements or changes in tax laws
are recognized in the period in which they occur. Based on
current knowledge, we do not believe there is a reasonable likelihood that
there will be a material change in the estimate or assumptions used to
determine income taxes.
|
|
LIQUIDITY
AND CAPITAL RESOURCES
Cash and
cash equivalents were $886 million at November 30, 2008, compared to $295
million at November 30, 2007. Short-term investment objectives are to
minimize risk, maintain liquidity and maximize after-tax yields. To
attain these objectives, investment limits are placed on the amount, type and
issuer of securities. Investments are principally in U.S. Treasury
market funds.
Net cash
provided by operating activities was $312 million compared to $390 million a
year ago. The decrease is attributed to lower net earnings, decreased
cash from accounts receivable and inventories partially offset by an increase in
cash from accounts payable. Cash provided by operations is the
principal source of funds for expansion, acquisitions, remodeling programs,
dividends to shareholders and stock repurchases. In fiscal 2009, we
supplemented cash provided by operations with short-term
borrowings.
Net cash
used for investing activities was $684 million versus $531 million last
year. Additions to property and equipment were $638 million compared
to $490 million last year. During the current quarter we added a
total of 220 locations (189 net) compared to 169 last year (142
net). There were 59 owned locations added during the quarter and 82
under construction at November 30, 2008 versus 53 owned locations added and 60
under construction as of November 30, 2007.
|
Drugstores
|
Worksites
|
Home
Care
|
Specialty
Pharmacy
|
Mail
Service
|
Total
|
|||||||||||||||||||
|
August
31, 2008
|
6,443 | 364 | 115 | 10 | 2 | 6,934 | ||||||||||||||||||
|
New/Relocated
|
200 | 2 | 1 | 3 | - | 206 | ||||||||||||||||||
|
Acquired
|
12 | 2 | - | - | - | 14 | ||||||||||||||||||
|
Closed/Replaced
|
(25 | ) | - | (6 | ) | - | - | (31 | ) | |||||||||||||||
|
November
30, 2008
|
6,630 | 368 | 110 | 13 | 2 | 7,123 | ||||||||||||||||||
Capital
expenditures throughout fiscal 2009 are expected to be $1.8 billion, excluding
business acquisitions. We expect to open approximately 540 new
drugstores in fiscal 2009, with a net increase of approximately 475 drugstores
and anticipate having a total of more than 7,000 drugstores in
2010. We intend to increase new drugstore organic growth between 4.0
percent and 4.5 percent in fiscal 2010 and between 2.5 percent and 3.0 percent
in 2011. In the first quarter, we added a total of 220 locations, of
which 200 were new or relocated drugstores, with a net gain of 187 drugstores
after relocations and closings. We are continuing to relocate stores to more
convenient and profitable freestanding locations. In addition to new
stores, expenditures are planned for distribution centers and
technology. A new distribution center in Windsor, Connecticut is
anticipated to open in the current fiscal year.
Net cash
provided by financing activities was $815 million compared to $181 million last
year. Net proceeds from short-term borrowings during the current
period were $998 million compared to $317 million a year ago. Shares
totaling $99 million were purchased to support the needs of the employee stock
plans during the current period as compared to $78 million a year ago. On
January 10, 2007, a new stock repurchase program (“2007 repurchase program”) of
up to $1,000 million was announced, to be executed over four
years. No repurchases were made during the current or prior year’s
quarter and we do not anticipate executing stock repurchases under the 2007
repurchase program while having short-term debt outstanding. We will
continue to repurchase shares to support the needs of the employee stock
plans. In the first three months of the current year, we had
proceeds related to employee stock plans of $32 million versus $68 million for
the same period last year. Cash dividends paid were $111 million
during the first three months versus $94 million for the same period a year
ago.
We had
$1,068 million of commercial paper outstanding at a weighted average interest
rate of 1.80% at November 30, 2008. In connection with our commercial
paper program, we maintain two unsecured backup syndicated lines of credit that
total $1,200 million. The first $600 million facility expires on
August 10, 2009, the second on August 12, 2012. Our ability to access
these facilities is subject to our compliance with the terms and conditions of
the credit facilities, including financial covenants. The covenants
require us to maintain certain financial ratios related to minimum net worth and
priority debt, along with limitations on the sale of assets and purchases of
investments. As of November 30, 2008 we were in compliance with all
such covenants. The company pays a facility fee to the financing bank
to keep this line of credit facility active. We do not expect any
borrowings under these facilities, together with our outstanding commercial
paper, to exceed $1,200 million. On December 9, 2008, we entered into
an additional $175 million line of credit that expires on December 31,
2008.
Our
current credit ratings are as follows:
|
Rating
Agency
|
Long-Term
Debt Rating
|
Outlook
|
Commercial
Paper Rating
|
Outlook
|
||||||
|
Moody's
|
A2 |
Stable
|
P-1 |
Stable
|
||||||
|
Standard
& Poor's
|
A+ |
Stable
|
A-1 |
Stable
|
||||||
In
assessing our credit strength, both Moody's and Standard & Poor's consider
our business model, capital structure, financial policies and financial
statements. Our credit ratings impact our future borrowing costs,
access to capital markets and operating lease costs.
CONTRACTUAL
OBLIGATIONS AND COMMITMENTS
The
following table lists our contractual obligations and commitments as of November
30, 2008:
|
Payments
Due by Period (In Millions)
|
||||||||||||||||||||
|
Total
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
Over
5 Years
|
||||||||||||||||
|
Operating
leases (1)
|
$ | 33,807 | $ | 1,849 | $ | 3,941 | $ | 3,849 | $ | 24,168 | ||||||||||
|
Purchase
obligations (2):
|
||||||||||||||||||||
|
Open
inventory purchase orders
|
1,438 | 1,438 | - | - | - | |||||||||||||||
|
Real
estate development
|
810 | 810 | - | - | - | |||||||||||||||
|
Other
corporate obligations
|
703 | 408 | 197 | 55 | 43 | |||||||||||||||
|
Long-term
debt*
|
1,350 | 8 | 3 | 1,303 | 36 | |||||||||||||||
|
Interest
payment on long-term debt
|
320 | 87 | 127 | 106 | - | |||||||||||||||
|
Insurance*
|
492 | 159 | 116 | 83 | 134 | |||||||||||||||
|
Retiree
health*
|
379 | 9 | 22 | 28 | 320 | |||||||||||||||
|
Closed
location obligations*
|
73 | 17 | 23 | 12 | 21 | |||||||||||||||
|
Capital
lease obligations *(1)
|
41 | 2 | 4 | 3 | 32 | |||||||||||||||
|
Other
long-term liabilities reflected on the balance sheet*(3)
|
645 | 48 | 116 | 98 | 383 | |||||||||||||||
|
Total
|
$ | 40,058 | $ | 4,835 | $ | 4,549 | $ | 5,537 | $ | 25,137 | ||||||||||
* Recorded on balance sheet.
|
(1)
|
Amounts
for operating leases and capital leases do not include certain operating
expenses under the leases such as common area maintenance, insurance and
real estate taxes. These expenses for the company's most recent
fiscal year were $298 million.
|
|
(2)
|
The
purchase obligations include agreements to purchase goods or services that
are enforceable and legally binding and that specify all significant
terms, including open purchase orders.
|
|
(3)
|
Includes
$38 million ($15 million due in 1-3 years, $14 million due in 3-5 years
and $9 million due over 5 years) of unrecognized tax benefits recorded
under FIN No. 48, which we adopted in fiscal year
2008.
|
OFF-BALANCE
SHEET ARRANGEMENTS
Letters
of credit are issued to support purchase obligations and commitments (as
reflected on the Contractual Obligations and Commitments table) as follows (In
millions):
|
Insurance
|
$
265
|
|
Inventory
obligations
|
62
|
|
Real
estate development
|
14
|
|
Other
|
8
|
|
Total
|
$
349
|
We have
no other off-balance sheet arrangements other than those disclosed on the
Contractual Obligations and Commitments table and a credit agreement guaranty on
behalf of SureScripts-RxHub, LLC. This agreement is described more
fully in Note 6 in the Notes to Consolidated Condensed Financial
Statements.
Both
on-balance sheet and off-balance sheet financing are considered when targeting
debt to equity ratios to balance the interests of equity and debt (including
real estate) investors. This balance allows us to lower our cost of
capital while maintaining a prudent level of financial risk.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 157,
Fair Value
Measurements
. This statement, and the related pronouncements,
defines and provides guidance when applying fair value measurements to
accounting pronouncements that require or permit such measurements. We
adopted the provisions of SFAS 157,
Fair Value Measurements
for
financial assets and liabilities beginning in the first quarter of fiscal
2009. FASB Staff Position No. 157-2 deferred the effective date of
nonfinancial asses and liabilities until fiscal year 2010. We do not
expect to have a material impact in 2010 when we apply the statement to our
nonfinancial assets and liabilities.
In
December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interest in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51
. The objective of this statement is to improve the
relevance, comparability, and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by
establishing accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The
statement significantly changes the accounting for transactions with minority
interest holders. This statement, which will be effective for the
first quarter of fiscal 2010, is not expected to have a material impact on our
consolidated financial position or results of operations.
In
December 2007, the FASB issued SFAS No 141(R),
Business
Combinations
. This statement establishes principles and
requirements for how the acquirer recognizes and measures identifiable assets
acquired, liabilities assumed and any noncontrolling interest in a business
combination. In addition the statement provides a revised definition
of a business, shifts from the purchase method to the acquisition method,
expenses acquisition-related transaction costs, recognizes contingent
consideration and contingent assets and liabilities at fair value and
capitalizes acquired in-process research and development. This statement, which
will be effective for the first quarter of fiscal 2010, will be applied
prospectively to business combinations. In addition, changes in an
acquired entity’s deferred tax assets and uncertain tax positions after the
measurement period will impact income tax expense.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
information in this Form 10-Q, as well as in other public filings, the company
website, press releases and oral statements made by our representatives, is
forward-looking information based on current expectations and plans that involve
risks and uncertainties. Forward-looking information includes
statements concerning pharmacy sales trends, prescription margins, number and
location of new store openings, outcomes of litigation, the level of capital
expenditures, and demographic trends. Forward looking information
includes statements with words such as "expects," "estimates," "believes,"
"plans," "anticipates" or similar language. For such statements, we
claim the protection of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.
Forward-looking
statements involve risks and uncertainties, known or unknown to the company,
that could cause results to differ materially from management expectations as
projected in such forward-looking statements. These risk and
uncertainties are discussed in item 1A of the company’s annual report on Form
10-K for the period ended August 31, 2008 as well as other documents filed with
the Securities and Exchange Commission. Unless otherwise required by
applicable securities laws, the company assumes no obligation to update its
forward-looking statements to reflect subsequent events or
circumstances.
Item
3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET
RISK
Management
does not believe that there is any material market risk exposure with respect to
derivative or other financial instruments that would require disclosure under
this item.
Item
4. CONTROLS AND PROCEDURES
Based on
their evaluation as of November 30, 2008, pursuant to Exchange Act Rule
13a-15(b), the company's management, including its Chief Executive Officer and
Chief Financial Officer, conclude the company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e)) are
effective.
In
connection with the evaluation pursuant to Exchange Act Rule 13a-15(d) of the
company's internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) by the company's management, including its Chief Executive
Officer and Chief Financial Officer, no changes during the quarter ended
November 30, 2008 were identified that have materially affected, or are
reasonably likely to materially affect, the company's internal control over
financial reporting.
|
PART
II. OTHER INFORMATION
|
Item
1. LEGAL PROCEEDINGS
On April
16, 2008, the Plumbers and Steamfitters Local No. 7 Pension Fund filed a
putative class action suit against the company and its former Chief
Executive Officer and Chief Operating Officer in the United States District
Court for the Northern 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 which was amended on
October 16, 2008 charges the company and its former 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. M
anagement
is also of the opinion that although the outcome of this litigation cannot be
forecast with certainty, the final disposition should not have a material
adverse effect on the company's consolidated financial position or results of
operations.
|
Item
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
|
(c)
|
The
following table provides information about purchases by the company during
the quarter ended November 30, 2008 of equity securities that are
registered by the company pursuant to Section 12 of the Exchange
Act:
|
|
Issuer
Purchases of Equity Securities
|
||||||||||||||||
|
Period
|
Total
Number of
Shares Purchased
(1)
|
Average
Price
Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs (2)
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs (2)
|
||||||||||||
|
9/1/2008
- 9/30/2008
|
- | - | - | $ | 655,123,821 | |||||||||||
|
10/1/2008
- 10/31/2008
|
590,000 | $ | 24.837061 | - | $ | 655,123,821 | ||||||||||
|
11/1/2008
-
11/30/2008
|
3,590,000 | $ | 23.404739 | - | $ | 655,123,821 | ||||||||||
|
Total
|
4,180,000 | $ | 23.606909 | - | $ | 655,123,821 | ||||||||||
|
(1)
|
The
company repurchased an aggregate of 4,180,000 shares of its common stock
in open-market transactions to satisfy the requirements of the company's
employee stock purchase and option plans, as well as the company's
Nonemployee Director Stock Plan
. These
share repurchases were not made pursuant to a publicly announced
repurchase plan or program.
|
|
(2)
|
On
January 10, 2007, the Board of Directors approved a 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 20, 2011. This
program was announced in the company's report on Form 8-K, which was filed
on January 11, 2007. The total remaining authorization under
the repurchase program is $655,123,821 as of November 30,
2008.
|
Item
6. EXHIBITS
|
(a)
|
Exhibits
|
|
3.1
|
Articles
of Incorporation of Walgreen Co., as amended, filed with the Securities
and Exchange Commission as Exhibit 3(a) to Walgreen Co.’s Quarterly Report
on Form 10-Q for the quarter ended February 28, 1999 (File No. 1-00604),
and incorporated by reference herein.
|
|
|
3.2
|
Amended
and Restated By-Laws of Walgreen Co., as amended effective as of September
1, 2008, filed with the Securities and Exchange Commission on September 5,
2008 as Exhibit 3.1 to Walgreen Co.’s Current Report on Form 8-K (File No.
1-00604), and incorporated by reference herein.
|
|
|
10.1
|
Walgreen
Co. Management Incentive Plan (as amended and restated effective September
1, 2008), filed with the Securities and Exchange Commission on October 30,
2008 as Exhibit 10.3 to Walgreen Co.’s 2008 Annual Report on Form 10-K
(File No. 1-00604), and incorporated by reference
herein.
|
|
|
10.2
|
Form
of Stock Option Agreement (Grades 12 through 17) (effective September 1,
2008), filed with the Securities and Exchange Commission on October 30,
2008 as Exhibit 10.11 to Walgreen Co.’s 2008 Annual Report on Form 10-K
(File No. 1-00604), and incorporated by reference
herein.
|
|
|
10.3
|
Form
of Stock Option Agreement (Grades 18 and above) (effective September 1,
2008), filed with the Securities and Exchange Commission on October 30,
2008 as Exhibit 10.12 to Walgreen Co.’s 2008 Annual Report on Form 10-K
(File No. 1-00604), and incorporated by reference
herein.
|
|
|
10.4
|
Form
of Restricted Stock Unit Award Agreement (effective September 1, 2008),
filed with the Securities and Exchange Commission on October 30, 2008 as
Exhibit 10.13 to Walgreen Co.’s 2008 Annual Report on Form 10-K (File No.
1-00604), and incorporated by reference herein.
|
|
|
10.5
|
Form
of Performance Share Contingent Award Agreement (effective September 1,
2008), filed with the Securities and Exchange Commission on October 30,
2008 as Exhibit 10.14 to Walgreen Co.’s 2008 Annual Report on Form 10-K
(File No. 1-00604), and incorporated by reference
herein.
|
|
|
10.6
|
Form
of Restricted Stock Award Agreement (effective June 2008), filed with the
Securities and Exchange Commission on October 30, 2008 as Exhibit 10.15 to
Walgreen Co.’s 2008 Annual Report on Form 10-K (File No. 1-00604), and
incorporated by reference herein.
|
|
|
10.7
|
Retirement
and Non-Competition Agreement effective as of October 10, 2008 between
Jeffrey A. Rein and Walgreen Co., filed with the Securities and Exchange
Commission on October 17, 2008 as Exhibit 99.1 to Walgreen Co.’s Current
Report on Form 8-K (File No. 1-00604), and incorporated by reference
herein.
|
|
|
10.8
|
Executive
Stock Option Plan – Stock Option Agreement made as of October 10, 2008
between Alan G. McNally and Walgreen Co.
|
|
|
10.9
|
Long-Term
Performance Incentive Plan - Restricted Stock Unit Award Agreement
made as of October 10, 2008 between Alan G. McNally and Walgreen
Co.
|
|
|
12.
|
Computation
of Ratio of Earnings to Fixed Charges
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32.1
|
Certification
of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
|
|
|
32.2
|
Certification
of the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
WALGREEN CO.
|
|
|
(Registrant)
|
|
|
Dated:
January 6, 2009
|
/s/ W.D. Miquelon
|
|
W.D.
Miquelon
|
|
|
Senior
Vice President
|
|
|
(Chief
Financial Officer)
|
|
|
Dated:
January 6, 2009
|
/s/ M.M. Scholz
|
|
M.M.
Scholz
|
|
|
Controller
|
|
|
(Chief
Accounting Officer)
|
|
WALGREEN
CO.
EXECUTIVE
STOCK OPTION PLAN - STOCK OPTION AGREEMENT
Employee
(the "Optionee"): Alan G. McNally
Social
Security No.: «SSN»
Date of
Grant: October 10, 2008
Expiration
Date: October 10, 2018
Number of
Shares Optioned: 120,000
Option
Price Per Share of Common Stock: $23.22
This
document (referred to below as this “Agreement” or this “Option Agreement”)
spells out the terms and conditions of the stock option granted by
Walgreen Co.
, an
Illinois corporation (the “Company”), to the individual employee designated
above (the “Employee”) pursuant to the Walgreen Co. Executive Stock Option Plan
(the “Plan”) on and as of the Date of Grant designated above. Except
as otherwise defined herein, capitalized terms used in this Option Agreement
have the respective meanings set forth in the Plan. The Plan, as in
effect on the date of this Option Agreement and as it may be amended from time
to time, is incorporated in this Option Agreement by reference, and all rights
granted by this Option Agreement are subject to the terms and conditions of the
Plan.
1.
Grant of Stock
Option
. The Company hereby grants to the Optionee a stock
option to purchase all or any part of the Number of Shares set forth above of
Common Stock of the Company, par value $.078125 ("Common Stock"), at the Option
Price set forth above, which is 100% of the fair market value of such Common
Stock on the Date of Grant, in the manner and subject to the terms and
conditions of the Plan and this Option Agreement. This stock option
is intended to be a "non-qualified stock option" and shall not be treated as an
incentive stock option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.
2.
Vesting/Exercise/Expiration
. The
Optionee may not exercise the stock option granted prior to the “Vesting Date”
defined below, absent action by the Compensation Committee of the Board of
Directors to waive or alter such restrictions. Thereafter, except as
hereinafter provided, the Optionee may exercise the stock option granted herein
at any time and from time to time until the close of business on the Expiration
Date set forth above. The stock option granted herein may be
exercised to purchase any number of whole shares of Common Stock, except that no
purchase shall be for less than ten (10) full shares, or the remaining
unexercised shares, if less. This stock option is deemed to be
"outstanding" until it has been exercised in full or expired pursuant to the
terms of this Option Agreement. For purposes of this Agreement, the
Vesting Date is defined as follows:
One half
of the Number of Shares subject to this stock option shall become vested as of
the earlier of the date a new Chief Executive Officer begins employment with the
Company and the six-month anniversary of the Date of Grant. If the
Optionee continues to serve as Chief Executive Officer beyond the six-month
anniversary of the Date of Grant, then the other half of the Number of Shares
subject to this stock option shall become vested over the course of the ensuing
12-month period of continued employment as Chief Executive Officer, as
follows: One twelfth of such remaining Number of Shares shall become
vested as of the end of each full month following the six-month anniversary of
the Date of Grant. The foregoing is subject to ability of the
Committee to waive or accelerate such vesting restrictions as provided
above.
3.
Retirement
. If
without having fully exercised this stock option, the Optionee retires, then the
Optionee's right to exercise this stock option shall terminate upon the earlier
of the Expiration Date or a date which is sixty (60) months following the
Optionee's retirement. For purposes of this section, retirement shall
be defined as a cessation of employment or Board membership in good standing,
and the applicable retirement date shall be defined as the later of the
Optionees termination of employment or retirement from the Board of
Directors. Any portion of this stock option that is not vested as of
the Optionee’s retirement date shall be forfeited, subject to ability of the
Committee to waive or accelerate such vesting restrictions as provided
above.
4.
Disability
. If,
without having fully exercised this stock option, the Optionee's employment or
Board membership with the Company is terminated due to total and permanent
disability (as determined by the Compensation Committee of the Board of
Directors or its designee), then the Optionee's right to exercise this stock
option shall terminate upon the earlier of the Expiration Date or a date which
is sixty (60) months following the date of termination of employment or Board
membership. Any portion of this stock option that is not vested at
that time shall be forfeited, subject to ability of the Committee to waive or
accelerate such vesting restrictions as provided above.
5.
Death
. If,
without having fully exercised this stock option, the Optionee shall die while
in the employ of the Company or while continuing to serve on the Board of
Directors, then this stock option shall be exercisable by the executor or
administrator of the Optionee's estate or by such person or persons who shall
have acquired the Optionee's rights hereunder by bequest or inheritance or by
reason of his death, for a period ending on the earlier of the Expiration Date
or sixty (60) months following the date of the Optionee's death. Any
portion of this stock option that is not vested as of the Optionee’s death shall
be forfeited, subject to ability of the Committee to waive or accelerate such
vesting restrictions as provided above.
6.
Other Termination of
Employment
. If, without having fully exercised this stock
option, the Optionee ceases to serve as an employee or Board member for reasons
other than the Optionee’s retirement (as defined in Section 3 above), death, or
total and permanent disability (as defined in Section 4 above), then the
Optionee's right to exercise this stock option shall terminate as of the later
of the termination of his employment or Board membership, subject to the right
of the Compensation Committee of the Board of Directors to extend the exercise
period of this stock option.
7.
Disqualifying
Termination
. Notwithstanding any other provision of this
Option Agreement to the contrary, if without having fully exercised this stock
option, the Optionee’s employment with the Company is terminated for Cause, then
the Optionee’s rights to exercise this stock option shall terminate
immediately. For purposes of this Option Agreement, “Cause” shall
mean: (a) any act or acts of dishonesty committed by the Optionee; or (b) any
violation of the policies or procedures of the Company applicable to the
Optionee’s employment or job category which is either: (i) grossly negligent; or
(ii) willful and deliberate. The determination of whether the
Optionee’s employment has been terminated for Cause shall be within the
discretion of the Compensation Committee of the Board of Directors.
8.
Forfeiture of Outstanding
Options Following Termination of Employment or Board
Membership
. Notwithstanding the remainder of this Option
Agreement, the Optionee’s remaining right, if any, to exercise stock options
covered by this Option Agreement shall immediately terminate if and when the
Optionee violates any post-employment or post-Board membership obligation that
he may have to the Company, including but not limited to any non-competition,
non-solicitation, confidentiality, non-disparagement or other restrictive
covenant.
9.
Limited
Transferability
. This stock option is nonassignable and not
transferable other than by beneficiary designation, by will or by the laws of
descent and distribution. During the lifetime of the Optionee this
stock option and all rights granted hereunder shall be exercisable only by the
Optionee. Notwithstanding the foregoing, transfers by the Optionee of
options shall be recognized and given effect if such options are transferred to
a grantor trust established pursuant to Sections 674, 675, 676 and 677 of the
Internal Revenue Code of 1986, as amended, for the benefit of the Optionee or a
person or persons who are members of the Optionee's immediate family (or for the
benefit of their descendants); provided that any such transfer has not been
disclaimed prior to the exercise of such options by the trustee of such trust,
and the trustee of such trust certifies to the Compensation Committee of the
Board of Directors or its designee that such transfer occurred without any
payment of consideration for such transfer.
10.
Change in Common
Stock
. In the event of any change in Common Stock by reason of
any stock dividend, recapitalization, reorganization, split-up, merger,
consolidation, exchange of shares, or of any similar change affecting Common
Stock, the number of shares of Common Stock subject to this stock option and the
Option Price shall be equitably adjusted by the Compensation Committee of the
Board of Directors.
11.
Exercise
Process
. This stock option may be exercised by giving written
notice to Walgreen Co., Attention: Finance Department, Corporate Offices, 200
Wilmot Road, MS 2261, Deerfield, Illinois 60015 (or such other address as may be
specified by the Company to the Optionee). Alternatively, the Company
may designate one or more third parties to administer the stock option exercise
process and direct the Optionee accordingly. Such notice (a) shall be
signed by the Optionee or (in the event of his death) the Optionee’s legal
representative, (b) shall specify the number of full shares then elected to be
purchased, and (c) shall be accompanied by payment in full of the Option Price
of the shares to be purchased. Payment may be made in cash or by
check payable to the order of the Company, and such payment shall include any
tax withholding obligation, as set forth in Section 12
below. Alternatively, the Company may allow for one or more of the
following methods of exercising stock options:
a. Payment
for shares as to which this stock option is being exercised and/or payment of
any federal, state, local or other tax withholding obligations may be made by
transfer to the Company of shares of Common Stock already owned by the Optionee,
or any combination of such shares and cash, having a fair market value
determined at the close of business on the date of stock option exercise equal
to, but not exceeding, the Option Price and/or the tax withholding obligation,
as the case may be.
b. The
Company may also allow for “same day sale” transactions pursuant to which a
third party (engaged by the Company or the Optionee) loans funds to the Optionee
to enable the Optionee to purchase the shares and pay any tax withholding
obligations, and then sells a sufficient number of the exercised shares on
behalf of the Optionee to enable the Optionee to repay the loan and any
fees. The remaining shares and/or cash are then issued by the third
party to the Optionee.
As
promptly as practicable after receipt of such notice and payment (including
payment with respect to any tax withholding obligations), the Company shall
cause to be issued and delivered to the Optionee or in the event of his death to
the Optionee’s legal representative, as the case may be, certificates for the
shares of Common Stock so purchased. Alternatively, such shares may
be issued and held in book entry form.
12.
Tax
Withholding
. The Company may make such provisions and take
such actions as it may deem necessary or appropriate for the withholding of any
Federal, state, local and other taxes required by law to be withheld with
respect to this stock option, including, but not limited to, deducting the
amount of any such withholding taxes from the amount to be paid hereunder,
whether in Common Stock or in cash, or from any other amount then or thereafter
payable to the Optionee, or requiring the Optionee, his beneficiary, or legal
representative to pay to the Company the amount required to be withheld or to
execute such documents as the Compensation Committee of the Board of Directors
or its designee deems necessary or desirable to enable the Company to satisfy
its withholding obligations.
13.
Rights as
Shareholder
. The Optionee shall have no rights as a
shareholder of the Company with respect to the shares of Company Common Stock
subject to this Option Agreement until such time as the purchase price has been
paid and a certificate of stock for such shares has been issued to the
Optionee. Except as provided in Section 10 above, no adjustment shall
be made for dividends or distributions or other rights with respect to such
shares for which the record date is prior to the date on which the Optionee
becomes the holder of record thereof. Anything herein to the contrary
notwithstanding, if a law or any regulation of the Securities and Exchange
Commission or of any other body having jurisdiction shall require the Company or
the Optionee to take any action before shares of Common Stock can be delivered
to the Optionee hereunder, then the date of delivery of such shares may be
delayed accordingly.
14.
No Guarantee of
Employment
. Nothing in this Option Agreement shall interfere
with or limit in any way the right of the Company to terminate any Optionee's
employment at any time, nor confer upon any employee any right to continue in
the employ of the Company or any of its subsidiaries.
15.
Option Plan/Compensation
Committee
. This Option Agreement and the rights of the
Optionee hereunder are subject to all the terms and conditions of the Plan, as
the same may be amended from time to time, as well as to such rules and
regulations as the Compensation Committee of the Board of Directors may adopt
for administration of the Plan. It is expressly understood that the
Compensation Committee is authorized to administer, construe, and make all
determinations necessary or appropriate for the administration of the Plan and
this Option Agreement, all of which shall be binding upon the
Optionee. Any inconsistency between this Option Agreement and the
Plan shall be resolved in favor of the Plan.
16.
Governing
Law
. Subject to Section 17 below, the stock option covered by
this Option Agreement, this Option Agreement and all determinations made and
actions taken pursuant thereto, to the extent otherwise not governed by the
Internal Revenue Code of 1986, as amended, or any other laws of the United
States, shall be governed by and construed in accordance with the laws of the
State of Illinois.
17.
Conformity with Applicable
Law
. If any provision of this Option Agreement is determined
to be invalid, illegal or unenforceable in any respect under any applicable law
or rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of any other provision
of this Option Agreement or the validity, legality or enforceability of such
provision in any other jurisdiction, but this Option Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
18.
Successors
. This
Option Agreement shall be binding upon and inure to the benefit of any successor
or successors of the Company and any person or persons who shall, upon the death
of the Optionee, acquire any rights hereunder.
WALGREEN
CO.
LONG-TERM
PERFORMANCE INCENTIVE PLAN
RESTRICTED
STOCK UNIT AWARD AGREEMENT
EMPLOYEE: Alan
G. McNally
AWARD
DATE: October 10, 2008
TOTAL
NUMBER OF RESTRICTED STOCK UNITS: 26,600
VESTING
DATE: Defined in Section 4 below
This document (referred to below as the
“Agreement” or the “Award Agreement”) spells out the terms and conditions of the
Restricted Stock Unit Award provided by
Walgreen Co.
, an
Illinois corporation (the “Company”), to the individual employee designated
above (the “Employee”) pursuant to the Walgreen Co. Long-Term Performance
Incentive Plan and related plan documents (the “Plan”) on and as of the Award
Date designated above. Except as otherwise defined herein,
capitalized terms used in this Agreement have the respective meanings set forth
in the Plan.
The
parties hereto agree as follows:
1.
Grant of Restricted Stock
Units
. Pursuant to the approval and direction of the
Compensation Committee of the Company’s Board of Directors (the “Committee”)
under Sections 3.2, 5 and 6 of the Plan, the Company hereby grants to the
Employee, the number of restricted stock units specified above (the “Restricted
Stock Units”), subject to the terms and conditions of the Plan and this
Agreement.
2.
Restrictions
. The
Restricted Stock Units may not be sold, transferred, pledged, assigned or
otherwise alienated or hypothecated, whether voluntarily or involuntarily or by
operation of law. The Employee shall have no rights in the shares of
Company common stock (the “Common Stock”) underlying the Restricted Stock Units
until the termination of the applicable Period of Restriction (as defined in
Section 4 below) or as otherwise provided in the Plan or this
Agreement. The Employee shall not have any voting rights with respect
to the Restricted Stock Units.
3.
Restricted Stock Unit
Account and Dividend Equivalents
. The Company shall maintain
an account (the “Account”) on its books in the name of the
Employee. Such Account shall reflect the number of Restricted Stock
Units awarded to the Employee as well as any additional Restricted Stock Units
credited as a result of dividend equivalents, administered as
follows:
(a)
The
Account shall be for recordkeeping purposes only, and no assets or other amounts
shall be set aside from the Company’s general assets with respect to such
Account.
(b)
As of
each record date with respect to which a cash dividend is to paid with respect
to shares of Common Stock, the Company shall credit the Employee’s Account with
an equivalent amount of Restricted Stock Units based upon the value of Common
Stock on such date.
(c)
If
dividends are paid in the form of shares of Common Stock rather than cash, then
the Employee will be credited with one additional Restricted Stock Unit for each
share of Common Stock that would have been received as a dividend had the
Employee’s outstanding Restricted Stock Units been shares of Common
Stock.
(d)
Additional
Restricted Stock Units credited via dividend equivalents shall vest or be
forfeited at the same time as the Restricted Stock Units to which they
relate.
4.
Period of
Restriction
. Subject to the provisions of the Plan and this
Agreement, unless vested or forfeited earlier as described in Section 5, 6 or 7
of this Agreement, as applicable, the Restricted Stock Units awarded hereunder
shall become vested and settled as described in Section 8 below, as of the
vesting dates defined below. The period prior to the vesting date
with respect each Restricted Stock Unit is referred to as the “Period of
Restriction.”
One half
of the Restricted Stock Units shall become vested as of the earlier of the date
a new Chief Executive Officer begins employment with the Company and the
six-month anniversary of the Award Date. If the Employee continues to
serve as Chief Executive Officer beyond the six-month anniversary of the Award
Date, then the other half of the Restricted Stock Units shall become vested over
the course of the ensuing 12-month period of continued employment as Chief
Executive Officer, as follows: One twelfth of such remaining
Restricted Stock Units shall become vested as of the end of each full month
following the six-month anniversary of the Award Date. The foregoing
is subject to ability of the Committee to waive or accelerate such vesting
restrictions in its discretion.
5.
Vesting upon Termination due
to Disability or Death
. If, while the Restricted Stock Units
are subject to a Period of Restriction, the Employee terminates employment or
Board membership with the Company by reason of Disability (as defined in the
Plan) or death, then any portion of the Restricted Stock Units subject to a
Period of Restriction shall become fully vested as of the date of termination
due to Disability or death, without regard to the Period of Restriction set
forth in Section 4 of this Agreement.
6.
Vesting upon Change in
Control
. In the event of a “Change in Control” of the Company,
as defined in Section 11.2 of the Plan, pursuant to Section 11.1 of the Plan the
Restricted Stock Units shall cease to be subject to the Period of Restriction
set forth in Section 4 of this Agreement. To the extent the
Restricted Stock Units are deemed deferred compensation subject to Internal
Revenue Code Section 409A, a Change in Control shall not be deemed to have
occurred for purposes of this Agreement unless the underlying transaction or
transactions constitute a qualifying change in control in accordance with the
definition set forth in Code Section 409A and the regulations issued
thereunder.
7.
Forfeiture
. Any
portion of the Restricted Stock Units that does not become vested in accordance
with Section 4, 5 or 6 above shall be forfeited as of the date such vesting
restrictions can no longer be met in accordance with Section 4
above.
8.
Settlement of Vested
Restricted Stock Units
. Subject to the requirements of
Sections 11 and 12 below, as promptly as practicable after Restricted Stock
Units cease to be subject to a Period of Restriction in accordance with Section
4, 5, or 6 of this Agreement, the Company shall transfer to the Employee one
share of Common Stock for each Restricted Stock Unit becoming vested at such
time; provided, however, the Company may withhold shares otherwise transferable
to the Employee to the extent necessary to satisfy withholding taxes in
accordance with Section 11 below. The Employee shall have no rights
as a stockholder with respect to the Restricted Stock Units awarded hereunder
prior to the date of issuance to the Employee of a certificate or certificates
for such shares. Certificates for the shares of Common Stock shall be
issued and delivered to the Employee, the Employee’s legal representative, or a
brokerage account for the benefit of the Employee, as the case may be, or such
shares may be held in book entry form. Restricted Stock Units payable
under this Agreement are intended to be exempt from Internal Revenue Code
Section 409A under the exemption for short-term
deferrals. Accordingly, Restricted Stock Units will be settled no
later than the 15
th
day of
the third month following the later of (i) the end of the Employee’s taxable
year in which the Restricted Stock Units cease to be subject to a Period of
Restriction, or (ii) the end of the fiscal year of the Company in which the
Restricted Stock Units cease to be subject to a Period of
Restriction.
9.
Settlement Following Change
in Control
. Notwithstanding any provision of this Agreement to
the contrary, in connection with or after the occurrence of a Change in Control
as defined in Section 11.2 of the Plan, the Company may, in its sole discretion,
fulfill its obligation with respect to all or any portion of the Restricted
Stock Units that cease to be subject to a Period of Restriction in accordance
with Section 6 above, by:
(a)
delivery
of (i) the number of shares of Common Stock that corresponds with the number of
Restricted Stock Units that have ceased to be subject to a Period of Restriction
or (ii) such other ownership interest as such shares of Common Stock that
correspond with the vested Restricted Stock Units may be converted into by
virtue of the Change in Control transaction in accordance with Section 8
above;
(b)
payment
of cash in an amount equal to the fair market value of the Common Stock that
corresponds with the number of vested Restricted Stock Units at that time;
or
(c)
delivery
of any combination of shares of Common Stock (or other converted ownership
interest) and cash having an aggregate fair market value equal to the fair
market value of the Common Stock that corresponds with the number of Restricted
Stock Units that have become vested at that time.
10.
Adjustment in
Capitalization
. In the event of any change in the Common Stock
of the Company, the provisions of Section 10.2 of the Plan shall govern such
that the number of Restricted Stock Units subject to this Agreement shall be
equitably adjusted by the Committee.
11.
Tax
Withholding
. Whenever a Period of Restriction applicable to
the Employee’s rights to some or all of the Restricted Stock Units lapses as
provided in Section 4, 5 or 6 of this Agreement, the Company or its agent shall
notify the Employee of the related amount of tax that must be withheld under
applicable tax laws. Regardless of any action the Company, any Subsidiary of the
Company, or the Employee’s employer takes with respect to any or all income tax,
social security, payroll tax, payment on account or other tax-related
withholding (“Tax”) that the Employee is required to bear pursuant to all
applicable laws, the Employee hereby acknowledges and agrees that the ultimate
liability for all Tax is and remains the responsibility of the
Employee.
Prior to receipt of any shares that
correspond to Restricted Stock Units that vest in accordance with this
Agreement, the Employee shall pay or make adequate arrangements satisfactory to
the Company and/or any Subsidiary of the Company to satisfy all withholding and
payment on account obligations of the Company and/or any Subsidiary of the
Company. In this regard, the Employee authorizes the Company and/or
any Subsidiary of the Company to withhold all applicable Tax legally payable by
the Employee from the Employee’s wages or other cash compensation paid to the
Employee by the Company and/or any Subsidiary of the Company or from the
proceeds of the sale of shares. Alternatively or in addition, the
Company may sell or arrange for the sale of Common Stock that the Employee is
due to acquire to satisfy the withholding obligation for Tax and/or withhold any
Common Stock. Finally, the Employee agrees to pay the Company or any
Subsidiary of the Company any amount of any Tax that the Company or any
Subsidiary of the Company may be required to withhold as a result of the
Employee’s participation in the Plan that cannot be satisfied by the means
previously described. The Company may refuse to deliver Common Stock
if the Employee fails to comply with its obligations in connection with the tax
as described in this section.
The Company advises the Employee to
consult his legal and/or tax advisors with respect to the tax consequences for
the Employee under the Plan.
12.
Securities
Laws
. This award is a private offer that may be accepted only
by an individual who is an employee of the Company or a Subsidiary of the
Company and who satisfies the eligibility requirements outlined in the Plan and
the Committee’s administrative procedures. If a Registration
Statement under the Securities Act of 1933, as amended, is not in effect with
respect to the shares of Common Stock to be issued pursuant to this Agreement,
the Employee hereby represents that he is acquiring the shares of Common Stock
for investment and with no present intention of selling or transferring them and
that he will not sell or otherwise transfer the shares except in compliance with
all applicable securities laws and requirements of any stock exchange on which
the shares of Common Stock may then be listed.
13.
No Employment or
Compensation Rights
. Participation in the Plan is subject to
all of the terms and conditions of the Plan and this Agreement. This
Agreement shall not confer upon the Employee any right to continuation of
employment by the Company, nor shall this Agreement interfere in any way with
the Company’s right to terminate Employee’s employment at any
time. Neither the Plan nor this Agreement forms any part of any
contract of employment between the Company and the Employee, and neither the
Plan nor this Agreement confers on the Employee any legal or equitable rights
(other than those related to the Restricted Stock Unit award) against the
Company or directly or indirectly gives rise to any cause of action in law or in
equity against the Company.
14.
Plan Terms and Committee
Authority
. This Agreement and the rights of the Employee
hereunder are subject to all of the terms and conditions of the Plan, as it may
be amended from time to time, as well as to such rules and regulations as the
Committee may adopt for administration of the Plan. It is expressly
understood that the Committee is authorized to administer, construe and make all
determinations necessary or appropriate for the administration of the Plan and
this Agreement, all of which shall be binding upon Employee. Any
inconsistency between this Agreement and the Plan shall be resolved in favor of
the Plan. The Employee hereby acknowledges receipt of a copy of the
Plan and this Agreement.
15.
Non-Competion,
Non-Solicitation and Confidentiality
. As a condition to the
receipt of this Restricted Stock Unit award, the Employee must agree to the
terms and conditions set forth in the Non-Competition, Non-Solicitation and
Confidentiality Agreement attached hereto as Exhibit A by executing that
Agreement. Failure to execute and return the Non-Competition,
Non-Solicitation andConfidentiality Agreement within 60 days of the Award Date
shall constitute a decision by the Employee to decline to accept this Restricted
Stock Unit award.
16.
Amendment or Modification,
Waiver
. Except as set forth in the Plan, no provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing, signed by the Employee and by a duly authorized officer of the
Company. No waiver of any condition or provision of this Agreement shall be
deemed a waiver of a similar or dissimilar condition or provision at the same
time, any prior time or any subsequent time.
17.
Governing Law and
Jurisdiction
. This Agreement is governed by the substantive
and procedural laws of the state of Illinois. The Employee and the
Company shall submit to the exclusive jurisdiction of, and venue in, the courts
in Illinois in any dispute relating to this Agreement.
****
Please
sign the attached Exhibit A to confirm your agreement to be bound by the terms
and conditions set forth in Exhibit A, and to acknowledge your receipt of the
Plan and this Award Agreement and your acceptance of the Restricted Stock Unit
award issued hereunder.
Very
truly yours,
EXHIBIT
A
WALGREEN
CO. NON- COMPETITION, NON- SOLICITATIONAND CONFIDENTIALITY
AGREEMENT
This
Exhibit forms a part of the Restricted Stock Unit Award Agreement covering
Restricted Stock Units awarded to an employee of Walgreen Co. or one of its
subsidiary companies (hereinafter referred to as “Employee’’ and the
“Company”).
WHEREAS,
the Company develops and/or uses valuable business, technical, proprietary,
customer and patient information it protects by limiting its disclosure and by
keeping it secret or confidential;
WHEREAS,
Employee acknowledges that during the course of employment, he or she has or
will receive, contribute, or develop such confidential information;
and
WHEREAS,
the Company desires to protect from its competitors such confidential
information and also desires to protect its legitimate business interests and
goodwill in maintaining its employee and customer relationships.
NOW
THEREFORE, in consideration of the Restricted Stock Unit award issued to
Employee pursuant the Award Agreement to which this is attached as Exhibit A,
Employee agrees to the following:
1.
Non-Disclosure
And Non-Use
.
Employee agrees
not to disclose any Confidential Information, as defined below, to any person or
entity other than the Company, either during or after Employee’s employment,
without the Company’s prior written consent. Employee further agrees
not to use any Confidential Information, either during or at any time after his
or her employment, without the Company’s prior written consent, except as may be
necessary to perform his or her job duties during employment with the
Company.
Confidential
Information means information not generally known by the public about processes,
systems, products, services, including proposed products and services, business
information, know-how, or trade secrets of the Company. Confidential
Information includes, but is not limited to, the following:
(a) Customer
records, identity of vendors, suppliers, or landlords, profit and performance
reports, prices, selling and pricing procedures and techniques, and financing
methods of the Company;
(b) Customer
lists and information pertaining to identities of the customers, their special
demands, and their past, current and anticipated requirements for the products
or services of the Company;
(c) Specifications,
procedures, policies, techniques, manuals, databases and all other information
pertaining to products or services of the Company, or of others for which the
Company has assumed an obligation of confidentiality;
(d) Business
or marketing plans, accounting records, financial statements and information,
and projections of the Company;
(e) Software
developed or used by the Company;
(f) Information
related to the Company’s retailing, distribution or administrative facilities;
and
(g) Any
other information identified or defined as confidential information by Company
policy.
2.
Non-Competition
and Non-Solicitation
.
In order to
protect the legitimate business interests and goodwill of the Company, and to
protect Confidential Information, Employee covenants and agrees that for the
entire period of his or her employment with the Company, and for one year after
the termination of such employment by either party for any reason, Employee will
not:
(a) contact
any Customer of the Company for the benefit of a Competing Business or interfere
with, or attempt to disrupt the relationship, contractual, or otherwise, between
the Company and any of its Customers.
(b) hire
employees of the Company. This restriction includes without
limitation a prohibition on directly or indirectly employing, or knowingly
permitting any Person or business directly or indirectly controlled by Employee,
regardless of whether such Person or business is a Competing Business, from
employing, any person who is employed by the Company. For the period
following the termination of Employee's employment with the Company, the term
"employee" means an individual employed by the Company as of the date of, or
within 90 days of, Employee's last day worked with the Company.
(c) solicit
employees of the Company. This restriction includes without
limitation a prohibition on directly or indirectly (i) interfering with, or
attempting to disrupt the relationship, contractual, or otherwise, between the
Company and any of its employees, and (ii) soliciting, inducing, or attempting
to induce employees of the Company to terminate employment with the
Company.
(d) compete
with the Company. This restriction includes without limitation a
prohibition on directly or indirectly engaging or investing in, owning,
managing, operating, financing, controlling, participating in the ownership,
management, operation, financing or control of, or being associated or in any
manner connected with, any Competing Business, whether as a consultant,
independent contractor, agent, employee, officer, partner, director, shareholder
(except (i) limited partnership investments in private equity funds which may
invest in venture capital-backed companies (where Employee's investment
represents less than 1% percent ownership interest of any such company) or (ii)
investments of less than 1% ownership interest of the outstanding securities of
a corporation or other entity whose securities are listed on a stock exchange or
quotation system and such entity files periodic reports with the Securities and
Exchange Commission), distributor, representative, or otherwise, alone or in
association with any other Person(s). Notwithstanding the foregoing,
Employee may render services for a Competing Business if: such
service does not conflict with any other restrictions noted in this Paragraph 2;
the Competing Business is diversified, and Employee becomes employed in a part
of the business that is not in direct or indirect competition with Company; and,
prior to the Employee beginning employment with the Competing Business, the
Company receives written assurances satisfactory to the Company, from both the
Competing Business and Employee, that Employee will not render services directly
or indirectly in connection with any product, system, service, or process of any
person or organization which is the same as, comparable to, or competes directly
or indirectly with a product, system, service, or process of the
Company
Employee
agrees that the restrictions contained in paragraphs 2(a), 2(b), and 2(c) have
no geographic limitation. Employee agrees that the restrictions
contained in Paragraph 2(d) are geographically limited to (a) the entirety of
the United States and (b) any other country if the Company conducts business
within such country at any time during Employee's employment with the
Company.
Employee
acknowledges that (i) the Company's business is and following the date hereof
will be national in scope, (ii) the Company's products and services are and
following the date hereof will be marketed throughout the United States and
(iii) the Company has competed and following the date hereof will compete with
other businesses that are or could be located in any part of the United
States. Employee further covenants and agrees that restrictive
covenants contained in this Agreement are reasonable and necessary to protect
the legitimate business interests of the Company because of the nature and scope
of the Company's business.
If a
court or arbitrator of competent jurisdiction determines that one or more of the
provisions of this Paragraph 2 are invalid, illegal, or unenforceable for
any reason, then such provision or provisions shall be deemed to be reduced in
scope or length, as the case may be, to the extent required to make this
Paragraph enforceable. If Employee violates the provisions of this
Paragraph 2, the periods described therein shall be extended by that number
of days which equals the aggregate of all days during which at any time any such
violations occurred.
For
purposes of this Paragraph 2, the following definitions shall
apply:
(1) “Competing
Business” means any business engaged in by any Person that is in competition
with any business engaged in by the Company (“Company Business”) during the term
of Employee’s employment with the Company; provided that the foregoing shall
only apply to any Company Business with respect to which Employee possesses
Confidential Information and is substantially engaged or provides substantial
support during Employee’s employment with the Company.
(2) “Customer”
means any patient or other customer or prospective customer of any Company
business unit with respect to which Employee is substantially engaged or
provides substantial support during Employee’s employment with the
Company.
(3) “Person”
means any individual, corporation, partnership, limited liability company or
other entity.
For
purpose of this Agreement, Employee’s effective date of termination of
employment with the Company shall mean the later of: the Employee’s last day
worked for the Company, or the last date for which Employee receives
compensation for his or her services with the Company.
3.
Non-Inducement
.
Employee agrees
that during the term of his or her employment and for one year following the
Employee’s termination of employment, Employee will not directly or indirectly
assist or encourage any Person or entity in carrying out any activity that would
be prohibited by the provisions of this Agreement if such activity were carried
out by Employee.
4.
Property
.
Employee agrees
that upon leaving the employment of the Company, he or she will not take with
him or her any of the Company’s property, including Confidential Information and
trade secrets, regardless of the form in which it was held or acquired by
Employee, and will immediately return to the Company any and all documents,
notes, records, notebooks, mobile telephones, cellular telephones, computers,
PDAs (personal digital assistants), portable digital storage devices, and
similar repositories of or containing or relating to Confidential Information
and Company trade secrets, and including, but not limited to, all copies, notes
or abstracts thereof.
5.
Consideration
and Acknowledgments
.
Employee
acknowledges and agrees that the covenants described in Paragraphs 1 through 4
of this Agreement are essential terms, and the underlying restricted stock unit
award would not be provided by the Company in the absence of these
covenants. Employee further acknowledges that these covenants are
supported by adequate consideration as set forth in this Agreement, that full
compliance with these covenants will not prevent Employee from earning a
livelihood following the termination of his or her employment, and that these
covenants do not place undue restraint on Employee and are not in conflict with
any public interest. Employee further acknowledges and agrees that
Employee fully understands these covenants, has had full and complete
opportunity to discuss and resolve any ambiguities or uncertainties regarding
these covenants before signing this Agreement, that these covenants are
reasonable and enforceable in every respect, and has voluntarily agreed to
comply with these covenants for their stated term. Employee agrees
that in the event he or she is offered employment with a Competing Business at
any time in the future, Employee shall immediately notify the Competing Business
of the existence of the covenants set forth in Paragraphs 1 through 4
above.
6.
Enforcement
of This Agreement
.
Employee
acknowledges that compliance with the covenants set forth in Paragraphs 1
through 4 of this Agreement is necessary to enable the Company to maintain its
competitive position, and that any actual or threatened breach of these
covenants will result in irreparable and continuing damage to the Company for
which there will be no adequate remedy at law. In the event of any
actual or threatened breach of these covenants, the Company shall be entitled to
injunctive relief, including the right to a temporary restraining order, and
other relief, including damages, as may be proper along with the Company’s
attorneys’ fees and court costs. The foregoing stipulated damages and
remedies of the Company are in addition to, and not to the exclusion of, any
other damages the Company may be able to prove. In addition, if any
court shall at any time hold these covenants to be unenforceable or unreasonable
in scope, territory or period of time, then the scope, territory or period of
time of the covenants shall be that determined by the court to be
reasonable. Employee consents to the jurisdiction of the Circuit
Court of Lake or Cook County, Illinois for purposes of the enforcement of this
agreement.
7.
Severability
.
If any phrase or
provision of this Agreement is declared invalid or unenforceable by a court of
competent jurisdiction, such phrase, clause or provision shall be deemed severed
from this Agreement, but will not affect the enforceability of any other
provisions of this Agreement, which shall otherwise remain in full force and
effect. If any restriction or limitation in this Agreement is deemed
to be unreasonable, unenforceable or unduly restrictive by a court of competent
jurisdiction, it shall not be stricken in its entirety and held totally void and
unenforceable, but shall remain effective to the maximum extent permissible as
determined by said court.
8.
Entire
Agreement
.
This Agreement
represents the entire agreement between the parties and supersedes and renders
null and void all prior agreements, arrangements or communications between the
parties covering the same or similar subject matter, whether oral or
written. In particular, to the extent Employee has signed more than
one version of this Agreement in connection with restricted stock unit awards
for multiple years, the latest of such executed Agreements shall
apply. The terms of this Agreement may not be altered or modified
except by written agreement of Employee and the
Company. Notwithstanding the foregoing, to the extent that, pursuant
to an employment contract or otherwise, Employee is currently or in the future
becomes subject to any similar obligations that are more restrictive in any
respects than Employee’s obligations under this Agreement, then the more
restrictive terms shall govern.
9.
Notification
.
Employee further
agrees that the Company may notify anyone later employing him or her of the
existence and provisions of this Agreement.
10.
Successors
and Assigns
.
This Agreement
shall be enforceable by the Company and its successors and permitted
assigns.
11.
General
.
Employee agrees
that:
(a) For
purposes of this Agreement, Employee’s past and any future service as a
nonemployee member of the Board of Directors of Walgreen Co. shall be considered
as employment with the Company;
(b) Waiver
of any of the provisions of this Agreement by the Company in any particular
instance shall not be deemed to be a waiver of any provision in any other
instance and/or of the Company’s other rights at law or under this
Agreement;
(d) The
provisions of this Agreement shall be considered severable;
(d) This
Agreement shall accrue to and be binding upon the Company and Employee;
and
(e) The
captions in this Agreement shall be for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
12.
Governing
Law
.
The law of the
State of Illinois shall govern this Agreement without regard to its choice of
law provisions.
*** *** *** *** ***
By my
signature below, I acknowledge receipt of the Restricted Stock Unit Agreement to
which this Agreement is attached as Exhibit A, and I and agree to the terms and
conditions expressed in this Non-Competition, Non-Solicitation and
Confidentiality Agreement.
Employee
Name:
Alan G. McNally
Employee
Name:
Alan
G. McNally
Employee
Signature:
/s/ Alan G.
McNally
Date:
Nov. 11,
2008
PLEASE
SIGN AND RETURN THIS COPY
Exhibit 12
Walgreen
Co. and Subsidiaries
Computation
of Ratio of Earnings to Fixed Charges
|
Three
Months Ended November 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Income
before income taxes and minority interest
|
$ | 654 | $ | 728 | ||||
|
Add:
|
||||||||
|
Minority
interest
|
- | - | ||||||
|
Fixed
charges
|
237 | 204 | ||||||
|
Less:
Capitalized interest
|
(5 | ) | (7 | ) | ||||
|
Earnings
as defined
|
$ | 886 | $ | 925 | ||||
|
Interest
expense, net of capitalized interest
|
16 | $ | 2 | |||||
|
Capitalized
interest
|
5 | $ | 7 | |||||
|
Portions
of rentals representative of the interest factor
|
216 | 195 | ||||||
|
Fixed
charges as defined
|
$ | 237 | $ | 204 | ||||
|
Ratio
of earnings to fixed charges
|
3.74 | 4.53 | ||||||
EXHIBIT
31.1
CERTIFICATION
I, Alan
G. McNally, acting Chief Executive Officer, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of Walgreen
Co.;
|
|||
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|||
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
|
4.
|
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|||
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|||
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|||
|
d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|||
|
5.
|
The
registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|||
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|||
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
|||
|
/s/
|
Alan
G. McNally
|
Chairman
and acting Chief Executive Officer
|
Date: January
6, 2009
|
|
|
Alan
G. McNally
|
||||
EXHIBIT
31.2
CERTIFICATION
I, Wade
D. Miquelon, Chief Financial Officer, certify that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q of Walgreen
Co.;
|
|||
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|||
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
|
4.
|
The
registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|||
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|||
|
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
|||
|
d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
|||
|
5.
|
The
registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent
functions):
|
|||
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
and
|
|||
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
|
|||
|
/s/
|
Wade
D. Miquelon
|
Chief
Financial Officer
|
Date: January
6, 2009
|
|
|
Wade
D. Miquelon
|
||||
Exhibit
32.1
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In
connection with the Quarterly Report of Walgreen Co., an Illinois corporation
(the "Company"), on Form 10-Q for the quarter ended November 30, 2008 as filed
with the Securities and Exchange Commission (the "Report"), I, Alan G. McNally,
acting Chief Executive Officer of the Company, certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, to the best of my knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ Alan G.
McNally
Alan G.
McNally
Chairman
and acting Chief Executive Officer
Dated: January
6, 2009
A signed
original of this written statement required by Section 906 has been provided to
Walgreen Co. and will be retained by Walgreen Co. and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit
32.2
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In
connection with the Quarterly Report of Walgreen Co., an Illinois corporation
(the "Company"), on Form 10-Q for the quarter ended November 30, 2008 as filed
with the Securities and Exchange Commission (the "Report"), I, Wade D. Miquelon,
Chief Financial Officer of the Company, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ Wade D.
Miquelon
Wade D.
Miquelon
Chief
Financial Officer
Dated: January
6, 2009
A signed
original of this written statement required by Section 906 has been provided to
Walgreen Co. and will be retained by Walgreen Co. and furnished to the
Securities and Exchange Commission or its staff upon request.