Annual Report

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to ___________
 
Commission file number 1-604 .
 
WALGREEN CO .
(Exact name of registrant as specified in its charter)
Illinois
 
36-1924025
(State of incorporation)
 
(I.R.S. Employer Identification No.)
108 Wilmot Road, Deerfield, Illinois
 
60015
(Address of principal executive offices)
 
(Zip Code)
 
Registrant's telephone number, including area code:   (847) 315-2500
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
                     Common Stock ($.078125 Par Value)
 
                         New York Stock Exchange
   
                         The NASDAQ Stock Market LLC
   
                         Chicago Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:     None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.       Yes x   No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o   No x
 
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.  Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   x     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
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 definition of "large accelerated filer,” “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x                                                                            Accelerated filer o
Non-accelerated filer o                                                                            Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x
 
As of February 28, 2011, the aggregate market value of Walgreen Co. common stock held by non-affiliates (based upon the closing transaction price on the New York Stock Exchange on February 28, 2011) was approximately $39.7 billion.  As of August 31, 2011, there were 889,294,130 shares of Walgreen Co. common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended August 31, 2011, to the extent stated in this Form 10-K, are incorporated by reference into Parts I, II and IV of this Form 10-K.  Portions of the registrant's Proxy Statement for its Annual Meeting of Shareholders to be held January 11, 2012, are incorporated by reference into Part III of this Form 10-K as indicated herein.


 
 
 
TABLE OF CONTENTS


Part I
   
 
   
Part II
   
   
Part III
   
   
Part IV
   
 
 
 
 

PART I

Item 1 .   Business

References in this Form 10-K to “Walgreens”, the “Company,” “we,” “us” or “our” refer to Walgreen Co. and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or the context otherwise requires.  Our fiscal year ends on August 31, and references herein to “fiscal 2011” refer to our fiscal year ended August 31, 2011.

Overview

Walgreen Co., together with its subsidiaries, operates the largest drugstore chain in the United States with net sales of $72.2 billion in the fiscal year ended August 31, 2011.  We provide our customers with convenient, multichannel access to consumer goods and services, pharmacy, and health and wellness services in communities across America.  We offer our products and services through drugstores, as well as through mail, by telephone and via the Internet.

We sell prescription and non-prescription drugs as well as general merchandise, including household products, convenience and fresh foods, personal care, beauty care, photofinishing and candy.  Our pharmacy, health and wellness services include retail, specialty, infusion and respiratory services, mail service, convenient care clinics and worksite clinics.  These services help improve health outcomes and manage costs for payers including employers, managed care organizations, health systems, pharmacy benefit managers and the public sector.  Our Take Care Health Systems subsidiary is a manager of worksite health centers and in-store convenient care clinics, with more than 700 locations throughout the United States.

Walgreen Co. was incorporated as an Illinois corporation in 1909 as a successor to a business founded in 1901.  Our principal executive offices are located at 108 Wilmot Road, Deerfield, Illinois 60015.  The Company is principally in the retail drugstore business and its operations are within one reportable segment.


Business Development

As of August 31, 2011, Walgreens operated 8,210 locations in 50 states, the District of Columbia, Puerto Rico and Guam.  In 2011, the Company opened or acquired 297 locations for a net increase of 164 locations after relocations and closings.  Total locations do not include 357 Take Care clinics operated within our Walgreens locations.

   
Number of Locations
 
Location Type
 
2011
   
2010
   
2009
 
Drugstores
    7,761       7,562       6,997  
Worksite Facilities
    355       367       377  
Infusion and Respiratory Services Facilities
    83       101       105  
Specialty Pharmacies
    9       14       15  
Mail Service Facilities
    2       2       2  
Total
    8,210       8,046       7,496  

Walgreens goal is to provide the most convenient multichannel access to consumer goods and services, pharmacy, health and wellness services through our 7,761 community based drugstores, as well as through our specialty pharmacy, home infusion and respiratory services, worksite health centers and retail clinic businesses.  As of August 2011, approximately 73.8% of the United States population lived within five miles of a Walgreens and 6.1 million shoppers visited our stores daily.  In addition to store shoppers, Walgreens.com received approximately 16.8 million visits per month in fiscal 2011.

We seek to grow pharmacy, front-end and online market share through new store growth, comparable store sales increases, pharmacy prescription file purchases and strategic acquisitions.  In fiscal 2011, we expanded our ecommerce capabilities with the acquisition of drugstore.com which complements our site, Walgreens.com, in providing customers with access to our merchandise.  In fiscal 2010, we supplemented organic growth by expanding our presence in the New York metropolitan area through the acquisition of 258 Duane Reade drugstores.  Beyond our purchases of drugstore.com and Duane Reade, we continue to make strategic acquisitions of prescription files, buy-and-operate locations and other regional drugstore retailers as well as other complementary health care services.

We utilize our extensive retail network as a channel to provide affordable quality health and wellness services to our customers and patients, as illustrated by our ability to play a significant role in providing flu vaccines and other immunizations.  We market our products and services to employers, governments, managed care organizations and pharmacy benefit managers, expanding beyond our traditional retail consumer model, to contract directly with our payers.  With our more than 75,000 health care providers including pharmacists, nurse practitioners and other health related professionals, Walgreens expects to continue to play a growing role in government and employer efforts to control escalating health care costs.

Prescription sales continue to be a large portion of the Company's business.  In fiscal 2011, prescriptions accounted for 64.7% of sales compared to 65.2% in fiscal 2010.  Third party sales, where reimbursement is received from managed care organizations, government and private insurance, were 95.6% of fiscal 2011 prescription sales compared to 95.3% in fiscal 2010.  Overall, Walgreens filled approximately 718 million prescriptions in 2011, an increase of 23 million from fiscal 2010.  Adjusted to 30 day equivalents, prescriptions filled were 819 million in fiscal 2011, 778 million in fiscal 2010 and 723 million in fiscal 2009.  Walgreens continues to gain market share, accounting for 20.0% of the U.S. retail prescription drug market in fiscal 2011 compared to 19.5% and 18.9% in fiscal 2010 and 2009, respectively.  Walgreens expects to continue to grow pharmacy sales due, in part, to the aging population and the continued development of innovative drugs that improve quality of life and control health care costs.

During fiscal 2011, the Company added $1.2 billion to property and equipment, which included approximately $800 million related to stores, $300 million for information technology and $100 million related to other locations.  Capital expenditures for fiscal 2012 are currently expected to be approximately $1.6 billion, excluding acquisitions and prescription file purchases, although the actual amount may vary depending upon a variety of factors, including, among other things, the timing of implementation of certain capital projects.

During fiscal 2012, the Company plans to pursue strategies designed to further transform its traditional drugstore to a “retail health and daily living” store; advance community pharmacy to play a greater role in healthcare through integration and expanded services; deliver an outstanding customer experience through enhanced employee engagement; expand across new channels and markets; and enhance its cost structure through continuous improvement and innovation.

Description of Business

Principal products produced and services rendered

The Company’s drugstores are engaged in the retail sale of prescription and non-prescription drugs and general merchandise.  General merchandise includes, among other things, household items, convenience and fresh foods, personal care, beauty care, photofinishing and candy.  Prescription drugs represent our largest product class accounting for 65% of our total sales followed by general merchandise and non-prescription drugs at 25% and 10%, respectively.  Walgreens offers customers the choice to have prescriptions filled at the drugstore, as well as through the mail, and customers may also place orders by telephone and online.

We offer pharmacy, health and wellness solutions which include retail, specialty pharmacy, infusion and respiratory services, mail service, convenient care clinics and worksite clinics.  Our drugstores, including Duane Reade, sell prescription and non-prescription drugs that utilize our pharmacists to provide drug consultations and administer flu vaccines and other immunizations.  Our integrated network of pharmacies allows easy access for customers to fill their prescriptions at any of our drugstores.  In addition, our stores sell branded and private brand general merchandise, including household products, convenience and fresh foods, personal care, beauty care, candy, photofinishing and seasonal items.

We offer specialty pharmacy services that provide customers nationwide access to a variety of medications, services and programs for managing complex and chronic health conditions.  Medications delivered to these customers often require special handling, are only available through limited distributions or involve a time-sensitive delivery.  Specialty pharmacy customers typically require customized treatments in managing their medical conditions.

In addition, we also offer our customers infusion therapy services including the administration of intravenous (IV) medications for cancer treatments, chronic pain, heart failure, and other infections and disorders which must be treated by IV.  Walgreens provides these infusion services at home, at the workplace, in a physician's office or in a Walgreens alternate treatment site.  We also provide clinical services such as laboratory monitoring, medication profile review, nutritional assessments and patient and caregiver education.

Customers can choose to have their prescriptions refilled through our mail service which allows customers to submit prescription refill requests online, over the phone or through e-prescribing.    Our advanced pharmacy system offers pharmacists easy access to patient prescription records which allows access to refills and emergency supplies at any of our pharmacies, eases prescription transfers, and enables any Walgreens pharmacist to provide ongoing treatment consultation.

Customers can also access our ecommerce solutions which extend the convenience to purchase most products available within our drugstores as well as additional products sold exclusively online through our walgreens.com and drugstore.com websites.  Our websites allow consumers to purchase general merchandise including beauty, personal care, home medical equipment, contact lens, vitamins and supplements and other health and wellness solutions.  Our mobile applications also allow customers to refill prescriptions through their mobile device, download weekly promotions and find the nearest Walgreens drugstore.      

We also offer services through Take Care Health Systems, which manages our Take Care Clinics at select Walgreens drugstores throughout the country. Patient care at each of the Take Care Clinics is provided by Take Care Health Services, an independently owned state professional corporation.  Nurse practitioners and physician assistants treat patients and are licensed to write prescriptions that can be filled at the patient's pharmacy of choice and to administer immunizations and other vaccines.  Additionally, our Take Care Health Employer Solutions manages primary care, health and wellness, occupational health, pharmacy and fitness centers at large employer campuses.  These centers provide primary-care services that allow employees and families to enjoy the full benefits of a dedicated physician in a convenient worksite setting.

Sources and availability of raw materials

Inventories are purchased from numerous domestic and foreign suppliers.  We do not believe that the loss of any one supplier or group of suppliers under common control would have a material effect on the Company’s business.

Intellectual Property and Licenses

We market products and services under various trademarks, trade dress and trade names and rely on a combination of patent, copyright, trademark, service mark, and trade secret laws, as well as contractual restrictions to establish and protect our proprietary rights.  We own numerous domain names, hold approximately forty patents, have registered numerous trademarks, and have filed applications for the registration of a number of our other trademarks and service marks in various jurisdictions.  We hold assorted business licenses (such as pharmacy, occupational, liquor and cigarette) having various lives within multiple legal jurisdictions, which are necessary for the normal operation of our business.

Seasonal variations in business

Our business is seasonal in nature, with the second fiscal quarter generating a higher proportion of front-end sales and earnings than other periods.  Both prescription and non-prescription drug sales are affected by the timing and severity of the cough, cold and flu season.  See the caption “Summary of Quarterly Results (Unaudited)” on page 39 of the Annual Report to Shareholders for the year ended August 31, 2011 (“2011 Annual Report”), which section is incorporated herein by reference.

Working capital practices

The Company generally finances its inventory and expansion needs with internally generated funds.  See “Management's Discussion and Analysis of Results of Operations and Financial Condition” on pages 18 through 23 of the 2011 Annual Report, which sections are incorporated herein by reference.

Customers

The Company sells to numerous customers including various managed care organizations within both the private and public sectors.  No customer accounted for ten percent or more of the Company's consolidated net sales in fiscal 2011.

Government contracts

The Company fills prescriptions for many state Medicaid public assistance plans.  Revenues from all such plans were approximately 6.7% of total sales in fiscal 2011.

Regulation

Our business is subject to federal, state and local government laws, regulations and administrative practices.  The regulations to which we are subject include, but are not limited to: federal, state and local registration and regulation of pharmacies; applicable Medicare and Medicaid regulations; the Health Insurance Portability and Accountability Act, or HIPAA; regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the Drug Enforcement Administration, and the Consumer Product Safety Commission, as well as state regulatory authorities, governing the sale, advertisement and promotion of products we sell; anti-kickback laws; false claims laws; laws against the corporate practice of medicine; and federal and state laws governing the practice of the profession of pharmacy.  In addition, we are party to a Corporate Integrity Agreement with the U.S. Department of Health and Human Services under which we have agreed to maintain a corporate compliance program.  We are also governed by federal and state laws of general applicability, including laws regulating matters of working conditions, health and safety and equal employment opportunity.  In connection with the operation of our stores, distribution centers and other sites, we are subject to laws and regulations relating to the protection of the environment and health and safety matters, including those governing exposure to, and the management and disposal of, hazardous substances.  Federal, state and local environmental protection requirements did not have a material effect upon capital expenditures, earnings or the competitive position of the Company in fiscal 2011.

Competitive conditions

The drugstore industry is highly competitive.  As a leader in the retail drug industry and as a retailer of general merchandise, Walgreens competes with various retailers, including chain and independent drugstores, mail order prescription providers, grocery stores, convenience stores, mass merchants, Internet pharmacies, warehouse clubs, dollar stores and other discount merchandisers.  The Company competes primarily on the basis of service, convenience, variety and price.  The Company's geographic dispersion helps offset the impact of temporary, localized economic and competitive conditions in individual markets.  The number and location of the Company's drugstores appears under Item 2 – “Properties” in this Form 10-K.
 
Employees

At August 31, 2011, the Company employed approximately 247,000 persons, approximately 71,000 of whom were part-time employees working less than 30 hours per week.

Research and Development

The Company does not engage in any material research and development activities.

Financial Information about Foreign and Domestic Operations and Export Sales

All Company sales during the last three fiscal years occurred within the United States, Puerto Rico and Guam.  There were no export sales.

Available information

We file with the Securities and Exchange Commission (SEC) our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, proxy statements and registration statements.  You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.  You may also obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically.  We make available free of charge on or through our website at investor.walgreens.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file or furnish them to the SEC.  The contents of the Company's website are not, however, a part of this report.

Cautionary Note Regarding Forward Looking Statements

This Annual Report on Form 10-K, the documents incorporated herein by reference and other documents that we file or furnish with the Securities and Exchange Commission contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions.  In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on the Company’s website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications.  Some of such forward-looking statements may be based on certain data and forecasts relating to our business and industry which we have obtained from internal surveys, market research, publicly available information and industry publications.  Industry publications, surveys and market research generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed.  Statements that are not historical facts are forward-looking statements, including forward-looking information concerning pharmacy sales trends, prescription margins, number and location of new store openings, vendor, payer and customer relationships and terms, possible new contracts or contract extensions, competition, economic and business conditions, outcomes of litigation and regulatory matters, the level of capital expenditures, industry trends, demographic trends, growth strategies, financial results, cost reduction initiatives, acquisition synergies, competitive strengths and changes in legislation or regulations.  Words such as “expect,” “likely,” “outlook,” “forecast,” “would,” “could,” “should,” “will,” “project,” “intend,” “plan,” “continue,” “sustain,” “on track,” “believe,” “seek,” “estimate,” ‘anticipate,” “may,” “possible,” “assume,” variations of such words and similar expressions are intended to identify such forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not guarantees of future performance and involve risks, assumptions and uncertainties, known or unknown to the Company, including, but not limited to, changes in vendor, payer and customer relationships and terms, competition, changes in economic and business conditions generally or in the markets we serve, risks associated with new business initiatives and activities, the failure to obtain new contracts or extensions of existing contracts, the availability and cost of real estate and construction, risks associated with acquisitions and divestitures, the ability to realize anticipated results from capital expenditures and cost reduction initiatives, outcomes of legal and regulatory matters, changes in legislation or regulations or interpretations thereof, and those described in Item 1A “Risk Factors” below and in other reports that we file or furnish with the Securities and Exchange Commission.  Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements.  Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made.  Except to the extent required by law, we do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date such statement is made, whether as a result of new information, future events, changes in assumptions or otherwise.

Item 1A.                       Risk Factors

In addition to the other information in this report and our other filings with the SEC, you should carefully consider the risks described below, which could materially and adversely affect our business, financial condition and results of operations.  These risks are not the only risks that we face.  Our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations.

We derive a significant portion of our sales from prescription drug sales reimbursed by pharmacy benefit management companies.

We derive a significant portion of our sales from prescription drug sales reimbursed through prescription drug plans administered by pharmacy benefit management (PBM) companies.  PBM companies typically administer multiple prescription drug plans that expire at various times and provide for varying reimbursement rates.  If our participation in the prescription drug programs administered by one or more of the large PBM companies is restricted or terminated, we expect that our sales would be adversely affected, at least in the short term.  If we are unable to replace any such lost sales, either through an increase in other sales or through a resumption of participation in those plans, our operating results may be materially adversely affected.  In June 2011, we announced that contract renewal negotiations with pharmacy benefit manager Express Scripts, Inc. had been unsuccessful, and as a result we were planning not to be part of Express Scripts’ pharmacy provider network as of January 1, 2012.
 
Reductions in third party reimbursement levels, from private or government plans, for prescription drugs could reduce our margin on pharmacy sales and could have a significant effect on our retail drugstore profits.

The continued efforts of health maintenance organizations, managed care organizations, pharmacy benefit management companies, government entities, and other third party payers to reduce prescription drug costs and pharmacy reimbursement rates, as well as litigation relating to how drugs are priced, may adversely impact our profitability.  In addition, some of these entities may offer pricing terms that we may not be willing to accept or otherwise restrict our participation in their networks of pharmacy providers.  Certain provisions of the Deficit Reduction Act of 2005 (the DRA) sought to reduce federal spending by altering the Medicaid reimbursement formula for multi-source (i.e., generic) drugs (AMP).  Those reductions did not go into effect.  The Patient Protection and Affordable Care Act signed into law on March 23, 2010 (the ACA) enacted a modified reimbursement formula for multi-source drugs.  The modified formula, when implemented, is expected to reduce Medicaid reimbursements, which could adversely affect our revenues and profits.

Our profitability can be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs.

Our sales and profit margins are materially affected by the introduction of new brand name and generic drugs.  New brand name drugs can result in increased drug utilization and associated sales revenues, while the introduction of lower priced generic alternatives typically result in higher gross profit margins.  Accordingly, a decrease in the number of significant new brand name drugs or generics successfully introduced could adversely affect our results of operations.

Consolidation in the healthcare industry could adversely affect our business, financial condition and results of operations.
 
Many organizations in the healthcare industry, including pharmacy benefit managers, have consolidated in recent years to create larger healthcare enterprises with greater market power, which has resulted in greater pricing pressures.  Two of the three largest pharmacy benefit managers, Medco Health Solutions, Inc. and Express Scripts, Inc., announced an agreement to merge in July 2011, completion of which is subject to regulatory and other conditions.  If this consolidation trend continues, it could give the resulting enterprises even greater bargaining power, which may lead to further pressure on the prices for our products and services.  If these pressures result in reductions in our prices, our business will become less profitable unless we are able to achieve corresponding reductions in costs or develop profitable new revenue streams.  We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements, and societal pressures will continue to cause the healthcare industry to evolve, potentially resulting in further business consolidations and alliances among the industry participants we engage with, which may adversely impact our business, financial condition and results of operations.

Changes in economic conditions could adversely affect consumer buying practices and reduce our revenues and profitability.

Our performance has been, and may continue to be, adversely impacted by negative changes in national, regional or local economic conditions and consumer confidence.  The current economic environment has had a material impact on consumer behavior that could persist even as the economy starts to recover.  External factors that affect consumer confidence and over which we exercise no influence include unemployment rates, levels of personal disposable income, national, regional or local economic conditions and acts of war or terrorism. Changes in economic conditions and consumer confidence could adversely affect consumer preferences, purchasing power and spending patterns.  A decrease in overall consumer spending as a result of changes in economic conditions could adversely affect our front-end and pharmacy sales and negatively impact our profitability.  All these factors could impact our revenues, operating results and financial condition.

The industries in which we operate are highly competitive and further increases in competition could adversely affect us.

In our retail pharmacy business, we face intense competition from local, regional and national companies, including other drugstore chains, independent drugstores, mail-order prescription providers and various other retailers such as grocery stores, convenience stores, mass merchants and dollar stores, many of which are aggressively expanding in markets we serve.  In the other markets in which we compete, including health and wellness services, we also operate in a highly competitive environment.  As competition increases in the markets in which we operate, a significant increase in general pricing pressures could occur, this could require us to reevaluate our pricing structures to remain competitive.  Our failure to reduce prices could result in decreased revenue and negatively affect profits.

If the merchandise and services that we offer fail to meet customer needs, our sales may be affected.

Our success depends on our ability to offer a superior shopping experience, a quality assortment of available merchandise and superior customer service.  We must identify, obtain supplies of, and offer to our customers, attractive, innovative and high-quality merchandise on a continuous basis.  Our products and services must satisfy the needs and desires of our customers, whose preferences may change in the future.  If we misjudge either the demand for products and services we sell or our customers’ purchasing habits and tastes, we may be faced with excess inventories of some products and missed opportunities for products and services we chose not to offer.  In addition, our sales may decline or we may be required to sell the merchandise we have obtained at lower prices. This would have a negative effect on our business and results of operations.

Our strategy is dependent, in part, upon the successful implementation of various strategic initiatives.
 
While our overall business strategy consists of many components and underlying initiatives, our long-term financial performance will be impacted by our ability to execute certain key initiatives.  In fiscal 2012, we plan to pursue strategies designed to further transform our traditional drugstore to a “retail health and daily living” store; advance community pharmacy to play a greater role in healthcare through integration and expanded services; deliver an outstanding customer experience through enhanced employee engagement; expand across new channels and markets; and enhance our cost structure through continuous improvement and innovation. If we are unable to effectively execute one or more of these key initiatives, our business, financial condition and results of operations may be materially adversely affected.
 
Our ability to grow our business may be constrained by our inability to find suitable new store locations at acceptable prices or by the expiration of our current leases.

Our ability to grow our business may be constrained if suitable new store locations cannot be identified with lease terms or purchase prices that are acceptable to us.  We compete with other retailers and businesses for suitable locations for our stores. Local land use and other regulations applicable to the types of stores we desire to construct may impact our ability to find suitable locations and influence the cost of constructing our stores.  The expiration of leases at existing store locations may adversely affect us if the renewal terms of those leases are unacceptable to us and we are forced to close or relocate stores.  Further, changing local demographics at existing store locations may adversely affect revenue and profitability levels at those stores.

A significant disruption in our computer systems could adversely affect our operations.

We rely extensively on our computer systems to manage our ordering, pricing, point-of-sale, inventory replenishment and other processes. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, vandalism, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities.  In addition, we are currently making, and expect to continue to make, substantial investments in our information technology systems and infrastructure and any risk of system disruption is further increased when significant system changes are undertaken. If our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations.

Our growth strategy is partially dependent upon acquisitions, some of which may not prove to be successful.

We have grown our business, in part, through acquisitions in recent years and expect to continue to acquire drugstore chains, independent drugstores and other businesses in the future.  Acquisitions involve numerous risks, including difficulties in integrating the operations and personnel of the acquired companies, distraction of management from overseeing our existing operations, difficulties in entering markets in which we have no or limited direct prior experience, and difficulties in achieving the synergies we anticipated. Acquisitions may also cause us to significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition, issue common stock that would dilute our current shareholders’ percentage ownership, or incur write-offs and restructuring and other related expenses.  No assurance can be given that our acquisitions will be successful and will not materially adversely affect our results of operations.

Changes in the health care regulatory environment may adversely affect our business.
 
Political, economic and regulatory influences are subjecting the healthcare industry to significant changes that could adversely affect our results of operations.  The ACA and the Health Care and Education Reconciliation Act of 2010 were signed into law on March 23, 2010 and March 30, 2010, respectively.  A number of the provisions of those laws require rulemaking action by governmental agencies to implement, which has not yet occurred.  Future rulemaking could increase regulation of pharmacy services, result in changes to pharmacy reimbursement rates, and otherwise change the way we do business.  We cannot predict the timing or impact of any future rulemaking, but any such rulemaking could have an adverse impact on our results of operations.

We are subject to governmental regulations and procedures and other legal requirements. A significant change in, or noncompliance with, these regulations, procedures and requirements could have a material adverse effect on profitability.

Our retail drugstore and health and wellness services businesses are subject to numerous federal, state and local regulations. Changes in these regulations may require extensive system and operating changes that may be difficult to implement.  Untimely compliance or noncompliance with applicable regulations could result in the imposition of civil and criminal penalties that could adversely affect the continued operation of our business, including: suspension of payments from government programs; loss of required government certifications; loss of authorizations to participate in or exclusion from government reimbursement programs, such as the Medicare and Medicaid programs; loss of licenses; or significant fines or monetary penalties, and could adversely affect the continued operation of our business.   The regulations to which we are subject include, but are not limited to: federal, state and local registration and regulation of pharmacies; applicable Medicare and Medicaid regulations; the Health Insurance Portability and Accountability Act, or HIPAA; laws and regulations relating to the protection of the environment and health and safety matters, including those governing exposure to, and the management and disposal of, hazardous substances; regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the Drug Enforcement Administration, and the Consumer Product Safety Commission, as well as state regulatory authorities, governing the sale, advertisement and promotion of products we sell; anti-kickback laws; data privacy and security laws; false claims laws; laws against the corporate practice of medicine; and federal and state laws governing the practice of the profession of pharmacy.  In addition, we are party to a Corporate Integrity Agreement with the U.S. Department of Health and Human Services under which we have agreed to maintain a corporate compliance program.  We are also governed by federal and state laws of general applicability, including laws regulating matters of working conditions, health and safety and equal employment opportunity.  In addition, we could have exposure if we are found to have infringed another party's intellectual property rights.

Should a product liability issue, recall or personal injury issue arise, inadequate product or other liability insurance coverage or our inability to maintain such insurance may result in a material adverse effect on our business and financial condition.

Products that we sell could become subject to contamination, product tampering, mislabeling, recall or other damage. In addition, errors in the dispensing and packaging of pharmaceuticals could lead to serious injury.  Product liability or personal injury claims may be asserted against us with respect to any of the products or pharmaceuticals we sell or services we provide.  Our health and wellness business also involves exposure to professional liability claims related to medical care.  Should a product or other liability issue arise, the coverage limits under our insurance programs and the indemnification amounts available to us may not be adequate to protect us against claims.  We also may not be able to maintain this insurance on acceptable terms in the future.  Damage to our reputation in the event of a product liability or personal injury issue or judgment against us or a product recall could have an adverse effect on our business, financial condition or results of operations.
 
If we do not maintain the privacy and security of sensitive customer and business information, we could damage our reputation, incur substantial additional costs and become subject to litigation.

Throughout our operations, we receive, retain and transmit certain personal information that our customers provide to purchase products or services, enroll in promotional programs, register on our websites, or otherwise communicate and interact with us.  In addition, aspects of our operations depend upon the secure transmission of confidential information over public networks.  A compromise of our data security systems or those of businesses we interact with that results in information related to our customers or business being obtained by unauthorized persons could harm our reputation and expose us to regulatory actions and claims from customers, financial institutions, payment card associations and other persons, any of which could adversely affect our business, financial condition and results of operations.  In addition, a security breach could require that we expend additional resources related to the security of information systems and disrupt our business.  In addition, compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes.  If we or those with whom we share information fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged and we could be subject to additional litigation and regulatory risks.

Our credit ratings are important to our cost of capital and lease terms for our stores.
 
The major credit rating agencies have given us and our corporate debt investment grade credit ratings.  These ratings are based on a number of factors, which include our financial strength and financial policies.  We aim to maintain our high ratings as they serve to lower our borrowing costs and facilitate our access to a variety of lenders and other creditors, including landlords for our leased stores, on terms that we consider advantageous to our business.  Failure to maintain our credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital markets.

Our quarterly results may fluctuate significantly.

Our operating results have historically varied on a quarterly basis and may continue to fluctuate significantly in the future. Factors that may affect our quarterly operating results include, but are not limited to, seasonality, the timing of the introduction of new generic and brand name prescription drugs, the timing and severity of the cough, cold and flu season, significant acquisitions, dispositions and other strategic initiatives, and the other risk factors discussed under this Item 1A.  Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and investors should not rely on the results of any particular quarter as an indication of our future performance.

There are a number of additional business risks which could adversely affect our financial results.

Many other factors could adversely affect our financial results, including:

·  
If we are unsuccessful in establishing effective advertising, marketing and promotional programs, our sales or sales margins could be negatively affected.

·  
Our success depends on our continued ability to attract and retain store and management and professional personnel, and the loss of key personnel could have an adverse effect on the results of our operations, financial condition or cash flow.

·  
Changes in accounting standards and the application of existing accounting standards particularly related to the measurement of fair value as compared to  carrying value for the Company’s reporting units, including goodwill and intangible assets, may have an adverse effect on the Company’s financial condition and results of operations.

·  
Severe weather conditions, terrorist activities, health epidemics or pandemics or the prospect of these events can impact our store operations or damage our facilities in affected areas or have an adverse impact on consumer confidence levels and spending in our stores.

·  
The long-term effects of climate change on general economic conditions and the pharmacy industry in particular are unclear, and changes in the supply, demand or available sources of energy may affect the availability or cost of goods and services, including natural resources, necessary to run our business.

·  
The products we sell are sourced from a wide variety of domestic and international vendors, and any future inability to find qualified vendors and access products in a timely and efficient manner could adversely impact our business.

Item 1B .   Unresolved Staff Comments

There are no unresolved staff comments outstanding with the Securities and Exchange Commission at this time.

Item 2 .   Properties

The Company's locations by state at August 31 are listed below.

State
 
2011
   
2010
 
State
 
2011
   
2010
 
State
 
2011
   
2010
 
Alabama
    101       100  
Louisiana
    147       144  
Oklahoma
    105       110  
Alaska
    5       3  
Maine
    14       13  
Oregon
    73       70  
Arizona
    254       254  
Maryland
    66       58  
Pennsylvania
    138       132  
Arkansas
    60       60  
Massachusetts
    180       180  
Rhode Island
    29       29  
California
    627       604  
Michigan
    230       227  
South Carolina
    110       109  
Colorado
    167       168  
Minnesota
    156       146  
South Dakota
    14       14  
Connecticut
    117       121  
Mississippi
    71       70  
Tennessee
    261       255  
Delaware
    67       65  
Missouri
    201       202  
Texas
    700       694  
District of Columbia
    3       1  
Montana
    13       13  
Utah
    43       42  
Florida
    864       850  
Nebraska
    61       62  
Vermont
    4       3  
Georgia
    203       198  
Nevada
    87       88  
Virginia
    133       124  
Hawaii
    11       10  
New Hampshire
    35       35  
Washington
    130       129  
Idaho
    42       40  
New Jersey
    199       191  
West Virginia
    21       21  
Illinois
    598       581  
New Mexico
    66       66  
Wisconsin
    231       233  
Indiana
    211       212  
New York
    524       501  
Wyoming
    11       11  
Iowa
    72       72  
North Carolina
    201       188  
Guam
    1       1  
Kansas
    69       71  
North Dakota
    1       1  
Puerto Rico
    110       106  
Kentucky
    102       100  
Ohio
    271       268  
TOTAL
    8,210       8,046  

The Company owns approximately 21% of the retail drugstore locations open at August 31, 2011.  The remaining drugstore locations are leased.  The leases are for various terms and periods.  See Note 3, "Leases" on page 31 of the 2011 Annual Report, which section is incorporated herein by reference.  The Company has a strategic expansion program of adding new stores   and remodeling and relocating existing stores.  Net retail selling space increased from 84 million square feet at August 31, 2010, to 86 million square feet at August 31, 2011.  Not including the approximate 5,000 locations that have been converted under the Customer Centric Retailing initiative, approximately 33% of Company stores have been opened or remodeled during the past five years.

The Company's retail store operations are supported by 18 major distribution centers with a total of approximately 10 million square feet of space, of which 13 locations are owned.  The remaining space is leased.  All distribution centers are served by modern systems for order processing control, operating efficiencies and rapid merchandise delivery to stores.  In addition, the Company uses public warehouses to handle certain distribution needs.

The Company operates 26 principal office facilities containing approximately three million square feet, of which 14 locations are owned.  The Company operates two mail service facilities containing approximately 237 thousand square feet, one of which is owned.

The Company also owns 32 strip shopping malls containing approximately 2 million square feet of which approximately 886 thousand square feet is leased to others.

Item 3 .   Legal Proceedings

The information in response to this item is incorporated herein by reference to Note 10 "Commitments and Contingencies" on page 35 of the 2011 Annual Report.

Item 4.    [Reserved]


The following table sets forth, for each person serving as an executive officer of Walgreens as of October 25, 2011, the name, age and principal occupations and employment of such person for the past five years.  Unless otherwise stated, employment is by Walgreens.  Executive officers of Walgreens are elected annually by the Board of Directors and serve until a successor has been duly elected or appointed and qualified or until the officer's death, resignation or removal.  There are no family relationships between any of the Company’s executive officers or directors.
 

Name and Business Experience
 
Age
 
Office(s) Held
           
Gregory D. Wasson
 
53
 
President and Chief Executive Officer
 
President and Chief Executive Officer since February 2009
       
 
Director since February 2009
       
 
President and Chief Operating Officer – May 2007 to February 2009
       
 
Executive Vice President – October 2005 to May 2007
       
 
President, Walgreens Health Services – March 2002 to May 2007
       
           
Sona Chawla
 
44
 
President, E-Commerce
 
President, E-Commerce since January 2011
       
 
Senior Vice President, E-Commerce –  July 2008 to January  2011
       
 
Vice President, Global Online Business, Dell, Inc. – December 2006 to May 2008
       
 
Executive Vice President, Online Sales, Service and Marketing, Wells Fargo & Company – March 2005 to October 2006
       
           
Kermit R. Crawford
 
52
 
President, Pharmacy, Health and Wellness
 
President, Pharmacy, Health and Wellness since September 2010
       
 
Executive Vice President  – January 2010 to September 2010
       
 
Senior Vice President - October 2007 to January 2010
       
 
Vice President – October 2005 to October 2007
       
 
Senior Vice President, Walgreens Health Services – October 2005 to September 2007
       
           
Joseph C. Magnacca
 
49
 
President, Daily Living Products and Solutions
 
President, Daily Living Products and Solutions since April 2011
       
 
President of Duane Reade Holdings, Inc. –  July 2010 to April 2011
       
 
Senior Vice President and Chief Merchandising Officer of Duane Reade Holdings, Inc. – September 2008 to July 2010
       
 
Executive Vice President of Shoppers Drug Mart Corporation – 2001  to 2008
       
           
Mark A. Wagner
 
50
 
President, Community Management
 
President, Community Management since September 2010
       
 
Executive Vice President – March 2006 to September 2010
       
 
Senior Vice President – February 2002 to March 2006
       
           
Wade D. Miquelon
 
46
 
Executive Vice President and Chief Financial Officer
 
Executive Vice President and Chief Financial Officer since July 2009
       
 
Senior Vice President and Chief Financial Officer –  June 2008 to July 2009
       
 
Executive Vice President and Chief Financial Officer, Tyson Foods, Inc. – June 2006 to June 2008
       
 
Vice President, Finance, Western Europe, The Procter & Gamble Company – September 2003 to June 2006
       
           
Thomas J. Sabatino, Jr.
 
52
 
Executive Vice President, General Counsel and Corporate Secretary
 
Executive Vice President, General Counsel and Corporate Secretary since  September 2011
       
 
Executive Vice President and General Counsel of UAL Corporation and United Air Lines, Inc. – March 2010 to December 2010
       
 
Executive Vice President and General Counsel of Schering- Plough Corporation – April 2004 to November 2009
       
           
Graham W. Atkinson
 
60
 
Senior Vice President and Chief Customer Experience Officer
 
Senior Vice President and Chief Customer Experience Officer since January 2011
       
 
Executive Vice President of UAL Corporation and United Air Lines, Inc. and President of Mileage Plus frequent flyer program – October 2008 to December 2010
       
 
Executive Vice President – Chief Customer Officer of UAL Corporation and United Air Lines, Inc. – September 2006 to September 2008
       
           
Mia M. Scholz
 
45
 
Senior Vice President, Controller and Chief Accounting Officer
 
Senior Vice President since January 2011
       
 
Vice President since October 2007
       
 
Controller and Chief Accounting Officer since January 2004
       
 
Divisional Vice President – January 2004 to October 2007
       
           
Timothy J. Theriault
 
51
 
Senior Vice President and Chief Information Officer
 
Senior Vice President and Chief Information Officer since October 2009
       
 
President, Corporate and Institutional Services, Northern Trust Corporation – January 2006 to October 2009
       
 
President, Worldwide Operations and Technology, Northern Trust Corporation – February 2002 to January 2006
       
           
Kathleen Wilson-Thompson
 
54
 
Senior Vice President and Chief Human Resources Officer
 
Senior Vice President and Chief Human Resources Officer since January 2010
       
 
Senior Vice President, Global Human Resources of Kellogg Company – July 2005 to December 2009
       
           
Robert G. Zimmerman
 
59
 
Senior Vice President and Chief Strategy Officer
 
Senior Vice President and Chief Strategy Officer since September 2011
       
 
Senior Vice President since January 2011
       
 
Vice President – September 2007 to January 2011
       
 
Vice President and Chief Financial Officer, Walgreens Health Services – September 2001 to September 2007
       
           
W. Bryan Pugh
 
48
 
Vice President, Merchandising
 
Vice President, Merchandising since February 2009
       
 
Chief Retail Operations Officer, Fresh & Easy Neighborhood Markets, USA, Tesco PLC – March 2005 to December 2008
       

PART II

Item 5 .   Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's common stock is listed on the New York Stock Exchange, Chicago Stock Exchange and The Nasdaq Stock Market LLC under the symbol WAG.  As of September 30, 2011, there were approximately 84,643 record holders of Company common stock.

The range of the sales prices of the Company's common stock by quarters during the years ended August 31, 2011, and August 31, 2010, are incorporated herein by reference to the caption “Common Stock Prices” on page 39 of the 2011 Annual Report.

The Company's cash dividends per common share declared during the two fiscal years ended August 31 are as follows:

Quarter Ended
 
2011
   
2010
 
November
  $ .1750     $ .1375  
February
    .1750       .1375  
May
    .1750       .1375  
August
    .2250       .1750  
Fiscal Year
  $ .7500     $ .5875  

The Company has paid cash dividends every quarter since 1933.  Future dividends will be determined based on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors.

The following table provides information about purchases by the Company during the quarter ended August 31, 2011, of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.  Subject to applicable law, share purchases may be made in open market transactions, privately negotiated transactions, or pursuant to instruments and plans complying with Rule 10b5-1.

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 Repurchase Programs (2)
   
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
 
06/01/2011 - 06/30/2011
    2,864,700     $ 43.63       2,864,700     $ 50,418,560  
07/01/2011- 07/31/2011
    1,136,300       44.00       1,136,300       -  
08/01/2011-08/31/2011
    12,808,100       35.92       11,808,100       1,575,032,563  
Total
    16,809,100       37.78       15,809,100     $ 1,575,032,563  

(1)
The Company purchased 1,000,000 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.
(2)
In July 2011, the Company completed its 2011 repurchase program, which authorized the repurchase of $1,000 million of the Company’s common stock.  On July 13, 2011, the Board of Directors approved a new share repurchase program (2012 repurchase program) which allows for the repurchase of up to $2,000 million of the Company’s common stock prior to its expiration on December 31, 2015.  The total remaining authorization under the 2012 repurchase program is $1,575 million as of August 31, 2011.

Item 6 .   Selected Financial Data
 
The information in response to this item is incorporated herein by reference to the caption “Five-Year Summary of Selected Consolidated Financial Data” on page 17 of the 2011 Annual Report.
 
Item 7 .   Management's Discussion and Analysis of Financial Condition and Results of Operations

The information in response to this item is incorporated herein by reference to the caption “Management's Discussion and Analysis of Results of Operations and Financial Condition” on pages 18 through 23 of the 2011 Annual Report.

Item 7A .   Qualitative and Quantitative Disclosures about Market Risk

In January 2010, we entered into two interest rate swap transactions converting our $1,300 million 4.875% fixed rate notes to a floating interest rate based on the six month LIBOR in arrears plus a constant spread.  In May 2011, we entered into two additional interest rate swap transactions converting $250 million 5.25% fixed rate notes to a floating interest rate based on the six month LIBOR in arrears plus a constant spread.  These financial instruments are sensitive to changes in interest rates.  On August 31, 2011, we had $803 million in long-term debt obligations that had fixed interest rates.  A one percentage point increase or decrease in interest rates would increase or decrease the annual interest expense we recognize and the cash we pay for interest expense by approximately $16 million.

Item 8 .   Financial Statements and Supplementary Data

See Item 15.

Item 9 .   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A .   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Form 10-K.  The controls evaluation was conducted under the supervision and with the participation of the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Based upon the controls evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC, and that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Report on Internal Control Over Financial Reporting
 
Management's report on internal control over financial reporting and the report of Deloitte & Touche LLP, the Company's independent registered public accounting firm, related to their assessment of the effectiveness of internal control over financial reporting are included in our fiscal 2011 Annual Report and are incorporated in this Item 9A by reference.

Changes in Internal Control over Financial Reporting

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 CEO and CFO, no changes during the quarter ended August 31, 2011 were identified that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

In the second quarter of fiscal 2010, we signed an agreement to outsource select accounting transaction-processing activities.  This is part of an ongoing initiative to transform our accounting organization to a new model which includes shared services and multiple centers of excellence.  The Company’s management has concluded that the outsourcing agreement has not materially affected, and is not reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.  A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.  Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Projections of any evaluation of controls effectiveness to future periods are subject to risks.  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Item 9B .   Other Information

None.

PART III

Item 10 .   Directors, Executive Officers and Corporate Governance

The information required by Item 10, with the exception of the information relating to the executive officers of the Company, which is presented in Part I above under the heading "Executive Officers of the Registrant," is incorporated herein by reference to the following sections of the Company's 2011 Proxy Statement:  Proposal 1, Election of Directors; The Board of Directors, Board Committees and Corporate Governance; and Section 16(a) Beneficial Ownership Reporting Compliance.

The Company has adopted a Code of Business Conduct applicable to all employees, officers and directors that incorporates policies and guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations.  The Company has also adopted a Code of Ethics for Financial Executives.  This Code applies to and has been signed by the Chief Executive Officer, the Chief Financial Officer and the Controller.  The full text of the Code of Business Conduct and the Code of Ethics for Financial Executives is available at the Company's website, investor.walgreens.com.  The Company intends to promptly disclose on its website in accordance with SEC rules changes to or waivers, if any, of the Code of Ethics for Financial Executives or the Code of Business Conduct for directors and executive officers.

Charters of all committees of the Company's Board of Directors, as well as the Company's Corporate Governance Guidelines and Code of Business Conduct, are available on the Company's website at investor.walgreens.com or, upon written request, in printed hardcopy form.  Written requests should be sent to Walgreen Co., Attention: Shareholder Relations, Mail Stop #1833, 108 Wilmot Road, Deerfield, Illinois 60015.

Item 11 .   Executive Compensation

The information required by Item 11 is incorporated herein by reference to the following sections of the Company's 2011 Proxy Statement: Director Compensation; and Executive Compensation.

Item 12 .   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to the following sections of the Company's 2011 Proxy Statement: Security Ownership of Certain Beneficial Owners and Management; and Equity Compensation Plans.

Item 13 .   Certain Relationships and Related Transactions and Director Independence

The information required by Item 13 is incorporated herein by reference to the following sections of the Company's 2011 Proxy Statement: Certain Relationships and Related Party Transactions; and The Board of Directors, Board Committees and Corporate Governance.

Item 14 .   Principal Accounting Fees and Services

The information required by Item 14 is incorporated herein by reference to the following sections of the Company's 2011 Proxy Statement: Independent Registered Public Accounting Firm Fees and Services.


PART IV

Item 15 .   Exhibits and Financial Statement Schedules

(a)
Documents filed as part of this report:

 
(1)
Financial statements.   The following financial statements, supplementary data, and report of independent public accountants appearing in the 2011 Annual Report are incorporated herein by reference.

 
2011 Annual Report Page Number (printed)
Consolidated Statements of Earnings and Shareholders' Equity for the years ended August 31, 2011, 2010 and 2009
 
24 – 25
Consolidated Balance Sheets at August 31, 2011 and 2010
 
26
Consolidated Statements of Cash Flows for the years ended August 31, 2011, 2010 and 2009
 
27
Notes to Consolidated Financial Statements
 
28 – 39
Management's Report on Internal Control
 
40
Report of Independent Registered Public Accounting Firm
 
40

 
(2)
Financial statement schedules and supplementary information.   The following financial statement schedule and related report of the independent registered public accounting firm is included herein.

   
 
Schedule II    Valuation and Qualifying Accounts
 
Report of Independent Registered Public Accounting Firm

Schedules I, III, IV and V are not submitted because they are not applicable or not required or because the required information is included in the Financial Statements in (1) above or notes thereto.

Other Financial Statements -

Separate financial statements of the registrant have been omitted because it is primarily an operating Company, and all of its subsidiaries are included in the consolidated financial statements.

 
(3)
Exhibits.    Exhibits 10.1 through 10.57 constitute management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 15(b) of this Form 10-K.

The agreements included as exhibits to this report are included to provide information regarding their terms and not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements.  The agreements may contain representations and warranties by each of the parties to the applicable agreement that were made solely for the benefit of the other parties to the applicable agreement, and:

•   should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

•   may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•   may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•   were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.

(b)           Exhibits


 
Exhibit No.
Description
 
SEC Document Reference
 
3.1
Amended and Restated Articles of Incorporation of Walgreen Co.
 
 
Incorporated by reference to Exhibit 3.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 19, 2011.
         
 
3.2
Amended and Restated By-Laws of Walgreen Co., as amended effective as of September 1, 2008.
 
Incorporated by reference to Exhibit 3.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on September 5, 2008.
         
 
4.1*
Form of Indenture between Walgreen Co. and Wells Fargo Bank, National Association.
 
Incorporated by reference to Exhibit 4.1 to Walgreen Co.’s registration statement on Form S-3ASR (File No. 333-152315) filed with the SEC on July 14, 2008.
         
 
4.2
Form of 4.875% Note due 2013.
 
Incorporated by reference to Exhibit 4.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on July 17, 2008.
         
 
4.3
Form of 5.25% Note due 2019.
 
 
Incorporated by reference to Exhibit 4.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 13, 2009.
         
 
10.1
Walgreen Co. Management Incentive Plan (as amended and restated effective September 1, 2008).
 
Incorporated by reference to Exhibit 10.3 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (File No. 1-00604).
         
 
10.2
Walgreen Co. Long-Term Performance Incentive Plan (amendment and restatement of the Walgreen Co. Restricted Performance Share Plan).
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 11, 2007.
         
 
10.3
Walgreen Co. Long-Term Performance Incentive Plan Amendment No. 1 (effective January 10, 2007).
 
Incorporated by reference to Exhibit 10.2 to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007 (File No. 1-00604).
         
 
10.4
Walgreen Co. Long-Term Performance Incentive Plan Amendment No. 2.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on April 14, 2011.
         
 
10.5
Form of Restricted Stock Unit Award Agreement (August 15, 2011 grants).
 
Filed herewith.
 
         
 
10.6
Form of Restricted Stock Unit Award Agreement (effective September 1, 2011).
 
Filed herewith.
 
         
 
10.7
Form of Performance Share Contingent Award Agreement (effective September 1, 2008).
 
Incorporated by reference to Exhibit 10.14 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (File No. 1-00604).
         
 
10.8
Form of Performance Share Contingent Award Agreement (effective September 1, 2011).
 
Filed herewith.
 
         
 
10.9
Form of Restricted Stock Award Agreement (effective June 2008).
 
Incorporated by reference to Exhibit 10.15 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (File No. 1-00604).
         
 
10.10
Walgreen Co. Executive Stock Option Plan (as amended and restated effective January 13, 2010).
 
Incorporated by reference to Exhibit 99.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 20, 2010.
         
 
10.11
Form of Stock Option Agreement (Benefit Indicator 512 - 515) (effective September 1, 2011).
 
Filed herewith.
 
         
 
10.12
Form of Stock Option Agreement (Benefit Indicator 516 and above) (effective September 1, 2011).
 
Filed herewith.
 
         
 
10.13
Walgreen Co. 1986 Executive Deferred Compensation/Capital Accumulation Plan.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 1986 (File No. 1-00604).
         
 
10.14
Walgreen Co. 1988 Executive Deferred Compensation/Capital Accumulation Plan.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1987 (File No. 1-00604).
         
 
10.15
Amendments to Walgreen Co. 1986 and 1988 Executive Deferred Compensation/ Capital Accumulation Plans.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1988 (File No. 1-00604).
         
 
10.16
Walgreen Co. 1992 Executive Deferred Compensation/Capital Accumulation Plan Series 1.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 1992 (File No. 1-00604).
         
 
10.17
Walgreen Co. 1992 Executive Deferred Compensation/Capital Accumulation Plan Series 2.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 1992 (File No. 1-00604).
         
 
10.18
Walgreen Co. 1997 Executive Deferred Compensation/Capital Accumulation Plan Series 1.
 
Incorporated by reference to Exhibit 10(c) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997 (File No. 1-00604).
         
 
10.19
Walgreen Co. 1997 Executive Deferred Compensation/Capital Accumulation Plan Series 2.
 
Incorporated by reference to Exhibit 10(d) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997 (File No. 1-00604).
         
 
10.20
Walgreen Co. 2001 Executive Deferred Compensation/Capital Accumulation Plan.
 
Incorporated by reference to Exhibit 10(g) to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001 (File No. 1-00604).
         
 
10.21
Walgreen Co. 2002 Executive Deferred Compensation/Capital Accumulation Plan.
 
Incorporated by reference to Exhibit 10(g) to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2002 (File No. 1-00604).
         
 
10.22
Amendment to the Walgreen Co. 1986, 1988, 1992 (Series 1), 1992 (Series 2), 1997 (Series 1), 1997 (Series 2), 2001 and 2002 Executive Deferred Compensation/ Capital Accumulation Plans.
 
Incorporated by reference to Exhibit 10.3 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2009 (File No. 1-00604).
         
 
10.23
Walgreen Co. 2006 Executive Deferred Compensation/Capital Accumulation Plan (effective January 1, 2006).
 
Incorporated by reference to Exhibit 10(b) to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2005 (File No. 1-00604).
         
 
10.24
Walgreen Co. 2011 Executive Deferred Compensation Plan.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on November 12, 2010.
         
 
10.25
Amendment No. 1 to the Walgreen Co. 2011 Executive Deferred Compensation Plan.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 19, 2011.
         
 
10.26
Walgreen Co. Executive Deferred Profit-Sharing Plan, as amended and restated
effective January 1, 2012.
 
Incorporated by reference to Exhibit 10.2 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on July 15, 2011.
         
 
10.27
Share Walgreens Stock Purchase/Option Plan (effective October 1, 1992), as amended.
 
Incorporated by reference to Exhibit 10(d) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 1-00604).
         
 
10.28
Share Walgreens Stock Purchase/Option Plan Amendment No. 4 (effective July 15, 2005), as amended.
 
Incorporated by reference to Exhibit 10(h)(ii) to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2005 (File No. 1-00604).
         
 
10.29
Share Walgreens Stock Purchase/Option Plan Amendment No. 5 (effective October 11, 2006).
 
Incorporated by reference to Exhibit 10(b) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 (File No. 1-00604).
         
 
10.30
Walgreen Select Senior Executive Retiree Medical Expense Plan.
 
Incorporated by reference to Exhibit 10(j) to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 1996 (File No. 1-00604).
         
 
10.31
Walgreen Select Senior Executive Retiree Medical Expense Plan Amendment No. 1 (effective August 1, 2002).
 
Incorporated by reference to Exhibit 10(a) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2003 (File No. 1-00604).
         
 
10.32
Walgreen Co. Profit-Sharing Restoration Plan (as restated effective January 1, 2003).
 
Incorporated by reference to Exhibit 10(b) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003 (File No. 1-00604).
         
 
10.33
Walgreen Co. Profit-Sharing Restoration Plan Amendment No. 1 (effective January 1, 2008).
 
Incorporated by reference to Exhibit 10.36 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2008 (File No. 1-00604).
         
 
10.34
Walgreen Co. Profit-Sharing Restoration Plan Amendment No. 2 (effective January 1, 2010).
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010 (File No. 1-00604).
         
 
10.35
Amendment to the Walgreen Co. Profit-Sharing Restoration Plan.
 
Incorporated by reference to Exhibit 10.3 to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2010 (File No. 1-00604).
         
 
10.36
Amendment to the Walgreen Co. Profit-Sharing Restoration Plan.
 
Incorporated by reference to Exhibit 10.2 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on January 19, 2011.
         
 
10.37
Walgreen Co. 162(m) Deferred Compensation Plan, as amended and restated.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Current Report on Form 8-K (File No. 1-00604) filed with the SEC on October 17, 2011.
         
 
10.38
Walgreen Co. Nonemployee Director Stock Plan, as amended and restated (effective January 14, 2004).
 
Incorporated by reference to Exhibit 10(a) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended February 29, 2004 (File No. 1-00604).
         
 
10.39
Walgreen Co. Nonemployee Director Stock Plan Amendment No. 1 (effective October 12, 2005).
 
Incorporated by reference to Exhibit 10(a) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 (File No. 1-00604).
         
 
10.40
Walgreen Co. Nonemployee Director Stock Plan Amendment No. 2 (effective October 11, 2006).
 
Incorporated by reference to Exhibit 10(f) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 (File No. 1-00604).
         
 
10.41
Walgreen Co. Nonemployee Director Stock Plan Amendment No. 3 (effective September 1, 2009).
 
Incorporated by reference to Exhibit 10.43 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2010 (File No. 1-00604).
         
 
10.42
Walgreen Co. Broad-Based Stock Option Plan (effective July 10, 2002).
 
Incorporated by reference to Exhibit 10(p) to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2002 (File No. 1-00604).
         
 
10.43
Walgreen Co. Broad-Based Employee Stock Option Plan Amendment No. 1 (effective April 1, 2003).
 
Incorporated by reference to Exhibit 10(c) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2003 (File No. 1-00604).
         
 
10.44
Walgreen Co. Broad-Based Employee Stock Option Plan Amendment No. 2 (effective October 11, 2006).
 
Incorporated by reference to Exhibit 10(e) to Walgreen Co.’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2006 (File No. 1-00604).
         
 
10.45
Form of Change of Control Employment Agreements.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Current Report on Form 8-K dated October 18, 1988 (File No. 1-00604).
         
 
10.46
Form of Amendment to Change of Control Employment Agreements (effective January 1, 2009).
 
Incorporated by reference to Exhibit 10.2 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2009 (File No. 1-00604).
         
 
10.47
Amendment to Employment Agreements adopted July 12, 1989.
 
Incorporated by reference to Exhibit 10 to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 1989 (File No. 1-00604).
         
 
10.48
Executive Stock Option Plan – Stock Option Agreement made as of October 10, 2008 between Alan G. McNally and Walgreen Co.
 
Incorporated by reference to Exhibit 10.8 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2008 (File No. 1-00604).
         
 
10.49
Long-Term Performance Incentive Plan – Restricted Stock Unit Award Agreement made as of October 10, 2008 between Alan G. McNally and Walgreen Co.
 
Incorporated by reference to Exhibit 10.9 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2008 (File No. 1-00604).
         
 
10.50
Amended and Restated Senior Executive Severance Agreement effective as of July 31, 2006 between Medmark, Inc. and Stanley B. Blaylock.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2009 (File No. 1-00604).
         
 
10.51
Separation and Release Agreement, effective April, 2, 2010, between Stanley B. Blaylock and Walgreen Co.
 
Incorporated by reference to Exhibit 10.1 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2010 (File No. 1-00604).
         
 
10.52
Voluntary Separation and Release Agreement, dated January 8, 2010,  between George Riedl and Walgreen Co.
 
Incorporated by reference to Exhibit 10.60  to Walgreen Co.’s Annual Report on Form 10-K for the fiscal year ended August 31, 2010 (File No. 1-00604).
         
 
10.53
Agreement and Release between Hal F. Rosenbluth and Walgreen Co.
 
Incorporated by reference to Exhibit 10.2 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2011 (File No. 1-00604).
         
 
10.54
Offer letter agreement dated March 10, 2011 between Joseph C. Magnacca and Walgreen Co.
 
Incorporated by reference to Exhibit 10.3 to Walgreen Co.’s Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 2011 (File No. 1-00604).
         
 
10.55
Offer letter agreement dated August 9, 2011 between Thomas J. Sabatino and Walgreen Co.
 
Filed herewith.
         
 
10.56
drugstore.com, inc., 1998 Stock Plan, as amended.
 
Incorporated by reference to Exhibit 99.1 to Walgreen Co.’s Registration Statement on Form S-8 (File No. 333-174811) filed with the SEC on June 9, 2011.
         
 
10.57
drugstore.com, inc., 2008 Equity Incentive Plan, as amended.
 
Incorporated by reference to Exhibit 99.2 to Walgreen Co.’s Registration Statement on Form S-8 (File No. 333-174811) filed with the SEC on June 9, 2011.
         
 
12.
Computation of Ratio of Earnings to Fixed Charges.
 
Filed herewith.
         
 
13.
Portions of the Walgreen Co. Annual Report to Shareholders for the fiscal year ended August 31, 2011.
 
This report, except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is being furnished for the information of the SEC and is not deemed to be "filed" as a part of the filing of this Form 10-K.
         
 
21.
Subsidiaries of the Registrant.
 
Filed herewith.
         
 
23.
Consent of Independent Registered Public Accounting Firm.
 
Filed herewith.
         
 
31.1
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
         
 
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
         
 
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.
 
Furnished herewith.
         
 
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.
 
Furnished herewith.
         
 
101**
The following financial statements and footnotes from the Walgreen Co. Annual Report on Form 10-K for the year ended August 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statement of Earnings; (ii) Consolidated Statement of Cash Flows; (iii) Consolidated Balance Sheet; (iv) Consolidated Statement of Shareholders' Equity, and (v) the Notes to Consolidated Financial Statements.
 
Furnished herewith.


      *
Other instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries may be omitted from Exhibit 4 in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K.  Copies of such agreements will be furnished to the SEC upon request.

**
In accordance with Rule 406T under Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed”.

 
 


WALGREEN CO. AND SUBSIDIARIES

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED AUGUST 31, 2011, 2010 AND 2009

(Dollars in Millions)

Classification
 
Balance at Beginning of Period
   
Additions Charged to Costs and Expenses
   
Deductions
   
Balance at End of Period
 
                         
                         
Allowances deducted from receivables for doubtful accounts -
                       
                         
          Year Ended August 31, 2011
  $ 104     $ 88     $ (91 )   $ 101  
                                 
          Year Ended August 31, 2010
  $ 110     $ 111     $ (117 )   $ 104  
                                 
          Year Ended August 31, 2009
  $ 96     $ 116     $ (102 )   $ 110  


 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of Walgreen Co.:

We have audited the consolidated financial statements of Walgreen Co. and Subsidiaries (the “Company”) as of August 31, 2011 and 2010, and for each of the three years in the period ended August 31, 2011, and the Company’s internal control over financial reporting as of August 31, 2011, and have issued our report thereon dated October 25, 2011; such consolidated financial statements and report are included in your 2011 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.


Chicago, Illinois
October 25, 2011

 
 
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
 
October 25, 2011                                                                           By:    /s/      Wade D. Miquelon
     Wade D. Miquelon
            Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934 this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

   
Name
 
Title
 
Date
             
   
/s/  Gregory D. Wasson
 
President and Chief Executive Officer
 
October 25, 2011
   
Gregory D. Wasson
 
(Principal Executive Officer)
   
             
   
/s/  Wade D. Miquelon
 
Executive Vice President and Chief
 
October 25, 2011
   
Wade D. Miquelon
 
Financial Officer (Principal Financial Officer)
   
             
   
/s/  Mia M. Scholz
 
Senior Vice President, Controller and
 
October 25, 2011
   
Mia M. Scholz
 
Chief Accounting Officer (Principal Accounting Officer)
   
             
   
/s/  David J. Brailer
 
Director
 
October 25, 2011
   
David J. Brailer
       
             
   
/s/  Steven A. Davis
 
Director
 
October 25, 2011
   
Steven A. Davis
       
             
   
/s/  William C. Foote
 
Director
 
October 25, 2011
   
William C. Foote
       
             
   
/s/  Mark P. Frissora
 
Director
 
October 25, 2011
   
Mark P. Frissora
       
             
   
/s/  Ginger L. Graham
 
Director
 
October 25, 2011
   
Ginger L. Graham
       
             
   
/s/  Alan G. McNally
 
Chairman of the Board
 
October 25, 2011
   
Alan G. McNally
       
             
   
/s/  Nancy M. Schlichting
 
Director
 
October 25, 2011
   
Nancy M. Schlichting
       
             
   
/s/  David Y. Schwartz
 
Director
 
October 25, 2011
   
David Y. Schwartz
       
             
   
/s/  Alejandro Silva
 
Director
 
October 25, 2011
   
Alejandro Silva
       
             
   
/s/  James A. Skinner
 
Director
 
October 25, 2011
   
James A. Skinner
       

 
 
 

INDEX

 
Exhibit No.
                                                                     Description
     
 
10.5
Form of Restricted Stock Unit Award Agreement (August 15, 2011 grants).
     
 
10.6
Form of Restricted Stock Unit Award Agreement (effective September 1, 2011).
     
 
10.8
Form of Performance Share Contingent Award Agreement (effective September 1, 2011).
     
 
10.11
Form of Stock Option Agreement (Benefit Indicator 512 - 515) (effective September 1, 2011).
     
 
10.12
Form of Stock Option Agreement (Benefit Indicator 516 and above) (effective September 1, 2011).
     
 
10.55
Offer letter agreement dated August 9, 2011 between Thomas J. Sabatino and Walgreen Co.
     
 
12
Computation of Ratio of Earnings to Fixed Charges.
     
 
13
Annual Report to shareholders for the fiscal year ended August 31, 2011.  This report, except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is being furnished for the information of the Securities and Exchange Commission and is not deemed to be "filed" as a part of the filing of this Form 10-K.
     
 
21
Subsidiaries of the Registrant.
     
 
23
Consent of Independent Registered Public Accounting Firm.
     
 
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.
     
 
101*
The following financial statements and footnotes from the Walgreen Co. Annual Report on Form 10-K for the year ended August 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statement of Earnings; (ii) Consolidated Statement of Cash Flows; (iii) Consolidated Balance Sheet; (iv) Consolidated Statement of Shareholders' Equity, and (v) the Notes to Consolidated Financial Statements.

*
In accordance with Rule 406T under Regulation S-T, the XBRL-related information in Exhibit 101 to this Annual Report on Form 10-K shall be deemed to be “furnished” and not “filed”.

WALGREEN CO.
LONG-TERM PERFORMANCE INCENTIVE PLAN
RESTRICTED SHARE UNIT AWARD AGREEMENT


Participant Name:
Participant ID:
Grant Date:
Shares Granted:
Expiration Date:
Acceptance Date:
Electronic Signature:
Vesting Date:  [INSERT DATE FOR EACH INDIVIDUAL – LATER OF 4 YEARS FROM GRANT OR RETIREMENT AGE]
This document (referred to below as the “Agreement” or the “Award Agreement”) spells out the terms and conditions of the Restricted Share 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 Share 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 share units specified above (the “Restricted Share Units”), subject to the terms and conditions of the Plan and this Agreement.
 
2.   Restrictions .  The Restricted Share 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 Share 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 Share Units.
 
3.   Restricted Share 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 Share Units awarded to the Employee as well as any additional Restricted Share 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 Share 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 Share Unit for each share of Common Stock that would have been received as a dividend had the Employee’s outstanding Restricted Share Units been shares of Common Stock.
 
(d)   Additional Restricted Share Units credited via dividend equivalents shall vest or be forfeited at the same time as the Restricted Share 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 Share Units awarded hereunder shall become vested and settled as described in Section 8 below, as of the vesting date or dates indicated in the introduction to this Agreement.  The period prior to the vesting date with respect each Restricted Share Unit is referred to as the “Period of Restriction.”
 
5.   Vesting upon Termination due to Disability or Death .  If, while the Restricted Share Units are subject to a Period of Restriction, the Employee terminates employment with the Company (or a Subsidiary of the Company if the Employee is then in the employ of such Subsidiary) by reason of Disability (as defined in the Plan) or death, then any portion of the Restricted Share Units subject to a Period of Restriction shall become fully vested as of the date of employment termination without regard to the Period of Restriction.  The term “Subsidiary” is defined in the Plan and means a corporation with respect to which the Company directly or indirectly owns 50% or more of the voting power. Any Restricted Share Units becoming vested by reason of the Employee’s death or Disability shall be settled on the date of the Employee’s separation from service (within the meaning of Internal Revenue Code (“Code”) Section 409A), or as soon as practicable thereafter, but in no event later than 90 days after such date; provided, however, to the extent required under Code Section 409A, if the Employee is a specified employee (within the meaning of Code Section 409A at the time of separation from service), payment shall not be made until the date which is six months after the Employee’s separation from service.
 
6.   . Forfeiture upon Termination due to Reason other than Disability or Death .  If, while the Restricted Share Units are subject to a Period of Restriction, the Employee’s employment with the Company (or a Subsidiary of the Company if the Employee is then in the employ of such Subsidiary) terminates for a reason other than the Employee’s Disability or death, then the Employee shall forfeit any portion of the Restricted Share Units that is subject to a Period of Restriction on the date of such employment termination.
 
7.   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 Share Units shall cease to be subject to the Period of Restriction. If the Change in Control is not also considered a change in control within the meaning of Internal Revenue Code Section 409A, then the Restricted Share Units shall become vested on the date of the Change in Control, but settlement shall not occur until the earlier of the Participant’s separation from service (within the meaning of Code Section 409A), or the vesting date indicated in the introduction to the Agreement.
 
8.   Settlement of Vested Restricted Share Units .  Subject to the requirements of Sections 11 and 12 below, as promptly as practicable after the Employee’s separation from service (within the meaning of Code Section 409A), but in no event later than 90 days after such date, the Company shall transfer to the Employee one share of Common Stock for each Restricted Share Unit becoming vested at such time net of any applicable tax withholding requirements that are necessary to satisfy withholding taxes in accordance with Section 11 below; provided, however, to the extent required under Code Section 409A, if the Employee is a specified employee (within the meaning of Code Section 409A at the time of separation from service), payment shall not be made until the date which is six months after the Employee’s separation from service.  The Employee shall have no rights as a stockholder with respect to the Restricted Share 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.
 
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 Share Units that cease to be subject to a Period of Restriction in accordance with Section 7 above, by:
 
(a)   delivery of (i) the number of shares of Common Stock that corresponds with the number of Restricted Share 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 Share Units may be converted into by virtue of the Change in Control transaction in accordance with Section 9 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 Share 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 Share 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 Share 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 Share Units lapses as provided in Section 5 or 7 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 Share 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 Company shall 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 or her legal and/or tax advisors with respect to the tax consequences for the Employee under the Plan.

12.   Securities Laws .  This award 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 or she is acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that he or she 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 or its Subsidiaries, nor shall this Agreement interfere in any way with the Company’s or its Subsidiaries’ 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 or any Subsidiary 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 Share Unit award) against the Company or any Subsidiary or directly or indirectly gives rise to any cause of action in law or in equity against the Company or any Subsidiary.
 
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-Competition, Non-Solicitation and Confidentiality .  As a condition to the receipt of this Restricted Share 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 and Confidentiality Agreement within 120 days of the Award Date shall constitute a decision by the Employee to decline to accept this Restricted Share 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 read the attached Exhibit A.  Once you have read the agreement, please click the acceptance box to certify and 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 Share Unit award issued hereunder.
 
[Missing Graphic Reference]
                                                           Very truly yours,
 
 

CH01/ 25772927.2                                                                      
 
 

EXHIBIT A

WALGREEN CO. NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY AGREEMENT

This Exhibit forms a part of the Restricted Share Unit Award Agreement covering Restricted Share 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 Share 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 for 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 end of any period of severance paid to the Employee, regardless of whether such severance is paid as salary continuation, or in one lump sum. Notwithstanding the foregoing, if the Employee’s position is eliminated or otherwise ends in connection with a workforce reduction ( including any voluntary separation program), then the restrictions described in Paragraph 2(d) above shall end as of the later of six months following the Employee’s last day worked or the end of any severance period.
 
Notwithstanding the foregoing provisions of this Paragraph 2 and the remainder of this Agreement, the non-competition provisions of Paragraph 2(d) above shall not restrict Employee from performing legal services as a licensed attorney for a Competing Business to the extent that the attorney licensure requirements in the applicable jurisdiction do not permit Employee to agree to the otherwise applicable restrictions of Paragraph 2(d).
 
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 Share 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 .   Except as provided in (1) and (2) below, this Agreement represents the entire agreement between the parties covering confidentiality, non-competition and non-solicitation restrictions, and it supersedes and renders null and void all prior agreements (or any portions thereof), arrangements or communications between the parties covering such restrictions, whether oral or written.  In particular, to the extent Employee has signed more than one version of this Agreement in connection with Restricted Share 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:
 
( 1 ) 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; and
 
(2)  this Agreement in no way limits or changes the Company’s obligations to Employee in regard to severance and any other specified matters under any employment, severance or similar agreement that may now or in the future be in place between the Company (or any predecessor or successor company) and Employee.
 
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)           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;
 
(b)           The provisions of this Agreement shall be considered severable;
 
(c)           This Agreement shall accrue to and be binding upon the Company and Employee; and
 
(d)           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 clicking the acceptance box for this grant agreement, I acknowledge receipt of the Restricted Share Unit Agreement to which this Agreement is attached as Exhibit A, and I agree to the terms and conditions expressed in this Non-Competition, Non-Solicitation and Confidentiality Agreement.
 


CH01/ 25772927.2                                                               
 
 




 
WALGREEN CO.
LONG-TERM PERFORMANCE INCENTIVE PLAN
RESTRICTED SHARE UNIT AWARD AGREEMENT


Participant Name:
Participant ID:
Grant Date:
Shares Granted:
Expiration Date:
Acceptance Date:
Electronic Signature:
This document (referred to below as the “Agreement” or the “Award Agreement”) spells out the terms and conditions of the Restricted Share 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 Share 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 share units specified above (the “Restricted Share Units”), subject to the terms and conditions of the Plan and this Agreement.
 
2.   Restrictions .  The Restricted Share 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 Share 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 Share Units.
 
3.   Restricted Share 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 Share Units awarded to the Employee as well as any additional Restricted Share 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 Share 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 Share Unit for each share of Common Stock that would have been received as a dividend had the Employee’s outstanding Restricted Share Units been shares of Common Stock.
 
(d)   Additional Restricted Share Units credited via dividend equivalents shall vest or be forfeited at the same time as the Restricted Share 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, 7 or 8 of this Agreement, as applicable, the Restricted Share Units awarded hereunder shall become vested and settled as described in Section 9 below, as of the vesting date or dates indicated in the introduction to this Agreement.  The period prior to the vesting date with respect each Restricted Share Unit is referred to as the “Period of Restriction.”
 
5.   Vesting upon Termination due to Disability or Death .  If, while the Restricted Share Units are subject to a Period of Restriction, the Employee terminates employment with the Company (or a Subsidiary of the Company if the Employee is then in the employ of such Subsidiary) by reason of Disability (as defined in the Plan) or death, then any portion of the Restricted Share Units subject to a Period of Restriction shall become fully vested as of the date of employment termination without regard to the Period of Restriction.  The term “Subsidiary” is defined in the Plan and means a corporation with respect to which the Company directly or indirectly owns 50% or more of the voting power. Any Restricted Share Units becoming vested by reason of the Employee’s death or Disability shall be settled on the date of the Employee’s separation from service (within the meaning of Internal Revenue Code (“Code”) Section 409A), or as soon as practicable thereafter, but in no event later than 90 days after such date; provided, however, to the extent required under Code Section 409A, if the Employee is a specified employee (within the meaning of Code Section 409A at the time of separation from service), payment shall not be made until the date which is six months after the Employee’s separation from service.
 
6.   Vesting upon Termination due to Retirement .  If, while the Restricted Stock Units are subject to a Period of Restriction, the Employee terminates employment with the Company (or a Subsidiary of the Company if the Employee is then in the employ of such Subsidiary) by reason of Retirement (as defined in the Plan), then a pro-rated portion of the Restricted Stock Units subject to a Period of Restriction shall become fully vested as of the date of employment termination without regard to the Period of Restriction set forth in Section 4 of this Agreement.  Such pro-rated portion shall equal the number of Restricted Stock Units, multiplied by a fraction equal to the number of full months completed between the Award Date and the Employee’s retirement date, divided by the number of full months from the Award Date through the Vesting Date.  The remaining Restricted Stock Units shall be forfeited as of the Employee’s termination of employment due to Retirement. Any Restricted Stock Units becoming vested by reason of the Employee’s Retirement shall be settled on the date of the Employee’s separation from service (within the meaning of Internal Revenue Code Section 409A), or as soon as practicable thereafter, but in no event later than 90 days after such date; provided, however, to the extent required under Code Section 409A, if the Employee is a specified employee (within the meaning of Code Section 409A), payment shall not be made until date which is six months after the Employee’s separation from service.
 
7.   Forfeiture upon Termination due to Reason other than Retirement, Disability or Death .  If, while the Restricted Share Units are subject to a Period of Restriction, the Employee’s employment with the Company (or a Subsidiary of the Company if the Employee is then in the employ of such Subsidiary) terminates for a reason other than the Employee’s Disability or death, then the Employee shall forfeit any portion of the Restricted Share Units that is subject to a Period of Restriction on the date of such employment termination.
 
8.   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 Share Units shall cease to be subject to the Period of Restriction set forth in Section 4 of this Agreement. If the Change in Control is not also considered a change in control within the meaning of Internal Revenue Code Section 409A, then the Restricted Share Units shall become vested on the date of the Change in Control, but settlement shall not occur until the earlier of the Participant’s separation from service (within the meaning of Code Section 409A), or the vesting date indicated in the introduction to the Agreement.
 
9.   Settlement of Vested Restricted Share Units .  Subject to the requirements of Sections 12 and 13 below, as promptly as practicable after the Employee’s separation from service (within the meaning of Code Section 409A), but in no event later than 90 days after such date, the Company shall transfer to the Employee one share of Common Stock for each Restricted Share Unit becoming vested at such time net of any applicable tax withholding requirements that are necessary to satisfy withholding taxes in accordance with Section 12 below; provided, however, to the extent required under Code Section 409A, if the Employee is a specified employee (within the meaning of Code Section 409A at the time of separation from service), payment shall not be made until the date which is six months after the Employee’s separation from service.  The Employee shall have no rights as a stockholder with respect to the Restricted Share 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.
 
10.   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 Share Units that cease to be subject to a Period of Restriction in accordance with Section 8 above, by:
 
(a)   delivery of (i) the number of shares of Common Stock that corresponds with the number of Restricted Share 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 Share Units may be converted into by virtue of the Change in Control transaction in accordance with Section 9 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 Share 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 Share Units that have become vested at that time.
 
11.   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 Share Units subject to this Agreement shall be equitably adjusted by the Committee.
 
12.   Tax Withholding .  Whenever a Period of Restriction applicable to the Employee’s rights to some or all of the Restricted Share Units lapses as provided in Section 4, 5, 6 or 8 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 Share 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 Company shall 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 or her legal and/or tax advisors with respect to the tax consequences for the Employee under the Plan.

13.   Securities Laws .  This award 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 or she is acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that he or she 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.
 
14.   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 or its Subsidiaries, nor shall this Agreement interfere in any way with the Company’s or its Subsidiaries’ 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 or any Subsidiary 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 Share Unit award) against the Company or any Subsidiary or directly or indirectly gives rise to any cause of action in law or in equity against the Company or any Subsidiary.
 
15.   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, including the enforcement of any recoupment policy.  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.
 
16.   Non-Competition, Non-Solicitation and Confidentiality .  As a condition to the receipt of this Restricted Share 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 and Confidentiality Agreement within 120 days of the Award Date shall constitute a decision by the Employee to decline to accept this Restricted Share Unit award.
 
17.   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.
 
18.   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 read the attached Exhibit A.  Once you have read the agreement, please click the acceptance box to certify and 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 Share Unit award issued hereunder.
 
[Missing Graphic Reference]
                                                           Very truly yours,
 
 

 
 

EXHIBIT A

WALGREEN CO. NON-COMPETITION, NON-SOLICITATION AND CONFIDENTIALITY AGREEMENT

This Exhibit forms a part of the Restricted Share Unit Award Agreement covering Restricted Share Units awarded to an employee of Walgreen Co., on behalf of itself, its affiliates, subsidiaries, and successors (collectively 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 Share Unit award issued to Employee pursuant the Award Agreement to which this is attached as Exhibit A, Employee agrees to be bound by the terms of this Agreement:
 
1.             Confidentiality .   I understand that during the course of my employment with the Company, I have or will have access to the Company’s Confidential Information, meaning information which is not generally ascertainable by proper means by the public, or which has limited disclosure within the Company, or which is treated or designated as confidential; the disclosure of which could reasonably be harmful to the Company’s legitimate business interests.
 
I understand that “Confidential Information” includes, but is not limited to, the following:

 
(a)
business or marketing plans, trade secrets, selling and pricing procedures and techniques, customer records,
 
(b)
customer lists, requirements, and information,
 
(c)
databases and software developed or used by the Company, financial information and projections, and other information for which the Company has assumed an obligation of confidentiality.

I agree to only use the Company’s Confidential Information as necessary to perform my job during my employment with the Company.  I agree not to disclose any Confidential Information to anyone outside the Company without the Company’s prior written consent, unless as necessary to perform my job during my employment with the Company.  I agree that these obligations apply during my employment with the Company and at all times thereafter.

2.           Non-Competition .   I agree that during my employment with the Company and for one year after the termination of my employment, I will not, directly or indirectly, invest in, own, operate, finance, control, or provide Competing Services to any Competing Business Line, in both cases as defined below.  I understand that the restrictions in this paragraph apply no matter whether my employment is terminated by me or the Company and no matter whether that termination is voluntary or involuntary.  The above restrictions shall not apply to passive investments of less than 5% ownership interest in any entity.  I understand that the term “Competing Business Line” used in this Agreement means any business that is in competition with any business engaged in by the Company with respect to which I provide substantial services during the last two years of my employment with the Company.

I understand that I will be deemed to be providing “Competing Services” if the nature of such services are sufficiently similar in position scope and geographic scope to any position held by me during the last two years of my employment with the Company, such that my engaging in such services on behalf of a Competing Business Line may pose competitive harm to the Company.

4.             Non-Solicitation .   I agree that during my employment with the Company and for two years after the termination of my employment, I will not solicit or service any of the Company’s customers or referral sources for a Competing Business Line; solicit or otherwise encourage any Company employees to leave the Company to work for a Competing Business Line; or hire any Company employees on behalf of a Competing Business Line.  I understand that the restrictions in this paragraph apply no matter whether my employment is terminated by me or the Company and no matter whether that termination is voluntary or involuntary.  I understand that the term “customer” used in this Agreement means any patient or other customer or prospective customer of any Company business unit with respect to which I provide substantial services during the last two years of my employment with the Company.
 
5.             Non-Inducement .   I will not directly or indirectly assist or encourage any person or entity in carrying out or conducting any activity that would be prohibited by this Agreement if such activity were carried out or conducted by me.
 
6.             Return of Company Property .   I agree that I will not take any of the Company’s property or information with me when I leave the Company’s employ, no matter what form that property or information is in and no matter how I acquired it.  When my employment with the Company terminates, I will immediately return to the Company any and all Company information, documents, and electronics.
 
7.            Consideration and Acknowledgments .   Employee acknowledges and agrees that the covenants described in this Agreement are essential terms, and the underlying Restricted Share 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 above.
 
8.            Enforceability; General Provisions .
 
 
(a)
I agree that the restrictions contained in this Agreement are reasonable and necessary to protect the Company’s legitimate business interests and that full compliance with the terms of this Agreement will not prevent me from earning a livelihood following the termination of my employment, and that these covenants do not place undue restraint on me.

 
(b)
Because the Company’s   current base of operations is in Illinois, I consent to the jurisdiction of the state and federal courts of Illinois with respect to any claim arising out of this Agreement.

 
(c)
Because the Company’s   current base of operations is in Illinois, I agree that this Agreement shall be governed by the laws of Illinois without regard to its choice of law rules.

 
(d)
In the event of a breach or a threatened breach of this Agreement, I acknowledge that the Company will face irreparable injury which may be difficult to calculate in dollar terms and that the Company shall be entitled, in addition to all remedies otherwise available in law or in equity, to temporary restraining orders and preliminary and final injunctions enjoining such breach or threatened breach in any court of competent jurisdiction without the necessity of posting a surety bond, as well as to obtain an equitable accounting of all profits or benefits arising out of any violation of this Agreement.

 
(e)
I agree that if a court determines that any of the provisions in this Agreement is unenforceable or unreasonable in duration, territory, or scope, then that court shall modify those provisions so they are reasonable and enforceable, and enforce those provisions as modified.

 
(f)
If any phrase or provision of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, that phrase, clause or provision shall be deemed severed from this Agreement, and will not affect the enforceability of any other provisions of this Agreement, which shall otherwise remain in full force and effect.

 
(g)
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.
 
 
(h)
I agree that the Company may assign this Agreement to its successors and that any such successor may stand in the Company’s shoes for purposes of enforcing this Agreement.
 
 
(i)
I agree to reimburse Company for all attorneys’ fees, costs, and expenses that it reasonably incurs in connection with enforcing its rights and remedies under this Agreement, but only to the extent the Company is ultimately the prevailing party in the applicable legal proceedings.

 
(j)
If I violate this Agreement, then the restrictions set out in Paragraphs 2 - 5 shall be extended by the same period of time as the period of time during which the violation(s) occurred.

 
(k)
I fully understand my obligations in this Agreement, have had full and complete opportunity to discuss and resolve any ambiguities or uncertainties regarding these covenants before signing this Agreement, and have voluntarily agreed to comply with these covenants for their stated terms.

9.             Relationship of Parties .   I acknowledge that my relationship with the Company is “terminable at will” by either party and that the Company or I can terminate the relationship with or without cause and without following any specific procedures.  Nothing contained in this Agreement is intended to or shall be relied upon to alter the “terminable at will” relationship between the parties.
 
10.             Modifications and Other Agreements .   I agree that the terms of this Agreement may not be modified except by a written agreement signed by both me and the Company.  This Agreement shall not supersede any other restrictive covenants to which I may be subject under an employment contract, benefit program or otherwise, such that the Company may enforce the terms of any and all restrictive covenants to which I am subject.

11.             Notification .   I agree that in the event I am offered employment at any time in the future with any entity that may be considered a Competing Business Line, I shall immediately notify such Competing business of the existence and terms of this Agreement.  I also understand and agree that the Company may notify anyone later employing me of the existence and provisions of this Agreement.
 
***                    ***                    ***                    ***                    ***

By clicking the acceptance box for this grant agreement, I acknowledge receipt of the Restricted Share Unit Agreement to which this Agreement is attached as Exhibit A, and I agree to the terms and conditions expressed in this Agreement.





Contingent Award for the 2012 Fiscal Year
Company Performance Period = Fiscal Years 2012 - 2014

CONFIDENTIAL

Walgreen Co. has adopted the Long-Term Performance Incentive Plan (the “Plan”), the purpose of which is to afford Walgreen Co. and its subsidiaries (collectively, the “Company”) additional means of securing and retaining key employees of outstanding ability.  To further this purpose, Walgreen Co. maintains the Performance Share Program (the “Program”).  Under the Program for the performance period covering the 2012-2014 fiscal years (the “Performance Period”), Walgreen Co. is awarding PARTICIPANT NAME a contingent Performance Share grant of SHARES GRANTED shares.  This “target” number of shares is computed by multiplying your annual base salary by the target award percentage % for your position, and then dividing that by $35.65, which is the average Walgreen Co. closing stock price for the 30 trading days preceding September 1, 2011.  This award is subject to all the terms and conditions of the Plan, any applicable recoupment policies, and the Program and to the following conditions:

1.
The amount of performance shares earned at the end of the three-year Performance Period will vary depending on the degree to which return on invested capital (ROIC) performance goals are met. Return on invested capital performance goals are based on the three-year average annual ROIC, with inventory based on the FIFO method of accounting.

At the target ROIC level, 100% of the performance shares will be earned.  A threshold ROIC level will earn 50% of the performance shares.  Below this level of performance, no performance shares are earned.  Achievement of a maximum ROIC level or more will earn 150% of the performance shares.  Performance between minimum and target, and between target and maximum, will earn performance shares on a pro-rated basis between 50% and 100%, and 100% and 150%, respectively.

The amount earned will be calculated according to the following:

         
Percent of
 
Performance
=
Contingent
X
Contingent
 
Shares Awarded
 
Performance Shares
 
Performance Shares Earned

2.
At the end of fiscal year 2014, actual performance for the entire Performance Period shall be reviewed, and the amount of the earned award shall be determined based on this performance and communicated to you.

3.
If you terminate employment with the Company and all subsidiaries during the Performance Period due to Retirement, Disability or death (in each case as defined in the Plan), then the award earned by you at the end of the Performance Period will be prorated to reflect the portion of the Performance Period during which you remained employed by the Company.  Such prorated portion shall equal the number of performance shares that would otherwise be earned, multiplied by a fraction equal to the number of full months of the Performance Period completed as of your retirement date, divided by 36.  Any other termination of employment during the Performance Period shall result in no earned award.

4.
Each earned performance share shall be converted to one share of Walgreen Co. common stock (“Common Stock”).  Subject to the requirements of Paragraph 5 below, the Company shall transfer to you one share of Common Stock for each earned performance share.  At that time, the Company may withhold shares otherwise transferable to you to the extent necessary to satisfy withholding taxes in accordance with Paragraph 5 below and Section 13.1 of the Plan.  You shall have no rights as a stockholder with respect to the Common Stock awarded hereunder prior to the date of issuance to you of a certificate or certificates for such shares.  Certificates for the shares of Common Stock shall be issued and delivered to you, your legal representative, or a brokerage account for your benefit, as the case may be, or the shares may be held in book entry form.  Performance shares payable under this Agreement are intended to be exempt from Internal Revenue Code Section 409A under the exemption for short-term deferrals.  Accordingly, performance shares will be settled in Common Stock no later than the 15 th day of the third month following the end of the fiscal year of the Company in which the performance shares are realized.

5.
Whenever an earned performance share award is realized, the Company or its agent shall notify you of the related amount of tax that must be withheld under applicable tax laws.  Regardless of any action the Company takes with respect to any or all income tax, social security, payroll tax, payment on account or other tax-related withholding (“Tax”) that you are required to bear pursuant to all applicable laws, such Tax is your responsibility.  Prior to receipt of any shares of Common Stock that correspond to earned performance shares, you shall make adequate arrangements satisfactory to the Company to satisfy all tax withholding obligations of the Company.  In this regard, the Company shall 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 a sufficient number of shares of Common Stock.  Finally, you agree to pay the Company any amount of any Tax that the Company may be required to withhold as a result of your participation in the Plan that cannot be satisfied by the means previously described.  The Company may refuse to deliver Common Stock if you fail to comply with your obligations described in this Paragraph.

6.
Notwithstanding the remainder of this Award Agreement, if there is a Change in Control of Walgreen Co. (as defined in the Plan) during the Performance Period, then your earned award shall be equal your target number of performance shares, and this award will be settled in cash (subject to required tax withholdings) in accordance with Section 11.1 of the Plan and distributed to you within 45 days of the effective date of the Change in Control.

7.
This Award Agreement and your rights 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 Compensation Committee of the Board of Directors may adopt for administration of the Plan.  It is expressly understood that this Committee is authorized to administer, construe and make all determinations necessary or appropriate for the administration of the Plan and this Award Agreement, all of which shall be binding upon you.  Any inconsistency between this Award Agreement and the Plan shall be resolved in favor of the Plan.

8.
This award may be accepted only by an individual who is an employee 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 Award Agreement, you hereby represent that you are acquiring the shares of Common Stock for investment and with no present intention of selling or transferring them and that you 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.

9.
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 performance shares subject to this Award Agreement shall be equitably adjusted by the Compensation Committee of the Board of Directors.


This contingent grant was authorized by the Compensation Committee of the Board of Directors during the October Board Meeting on October 12, 2011.

This Award Agreement contains highly sensitive and confidential information, please handle it accordingly.

Once you have read the agreement, please click the acceptance box to certify and confirm your agreement to be bound by the terms and conditions set forth and to acknowledge your receipt of this Award Agreement and your acceptance of the Performance Share Plan award issued.
 

ACCEPTANCE DATE:

ELECTRONIC SIGNATURE:


WALGREEN CO.


By       Robert J. Montes,
Director, Compensation, Benefits and Employee Services


 


 



WALGREEN CO.
EXECUTIVE STOCK OPTION PLAN - STOCK OPTION AGREEMENT


Participant Name:
Participant ID:
Grant Date:
Grant Price:
Shares Granted:
Expiration Date:
Acceptance Date:
Electronic Signature:

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,” which is the three-year anniversary of the Date of Grant, 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.

3.          Retirement After 10 (but Less than 25) Years of Service .  If, without having fully exercised this stock option, the Optionee leaves the employ of the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary), in good standing, after the employee has attained fifty-five (55) years of age and has completed at least ten (10) but less than twenty-five (25) years of continuous service with the Company and subsidiaries of the Company, then the Optionee's right to exercise this stock option shall terminate upon the earlier of the Expiration Date or a date which is one year following the Optionee’s retirement, subject to the right of the Compensation Committee of the Board of Directors to extend the exercise period of this stock option.  The Optionee may exercise this stock option at any time between the Vesting Date and the date the Optionee’s right to exercise this stock option expires.

4.          Retirement After 25 Years of Service .  If, without having fully exercised this stock option, the Optionee leaves the employ of the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary), in good standing, after the employee has attained fifty-five (55) years of age and has completed at least twenty-five (25) years of continuous service with the Company and subsidiaries of the Company, then the following shall apply:

a.          Subject to the last sentence of this Section 4, if such retirement occurs prior to the Vesting Date, then the Optionee may exercise this stock option at any time between the Vesting Date and the later of one year following the date of retirement or 150 days following the Vesting Date, at which time this stock option shall expire, subject to the right of the Compensation Committee of the Board of Directors to extend the exercise period of this stock option.

b.          If such retirement occurs on or after the Vesting Date, then the provisions of Section 3 above shall apply.

For purposes of subsection (a) above, if the Optionee’s date of retirement (which is defined per Company practices as his or her “paid-through date”) is less than 12 months following the Date of Grant, then the maximum number of shares that may be exercised pursuant to subsection (a) shall be equal to the total Number of Shares referenced in Section 1 above, multiplied by the number of days between the Date of Grant and the date of retirement, divided by 365; and the remaining shares shall be forfeited.

5.          Disability .  If, without having fully exercised this stock option, the Optionee's employment with the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) 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 one year following the date of termination of employment, subject to the right of the Compensation Committee of the Board of Directors to extend the exercise period of this stock option.  The Optionee may exercise this stock option at any time between the Vesting Date and the date the Optionee’s right to exercise this stock option expires.

6.          Death .  If, without having fully exercised this stock option, the Optionee shall die while in the employ of the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary), 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 or her death, for a period ending on the earlier of the Expiration Date or one year following the date of the Optionee's death, subject to the right of the Compensation Committee of the Board of Directors to extend the exercise period of this stock option.  This stock option may be exercised at any time between the Vesting Date and the date the right to exercise this stock option expires.

7.          Other Termination of Employment .  If, without having fully exercised this stock option, the Optionee's employment with the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) is terminated for reasons other than the Optionee’s retirement (as defined in Section 3 or 4 above), death, or total and permanent disability (as defined in Section 5 above), then the Optionee's right to exercise this stock option shall terminate as of the date of his or her termination of employment, subject to the right of the Compensation Committee of the Board of Directors to extend the exercise period of this stock option.

8.          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 (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) 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 or its designee.

9.          Forfeiture of Outstanding Options Following Termination of Employment .  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 obligation that he or she may have to the Company, including but not limited to any non-competition, non-solicitation, confidentiality, non-disparagement or other restrictive covenant.

10.          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.

11.          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.

12.          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 or her 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 13 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 time of exercise of the stock option 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 or her 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.

13.          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 or her 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.

14.          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 11 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.

15.          No Guarantee of Employment .  Nothing in this Option Agreement shall interfere with or limit in any way the right of the Company or any of its subsidiaries 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.  No employee shall have a right to be selected as an Optionee.

           16.          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.

17.          Governing Law .  Subject to Section 18 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.

18.          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.

19.          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.
EXECUTIVE STOCK OPTION PLAN - STOCK OPTION AGREEMENT

Participant Name:
Participant ID:
Grant Date:
Grant Price:
Shares Granted:
Expiration Date:
Acceptance Date:
Electronic Signature:

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,” which is the three-year anniversary of the Date of Grant, 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.

3.           Retirement .  Subject to the last sentence of this Section 3, if, without having fully exercised this stock option, the Optionee retires, or is retired, from the employ of the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) 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, in good standing, after the employee has attained fifty-five (55) years of age and has completed at least ten (10) years of continuous service with the Company.  The foregoing shall apply regardless of whether such retirement occurs before or after the Vesting Date.  For purposes of this Section 3, if the Optionee’s date of retirement (which is defined per Company practices as his or her “paid-through date”) is less than 12 months following the Date of Grant, then the maximum number of shares that may be exercised pursuant to this Section 3 shall be equal to the total Number of Shares referenced in Section 1 above, multiplied by the number of days between the Date of Grant and the date of retirement, divided by 365; and the remaining shares shall be forfeited.

4.          Disability .  If, without having fully exercised this stock option, the Optionee's employment with the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) 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.  The Optionee may exercise this stock option at any time between the Vesting Date and the date the Optionee’s right to exercise this stock option expires.

5.          Death .  If, without having fully exercised this stock option, the Optionee shall die while in the employ of the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary), 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 or her death, for a period ending on the earlier of the Expiration Date or sixty (60) months following the date of the Optionee's death.  This stock option may be exercised at any time between the Vesting Date and the date the right to exercise this stock option expires.

6.          Other Termination of Employment .  If, without having fully exercised this stock option, the Optionee's employment with the Company (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) is terminated 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 date of his or her termination of employment, 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 (or a subsidiary of the Company if the Optionee is then in the employ of such subsidiary) 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 or its designee.

8.          Forfeiture of Outstanding Options Following Termination of Employment .  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 obligation that he or she 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 or her 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 time of exercise of the stock option 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 or her 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 or her 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 or any of its subsidiaries 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.  No employee shall have a right to be selected as an Optionee.

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.
 


August 9, 2011

Mr. Thomas Sabatino
640 N. Mayflower Road
Lake Forest, IL 60045

Dear Tom:

Welcome to Walgreens!  We are pleased to offer you the position of Executive Vice President, General Counsel and Corporate Secretary, reporting to Greg Wasson, President and Chief Executive Officer. We are confident that you will find your employment with Walgreens both challenging and rewarding and we look forward to you joining our team.  The remaining details are set forth below:

Base Salary.   $700,000 annually, less all applicable tax withholdings and benefit deductions.

Annual Bonus Opportunity.   Based on your position, you will be eligible for an annual bonus under the Walgreen corporate bonus program, which is based on the Company’s fiscal year running from September 1 through August 31, and is subject to the board’s approval of each year’s bonus.  You will be eligible for a pro-rated bonus for the remainder of the current 2012 fiscal year.  The current bonus target for your position is 75% of your base salary.

Long-Term Incentives.   You will also be eligible for long-term incentives, which are currently at the following levels based on your position level.

Executive Stock Options :  Under the current program, the number of options granted annually equals 290% of base salary divided by the average stock price as determined under the Option Plan. Options become vested three years after the grant date and may be exercised up to 10 years after the grant date.

Restricted Stock Units :  Under the current program, the number of units granted annually equals 70% of base salary divided by the average stock price as determined under the Long-Term Incentive Performance Plan. RSUs become vested after three-years and are distributed in shares of Walgreen Co. stock.  As a condition to receiving each grant, you will be required to sign a Non-Competition, Non-Solicitation, and Confidentiality Agreement, which is substantively the same as the one referenced below.

Performance Share Program :  The current annual performance share program provides for a grant of "contingent" shares each fiscal year that become payable, or "earned", if the Company meets the performance targets.  The earned award is based on company performance (ROIC) over a three year period. The entire earned award is paid in stock at the end of the three-year period. Under the current program, the target annual award equals 100% of base salary, divided by the average stock price as determined under the Performance Share Program.

You will be eligible for pro-rated awards as of your date of hire to cover the remainder of the 2012 fiscal year, and then you are eligible to receive full awards for future fiscal years.

COBRA Reimbursement.   Walgreens also agrees to subsidize your costs for COBRA continuation coverage with your prior employer during the 90-day waiting period for Waglreens medical coverage.  Walgreens will reimburse you the difference between you COBRA premium and the regular employee premium under the Walgreens Medical Plan.

Other Employee Benefits.   See the attached Overview of Benefits, briefly describing the Walgreens employee benefits that are applicable.  This includes four weeks of vacation annually (pro-rated for the partial year in which you are hired).

Additional Hiring Incentives.
Sign-On Bonus: You will receive a onetime sign-on bonus of $100,000 (less applicable tax withholdings) to be processed after you commence your employment with Walgreens. As a condition to the receipt of this bonus, you will be required to execute a Sign-On Bonus Program Agreement (copy enclosed), which spells out this repayment term and all other terms and conditions.

Restricted Stock Units:   You will receive a grant of 2800 Walgreen Co. restricted stock units as of your date of hire. These shares will vest on the first anniversary of your date of hire.  As a condition to receiving this grant, you will be required to sign a Non-Competition, Non-Solicitation, and Confidentiality Agreement.

Non-Compete .  As a condition to this offer of employment, you will be required to sign a Non-Competition, Non-Solicitation and Confidentiality Agreement when you begin employment with Walgreens.  This is a standard agreement for executives, and a copy of this Agreement can be provided in advance upon request.

Change in Control Employment Agreement. As a senior executive, you will be presented with our standard Change in Control Employment Agreement, which provides protection to you following a change in control of Walgreen Co. A copy of this document can be provided in advance if you would like. Outside of the change in control context, Walgreens executives do not have term employment agreements. Accordingly, you should not consider our offer of employment to be a contract or guarantee of indefinite employment. Employment at Walgreens is at will, for no definite term, and is subject to Walgreens policies, which can be changed from time to time.

Corporate Officer Paperwork . After acceptance of this offer, and subject to final approval by the Board of Directors on your officer status, we will send you all applicable officer paperwork for your review and completion, including our Code of Ethics Policy and D&O Questionnaire.

Your start date as Executive Vice President, General Counsel and Corporate Secretary will be September 12, 2011.  On that date there will be an orientation session in our Talent Acquisition and Diversity Services Department located at 102 Wilmot Road, Deerfield, IL 60015.  We ask that you bring proof of identity and eligibility for employment; a list of acceptable documents is enclosed.

Our offer of employment will remain open for seven days from the date of this letter, and is contingent upon your passing a pre-employment drug screen, per our Drug Free Work Place Policy, and background check.  It is our policy that the pre-employment drug screen test be completed within 48 hours of receiving this offer packet.  You can find your nearest drug testing location by calling 1-800-877-7484.  Enclosed are the “forensic Drug Testing Custody and Control Form” and the “Walgreens Drug Test Consent/Release Form”.  Please complete and return the consent/release form.  Please bring the Forensic Drug Testing Custody and Control Form with you to the drug test facility along with a valid photo I.D. accepted by the state.

If you would like to accept this offer of employment, please sign your name on the line below, fill in the date, and return the signed letter to me in the enclosed envelope.  The duplicate of this letter is for your records.

You should not consider our offer of employment to be a contract or guarantee of indefinite employment.  Employment at Walgreens is at will, for no definite term, and is subject to Walgreens policies, which can be changed from time to time.


If you have any questions, please call me at 847-315-3332.

Sincerely,



Greg Wasson
President and Chief Executive Officer
Walgreen Co.

Enclosures

cc:           Megan Feeney
Kathleen Wilson-Thompson


I accept the offer of employment and understand that the offer is not intended to be a guarantee of continued employment.


Signature:            / s/ Thomas J. Sabatino, Jr.                                                                                                Date:       8/12/11          
 
 



Walgreens Corporate Recruitment Employee Sign-On Bonus Program


 Tom Sabatino     (“Employee”) hereby accepts a sign-on bonus from WALGREEN CO.  (“WALGREENS”) in the amount of One Hundred Thousand Dollars ($100,000).  On demand, for value received, Employee promises to pay WALGREENS, at 200 Wilmot Rd, Deerfield, Illinois 60015, the sum of One Hundred Thousand Dollars ($100,000), subject to the terms of bonus described below.  

TERMS OF BONUS

1)  If Employee remains employed by WALGREENS or subsidiary for a period of twelve months from his date of hire, then Employee will have no obligation to repay the bonus.

2)  If for any reason other than permanent disability, death, or termination of employment without cause,  Employee does not remain employed by WALGREENS continuously for twelve months, the entire amount of the bonus is due and payable within 30 days upon Employee’s separation from WALGREENS and WALGREENS may then deduct any sum owed to WALGREENS from any salary or other wages which would otherwise be payable to Employee.  Employee waives presentment for payment, notice of dishonor, protest, and notice of protest.

3)  Employee agrees and understands that Employee’s employment with WALGREENS is for no definite period and may be terminated at any time, with or without cause, and without any previous notice, at the option of either WALGREENS or Employee.

4)  Employee understands the terms of the bonus and has had an opportunity to consult with counsel or other adviser, and Employee agrees to abide by the terms.



8/12/11                                                                                                                                 /s/ Thomas J. Sabatino, Jr.                        
Date                                                                Signature of Employee, Tom Sabatino


8/12/11                                                                                                                                 /s/ Gregory D. Wasson                               
Date                                                                Signature of Manager, Greg Wasson




 
Exhibit 12
 
 
Walgreen Co. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges


    Fiscal Year Ended  
                               
   
8/31/2011
   
8/31/2010
   
8/31/2009
   
8/31/2008
   
8/31/2007
 
Income before income taxes
  $ 4,294     $ 3,373     $ 3,164     $ 3,430     $ 3,189  
Add:
                                       
Fixed charges
    1,212       1,100       996       842       735  
  Amortization of capitalized interest      5       4        3        2        2   
Less: Capitalized interest
    (10 )     (12 )     (16 )     (19 )     (6 )
Earnings as defined
  $ 5,501     $ 4,465     $ 4,147     $ 4,254     $ 3,920  
                                         
Interest expense, net of capitalized interest
  $ 77     $ 90     $ 91     $ 18     $ 1  
Capitalized interest
    10       12       16       19       6  
Portions of rentals representative of the interest factor
    1,125       998       889       805       728  
Fixed charges as defined
  $ 1,212     $ 1,100     $ 996     $ 843     $ 735  
                                         
Ratio of earnings to fixed charges
    4.54       4.06       4.16       5.05       5.33  



WALGREEN CO. AND SUBSIDIARIES
ANNUAL REPORT
FOR THE YEAR ENDED AUGUST, 31, 2011
 
TABLE OF CONTENTS
 
 
Five-Year Summary of Selected Consolidated Financial Data
 
Management's Discussion and Analysis of Results of Operations and Financial Condition
 
Consolidated Statement of Earnings
 
Consolidated Statement of Shareholder's Equity
 
Consolidated Balance Sheets
 
Consolidated Statement of Cash Flows
 
Notes to Consolidated Financial Statements
 
Common Stock Prices
 
Comparison of Five-Year Cumulative Total Return
 
 





 

 
 

 
 
Five-Year Summary of Selected Consolidated Financial Data
Walgreen Co. and Subsidiaries
(Dollars in Millions, except per share and location amounts)

Fiscal Year
 
2011
   
2010(1)
   
2009
   
2008
   
2007
 
Net sales
  $ 72,184     $ 67,420     $ 63,335     $ 59,034     $ 53,762  
Cost of sales (2)
    51,692       48,444       45,722       42,391       38,518  
Gross Profit
    20,492       18,976       17,613       16,643       15,244  
Selling, general and administrative expenses (2) (3)
    16,561       15,518       14,366       13,202       12,093  
Gain on sale of business (4)
    434       -       -       -       -  
Operating Income
    4,365       3,458       3,247       3,441       3,151  
Other (expense) income
    (71 )     (85 )     (83 )     (11 )     38  
Earnings Before Income Tax Provision
    4,294       3,373       3,164       3,430       3,189  
Income tax provision (5)
    1,580       1,282       1,158       1,273       1,148  
Net Earnings
  $ 2,714     $ 2,091     $ 2,006     $ 2,157     $ 2,041  
Per Common Share
                                       
Net earnings
                                       
Basic
  $ 2.97     $ 2.13     $ 2.03     $ 2.18     $ 2.04  
Diluted
    2.94       2.12       2.02       2.17       2.03  
Dividends declared
    .75       .59       .48       .40       .33  
Book value
    16.69       15.34       14.54       13.01       11.20  
Non-Current Liabilities
                                       
Long-term debt
  $ 2,396     $ 2,389     $ 2,336     $ 1,337     $ 22  
Deferred income taxes
    343       318       265       150       158  
Other non-current liabilities
    1,785       1,735       1,396       1,410       1,285  
Assets and Equity
                                       
Total Assets
  $ 27,454     $ 26,275     $ 25,142     $ 22,410     $ 19,314  
Shareholders' Equity
    14,847       14,400       14,376       12,869       11,104  
Return on average shareholders' equity
    18.6 %     14.5 %     14.7 %     18.0 %     19.2 %
Locations
                                       
Year-end (6)
    8,210       8,046       7,496       6,934       5,997  


(1)
Includes results of Duane Reade operations since the April 9, 2010 acquisition date.
(2)
Fiscal 2011, 2010 and 2009 included Rewiring for Growth restructuring and restructuring-related charges of $45 million pre-tax, $28 million after tax, or $.03 per diluted share, $106 million pre-tax, $67 million after tax, or $.07 per diluted share, and $252 million pre-tax, $160 million after tax, or $.16 per diluted share, respectively.  Charges included in cost of sales for fiscal 2011, 2010 and 2009 were $3 million, $40 million and $95 million, respectively.  Selling, general and administrative expenses related to the initiative for fiscal 2011, 2010 and 2009 were $42 million, $66 million and $157 million, respectively.  Fiscal 2011, 2010 and 2009 included expenses related to Customer Centric Retailing store conversions of $84 million, $45 million and $5 million, respectively, all of which were included in selling, general and administrative expenses.
(3)
Fiscal 2008 included a positive adjustment of $79 million pre-tax, $50 million after tax, or $.05 per diluted share, relating to an adjustment of the Company’s vacation liability.
(4)
In fiscal 2011, the Company sold its pharmacy benefit management business, Walgreens Health Initiatives, Inc., to Catalyst Health Solutions, Inc. and recorded a pre-tax gain of $434 million, $273 million after tax, or $.30 per diluted share.
(5)
Fiscal 2010 included a deferred tax charge of $43 million related to the repeal of a tax benefit for the Medicare Part D subsidy for retiree benefits.
(6)
Locations include drugstores, worksite health and wellness centers, infusion and respiratory services facilities, specialty pharmacies and mail service facilities.
 
 

 
 

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion and analysis of our financial condition and results of operations should be read together with the financial statements and the related notes included elsewhere herein. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under “Cautionary Note Regarding Forward-Looking Statements” below and in Item 1A (Risk Factors) in our Annual Report on Form 10-K.

Introduction

Walgreens is principally a retail drugstore chain that sells prescription and non-prescription drugs and general merchandise.  General merchandise includes, among